Royalty Owners push for federal tax break on ‘stripper wells’

By Sergio Chapa | San Antonio Business Journal

Just days after Texas state officials started offering a 25 percent severance tax break to low-producing oil wells, a group of royalty owners is pushing for a similar help from the federal government.

U.S. Congresswoman Lynn Jenkins (R-Holton, Kansas) filed House Resolution 4672 earlier this month. If approved, the bill would make federal tax exceptions for marginal oil and natural gas wells a permanent fixture of the U.S. Tax Code.

The bill is already gaining support from the Texas Independent Producers & Royalty Owners Association.

"We must support this important piece of our industry to further strengthen national security, employment and the related tax revenue that fuels all aspects of the state, local and national economy," TIPRO President Ed Longanecker told the San Antonio Business Journal.

Longanecker said marginal and stripper wells make up a considerable percentage of oil and natural gas production and are a critical component of the economy in the United States.

Stripper wells are those whose maximum daily average oil production does not exceed 15 barrels of oil per day, or any natural gas well whose maximum daily average gas production does not exceed 90 thousand cubic feet per day over a 12-month consecutive time period.

A marginal well is defined as one that becomes unprofitable to operate whenever oil and gas prices drop below its critical profit point.

It's not clear exactly how many wells would be affected, but December 2015 figures from TIPRO show that in Texas, there were 45,300 wells that produced 10 to 100 barrels of oil per day and 131,480 wells that produced less than 10 barrels per day.

Longanecker said Texas leaders enacted a severance tax exemption for low-producing wells back in 2005 but that exemption was not triggered until earlier this month when the Comptroller's Office of Texas certified that crude oil prices were low enough to justify a 25 percent severance tax exemption for February's production.

Although the federal government gave exceptions between Dec. 31, 2008 andJan. 1, 2012, today's $30 per barrel range prices justify making it a permanent feature of the tax code, Longanecker said.

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