La. Admin. Code tit. 61 § I-2903

Current through Register Vol. 50, No. 8, August 20, 2024

Section I-2903 - Severance Taxes on Oil; Distillate, Condensate or Similar Natural Resources; Natural Gasoline or Casinghead Gasoline; Liquefied Petroleum Gases and Other Natural Gas Liquids; and Gas

A. Definitions

Allocation of Value- inasmuch as oil and/or condensate is accounted for on a lease basis, rather than on an individual well basis, the gross value received for runs from a lease shall be allocated to the wells within the lease on the basis of the pro rata barrels run from each well; it being the intent of this Section to apportion value received to all producing wells in a lease without regard to the tax rate applicable to each well.

Condensate- liquid hydrocarbons, other than natural or casinghead gasoline, referred to as condensate, distillate or other natural resources, which will remain in a liquid state, under atmospheric conditions of pressure and temperature, recovered by ordinary production methods from a gas well as classified by the Office of Conservation. This also includes liquid hydrocarbons recovered from separators or scrubbers situated at inlets to plants, compressors, dehydrators, and metering stations.

Department- the Department of Revenue.

Gas- gaseous phase hydrocarbons recovered by separation from either an oil well or gas well.

Gas Tax Rate- the gas tax rate as adjusted annually in accordance with R.S. 47:633(9)(i) will be rounded to the nearest 1/10 of 1 cent. When rounding, if the fourth decimal digit is five or greater, the rate shall be rounded up to the nearest tenth; if the fourth decimal digit is less than five, the rate shall be rounded down to the nearest tenth.

Incapable Gas Well- a well classified by the Office of Conservation as a gas well which has been determined by the secretary to be incapable of producing an average of 250,000 cubic feet of gas per day, under operating conditions, throughout the entire taxable month.

Low Pressure Oil Well- a well classified by the Office of Conservation as an oil well which has been determined by the secretary to have a wellhead pressure of 50 pounds per square inch gauge or less, under operating conditions, whether it be tubing flow or casing flow, throughout the entire taxable month. An oil well producing oil by any artificial method, such as gas lift, pumping or hydraulic lift shall be presumed, in the absence of a determination to the contrary by the secretary, to have a wellhead pressure of 50 pounds per square inch gauge or less under operating conditions.

Natural Gas Liquids - natural gas liquids, butane, propane, ethane and methane extracted as the result of additional processes employed in the mechanical processes as outlined in §2903 ANatural or Casinghead Gasoline.

Natural or Casinghead Gasoline- liquid hydrocarbons recovered from gas (subsequent to the ultimate separation and/or scrubbing of the gas stream) by specifically applied mechanical processes of absorption, adsorption, compression cooling, cryogenics and refrigeration to the entire volume of gas from which these liquid hydrocarbons are recovered. This includes liquid hydrocarbons recovered from hydrex and HRU units.

Oil- liquid hydrocarbons recovered by initial separation from a well classified as an oil well by the Office of Conservation.

Payout-the payout of the well cost for a horizontal well as referred to in R.S. 47:633(7)(c)(iii), a deep well as referred to in R.S. 47:633(9)(d)(v), and a new discovery well as referred to in R.S. 47:648.3 occurs when gross revenue from the well, less royalties and operating costs directly attributable to the well, equals the well cost as approved by the Office of Conservation. Operating costs are limited to those costs directly attributable to the operation of the exempt well, such as direct materials, supplies, fuel, direct labor, contract labor or services, repairs, maintenance, property taxes, insurance, depreciation, and any other costs that can be directly attributed to the operation of the well. Operating costs do not include any costs that were included in the well cost approved by the Office of Conservation.

Secretary- the Secretary of the Department of Revenue.

Stripper Field- a field in which all crude oil production is from certified stripper oil wells.

Value- with respect to oil and/or condensate, the value shall be the higher of the gross receipts received from the first purchaser by the producer or the posted field price.

a.Gross Receipts- the total amount of payment:

i. received from the first purchaser in an arm's length transaction; or

ii. received from the first purchaser or transferred from the first purchaser by recognized accounting methodology, in a non-arm's length transaction. Gross receipts shall include bonus or premium payments when made by the purchaser to the owner, all advanced payments, and any other thing of value such as exchanges, barter, or reimbursement of costs. Advanced payments are not taxable until the oil and/or condensate for which such payments are made are actually severed and delivered to the purchaser.

b.Posted Field Price- a statement of crude oil prices circulated among buyers and sellers of crude petroleum and is generally known by buyers and sellers within the field as being the posted price. The posted field price is the actual price of crude petroleum advertised for a field. The area price is a statement of crude oil prices circulated among buyers and sellers of crude petroleum listing prices for different areas of the state, usually listed as north Louisiana and south Louisiana, and generally known among buyers and sellers within the area as the posted price. This area price is the beginning price for crude petroleum of an area before adjustments for kind and quality (including, but not limited to, gravity adjustments) of the crude petroleum. When no actual posted field price is advertised or issued by a purchaser, the area price less adjustments for kind or quality (including, but not limited to, gravity adjustments) becomes the posted field price.

c.Arm's Length Transaction- a contract or agreement that has been arrived at in the open market place between independent and nonaffiliated parties with opposing economic interests.

d.Non-Arm's Length Transaction- a contract or agreement between subsidiaries and/or related parties and/or affiliates.

e.Value in Arm's Length Transaction- in an arm's length transaction, the value shall be the gross receipts of all things of value received directly or indirectly by the producer.

f.Value in Non-Arm's Length Transaction- in a non-arm's length transaction, the value shall be derived by taking the following into consideration:

i. the gross receipts of all things of value received directly or indirectly by the producer;

ii. if the producer or a subsidiary, related party, or an affiliate of the producer, is the purchaser, look to the gross proceeds from contemporaneous arm's length transactions by such purchaser for the purchase of significant quantities of like quality oil or condensate in the same field, or if necessary, the same area;

iii. the prices paid by independent and nonaffiliated parties for significant quantities of like quality oil or condensate produced in the same field or, if necessary, the same area; and

iv. other relevant information, including information submitted by the producer concerning the unique circumstances of producer's operations, product or market.

g. The secretary, in the absence of supporting documentation or arm's length transaction, may adjust a producer's reported value to conform with the above mentioned standards.

h.Transportation Costs- there shall be deducted from the value determined under the foregoing provisions the charges for trucking, barging, and pipeline fees actually charged the producer. In the event the producer transports the oil and/or condensate by his own facilities, $0.25 per barrel shall be deemed to be a reasonable charge for transportation and may be deducted from the value computed under the foregoing provisions. The producer can deduct either the $0.25 per barrel or actual transportation charges billed by third parties but not both. Should it become apparent the $0.25 per barrel charge is inequitable or unreasonable, the secretary may prospectively redetermine the transportation charge to be allowed when the producer transports the oil and/or condensate in his own facilities.

B. Certification for Reduced Tax Rates. A taxpayer may qualify for the lesser tax rates levied in R.S. 47:633(7)(b) and (c), and R.S. 47:633(9) by certifying and reporting production and test data, on forms prescribed by the secretary.

1. Oil. Oil production is certified for reduced severance tax rates provided by R.S. 47:633(7)(b) or (c)(i)(aa) by individual well. To receive the reduced tax rate on the crude oil production from an oil well, an application must be filed with the secretary on or before the twenty-fifth day of the second month following the month in which production subject to the reduced rate applies.

a. After a well has been certified for the reduced tax rate, it is necessary to file continuing certification forms on or before the twenty-fifth day of the second month following the months of production.

i. It is not necessary to include stripper wells that are certified with a "B" prefix code on the continuing certification forms.

ii. Failure to file or delinquent filing of the continuing certification forms may result in certification denial for the month's production that the report is delinquent or not filed.

b. Wells cannot be certified as both a stripper and an incapable oil well.

c. Recertification is required whenever the well operator changes.

d. All wells are subject to redetermination of their reduced rate status based on reports filed with the Department and the Office of Conservation. When a well no longer meets the qualifications for the reduced tax rate for which it was certified, the full tax rate becomes due.

2. Gas. Gas production is certified for reduced severance tax rates provided by R.S. 47:633(9)(b) and (c) by individual wells. To receive the reduced severance tax rate on natural gas or casinghead gas production, an application must be filed with the secretary on or before the twenty-fifth day of the second month following the month in which production occurs.

a. After a well has been certified for the reduced tax rate, it is necessary to file continuing certification forms on or before the twenty-fifth day of the second month following the month of production.

i. It is not necessary to include incapable gas wells that are certified with an "F" prefix code on the continuing certification forms.

ii. Failure to file or delinquent filing of the continuing certification forms may result in certification denial for the month's production that the report is delinquent or not filed.

b. The well cannot be certified as both an incapable gas well and an incapable oil well.

c. If the well changes from one tax rate status to another a new certification is required.

d. Recertification is required whenever the well operator changes.

e. All wells are subject to redetermination of their reduced rate status based on reports filed with the Department and the Office of Conservation. When a well no longer meets the qualifications for the reduced tax rate for which it was certified, the full tax rate becomes due.

C. Determination of Taxable Volume-Liquids. It is the duty of the severer to measure the volume of oil, condensate or similar natural resources immediately upon severance or as soon thereafter as these hydrocarbons come into being in the form on which the tax is imposed.

1. In any arm's length transaction involving oil, condensate or similar natural resources individually or in a commingled combination, the method of measurement utilized by the first purchaser and the seller for determining the total volume involved and the volumes applicable to the properties involved is acceptable and may be used for the determination of the volumes to which the appropriate tax rates apply.

2. In the absence of an arm's length transaction or for any other reason where the secretary deems that the method of measurement is prejudicial to the state's best interests, he shall prescribe an acceptable method of measurement.

3. When liquid hydrocarbons bearing various tax rates are commingled without proper prior measurement as prescribed below, the entire commingled volume shall be taxed at the highest tax rate applicable to any oil or condensate present in the commingled volume.

4. Proper measurement prior to commingling oil and condensate shall be as outlined below.

a. Stock Tank Measurement. When oil, condensate or similar natural resources are produced into stock tanks, the tanks shall be strapped on a 100 percent basis. All measurements, gravity determination, temperature corrections to 60°F, and determinations of basic sediment and water (BS and W) shall be made in accordance with procedures outlined in the latest American Petroleum Institute (API) code covering measuring, sampling, testing of crude oil, and the American Society for Testing Materials-Institute of Petroleum (ASTM-IP) petroleum measurement tables.

b. Liquid Metering Devices. When oil and condensate are not stock tank measured but must be measured at pressures above atmospheric pressure, such liquids shall be measured by means of a liquid metering device. The meter shall be calibrated at least once every 90 days and records of calibration and all other pertinent test results shall be kept on file for the same period of time as the prescriptive period relative to taxes and must be available for examination by representatives of the department. The taxpayer may pay tax on the metered volume or allocated meter volume at the meter measurement pressure corrected to 60°F. When a flash factor is required to convert the volume at the meter measurement pressure to the volume at atmospheric pressure, the flash factor may be obtained by either utilizing the equilibrium vaporization flash calculation method or the differential vaporization process.

c. Well Tests. When crude oil and/or condensate are not stock tank measured or measured by liquid measuring devices, the use of well tests, split stream tests, full stream tests or other acceptable and recognized methods of determining the liquid volume of full well stream shall be employed as a measurement device for allocation purposes.

5. When oil and/or condensate are commingled with a liquid hydrocarbon bearing a lesser tax rate, the oil and/or condensate shall be taxed on the basis of value received for the entire commingled product.

a. When oil and/or condensate bearing various tax rates are commingled prior to separate measurement, the commingled volume shall be taxed at the highest tax rate applicable to any oil or condensate present in the commingled volume. The separate measurement requirement is met when one of the products is properly measured prior to commingling.

D. Determination of Taxable Volume-Gas. It is the duty of the severer to measure the volume of gas immediately upon severance or as soon thereafter as the substance comes into being in the form on which the tax is imposed.

1. Gas produced from an individual gas well, regardless of whether the well is capable or incapable, shall be measured by means of a meter or well tests acceptable to the secretary. Metering may be accomplished by the backout method, whereby the volume produced by one of two or more wells may be ascertained by subtracting from the combined metered volume the measured volumes from the rest of the wells. All measurements shall be made at a pressure base of 15.025 pounds per square inch absolute and at a temperature of 60°F with corrections made for deviations from Boyle's law when measurement pressures exceed 200 pounds per square inch gauge.

2. Gas produced from individual oil wells may be determined by an allocation of the total metered volume based on gas/oil ratios or solution oil ratios acceptable to the secretary. Records pertaining to volume determinations shall be kept on file for examination and verification by representatives of the secretary.

3. When gas volumes bearing various tax rates are commingled, the volumes bearing each different tax rate must be determined prior to commingling as outlined in §2903. D.1 When such commingling occurs and it is determined by the secretary or his representative that the prescribed measurement requirements have not been met, the entire commingled volume shall be taxed at the highest rate applicable to any gas present in the commingled volume.

E. Application of the Tax on Gas. All gas other than gas expressly exempted from the tax under the provisions of R.S. 47:633.9 is subject to the tax. The determination of whether gas lift gas is taxable or exempt shall be made in the same manner as formation gas.

1. Gross gas production shall be an accumulation of the total dispositions of formation gas from a well and/or lease. Gas exhausted from a gas lift installation, commonly called "re-cycled gas," and commingled with formation gas shall not be included in the volume of gas produced from the underground formation. Dispositions shall include, by way of illustration but not by way of limitation, gas used for field operations, within or without the field, gas vented into the atmosphere, gas used elsewhere for gas lift, gasoline and natural gas liquids extracted (which must be converted to gas), and gas delivered to a processing plant, sales or deliveries.

2. Gas which has not previously borne tax or been subject to tax shall not be allowed as an exclusion or tax credit upon injection, but will be allowed as an exclusion when ultimately reproduced. Thus, gas produced in another state or in federal offshore areas would not qualify for an exclusion or tax credit upon injection into the formation in the state of Louisiana.

3. Gas which has previously been allowed as an exclusion or tax credit at the time of injection shall be taxed at the time of reproduction, notwithstanding the fact that it may have been originally produced outside the state.

4. Gas produced without the state of Louisiana which has been injected into the earth in the state of Louisiana will be allowed as an exemption to the extent that the exemption will not exceed the production from the same formation. Adequate records must be maintained by the taxpayer so as to identify the nontax paid injected gas at the time of reproduction and qualify for the exclusion.

5. A credit claimed by a taxpayer on gas injected into a formation in the state of Louisiana will be limited to any gas severance tax liability imposed against him during the same period for gas produced by him. Credit shall not be allowed against taxes owed in taxable periods subsequent to that in which the credit occurred. A taxpayer claiming this credit will be required to submit a worksheet detailing the source of gas by company, parish, field and lease comprising the volume on which the credit is claimed.

6. When capable and incapable gas volumes are commingled and gas is subsequently withdrawn from the commingled mass and used for a purpose which makes the gas exempt from the severance tax, it will be presumed that the ratio of the volumes of capable and incapable gas remaining in the commingled mass will be in the same ratio as before withdrawal.

7. Carbon Black

a. Carbon black exclusions may be allocated to leases on a contractual basis; provided, however, that such gas is physically capable of being consumed as carbon black. In the absence of contractual limitations, the allocation of plant fuel and carbon black shall be on an equitable and reasonable basis.

b. Whenever sales and/or deliveries are made for plant fuel and/or carbon black usage the consumer of such plant fuel and the transporter or seller of the gas used for carbon black shall be required to submit a report monthly to the department showing 100 percent entries into its gas streams involved and an allocation of the plant fuel and/or carbon black usage withdrawn from the stream back to the sources entering the commingled mass.

8. Drip Points

a. No additional severance tax is due on scrubber liquids recovered subsequent to a point at which the gas severance tax has been paid, provided, however, such recovery has been made from a pipeline gas stream owned and operated by someone other than the producer of the gas and the scrubber liquids are recovered after the gas has changed ownership, and the producer receives no further thing of value for the resource entering the pipeline.

b. When severance tax is due and paid on scrubber liquids, natural and/or casinghead gasoline recovered from gas subsequent to a point at which the gas severance tax on the gas has been previously paid, a credit will be given for the gas shrinkage volume resulting from the recovery of these scrubber liquids and/or natural and casinghead gasoline. This gas severance tax credit shall be made on an actual vapor equivalent or at 1,260 cubic feet of gas per barrel of liquid recovered.

9. Gas used or consumed as fuel in the operation of a recycling or gasoline plant for purposes other than the production of natural resources in the state of Louisiana shall not be exempt from the tax. The extraction or fractionation of liquefied petroleum gases (LPG) or natural or casinghead gasoline does not constitute production of natural resources.

F. Exclusions from the Gas Severance Tax

1. Gas injected into the formation in the state of Louisiana.

2. Gas produced without the state of Louisiana which has been injected into the earth in the state of Louisiana.

3. Gas vented or flared from oil and gas wells provided such gas is not otherwise sold. There shall be no exclusion allowed for gas flared at gasoline or recycling plants if such gas is attributable to raw gas volumes which are sold by the producer prior to plant processing.

4. Gas used for fuel in connection with the operation and development for or production of oil and gas in the field where produced, provided such gas is not otherwise sold; and gas used for drilling fuel in the field where produced even though sold for that purpose.

5. Gas used in the manufacture of carbon black.

6. Gas attributable to United States government royalty.

7. Gas accounted for as measurement differences.

G. Reports and Returns

1. All returns and reports shall be made on forms prescribed by the secretary or on forms substantially similar which have been approved for use by the secretary. Returns and reports shall be completed and filed in accordance with instructions issued by the secretary.

2. The secretary is empowered to require any person engaged in severing natural resources, or any other person held liable for severance taxes, to furnish necessary information pertaining thereto for the proper enforcement, and verification of taxes levied in R.S. 47:631 et seq.

La. Admin. Code tit. 61, § I-2903

Adopted by the Department of Revenue and Taxation, Severance Tax Division, August 1974, amended LR 3:499 (December 1977), amended LR 20:1129 (October 1994), repromulgated LR 20:1299 (November 1994), amended by the Department of Revenue, Severance Tax Division, LR 23:1167 (September 1997), LR 24:2321 (December 1998), Department of Revenue, Policy Services Division, LR 29:951 (June 2003), LR 32:1615 (September 2006), repromulgated LR 33:1876 (September 2007).

AUTHORITY NOTE: Promulgated in accordance with R.S. 47:633, 47:648.3, and 47:1511.