Tax Breaks for Low Producing Wells
The prolonged downturn means tax breaks for some producers.
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In 2005, Texas lawmakers created a tax credit to bring relief to oil producers with low-producing wells. The tax break was set to trigger when oil prices dropped below a certain levels, a move designed to keep marginal wells in production during hard times.
Those hard times are now here and in February, the Texas Comptroller announced that low crude prices have triggered a 50% severance tax exemption on these 'stripper wells.
The amount of severance tax credit for qualified wells is tied to oil prices:
- 25% credit: average taxable oil price were above $25 per barrel but not more than $30
- 50% credit: if the price were above $22 per barrel but not more than $25.
- 100% credit: tax credit if the price were $22 or less
Currently in Texas, the severance tax for oil production is 4.6% of the oil's market value. According to the Texas Comptroller’s Office, the state took in nearly $2.9 billion in oil production taxes in 2015, down 25.% from 2014.