(a) Purpose. This section specifies the procedure by which an operator can obtain a Railroad Commission of Texas certification that natural gas from a particular gas well qualifies as high-cost natural gas under the Texas Tax Code, Chapter 201, Subchapter B, §201.057(a)(2)(A) and that such gas is exempt from or eligible for a reduction of the severance tax imposed by the Texas Tax Code, Chapter 201.
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Commission--The Railroad Commission of Texas.
  (2) Completion--The act of making a well capable of producing gas from a particular commission designated or new field.
  (3) Completion date--The date on which a well is first made capable of producing oil or gas from a particular commission-designated or new field, as shown on the completion report filed by the operator with the commission.
  (4) Comptroller--The Comptroller of Public Accounts of the State of Texas.
  (5) Data-point well--A well that has been tested and/or produced in the proposed tight gas formation; and, from the test results or other data, applicant provides a measured or calculated in situ permeability and/or a measured or calculated pre-stimulation stabilized flow rate against atmospheric pressure.
  (6) Director--The director of the Oil and Gas Division or the director's delegate. Any authority given to the director in this section is also retained by the commission. Any action taken by the director pursuant to this section is subject to review by the commission.
  (7) High-cost gas--Natural gas which the commission finds to be:
    (A) produced from any gas well, if production is from a completion which is located at a depth of more than 15,000 feet;
    (B) produced from geopressured brine;
    (C) occluded natural gas produced from coal seams;
    (D) produced from Devonian shale; or
    (E) produced from designated tight formations or produced as a result of production enhancement work.
  (8) Operator--The person responsible for the actual physical operation of a gas well.
  (9) Spud date--The date of commencement of drilling operations, as shown on commission records.
(c) Applicability.
  (1) A severance tax exemption is available for high-cost gas produced from a well that is spudded or completed between May 24, 1989, and September 1, 1996. Eligible high-cost gas shall be exempt from the tax imposed by the Texas Tax Code, Chapter 201, during the period from September 1, 1991, through August 31, 2001.
  (2) A severance tax reduction is available for high-cost gas produced from a well that is spudded or completed after August 31, 1996. Eligible high-cost gas shall be entitled to a reduction of the tax imposed by the Texas Tax Code, Chapter 201, for the first 120 consecutive calendar months beginning on the first day of production or until the cumulative value of the tax reduction equals 50% of the drilling and completion costs incurred for the well, whichever occurs first. The amount of tax reduction is determined pursuant to the Texas Tax Code, §201.057(c). If the application for certification is submitted to the Commission after January 1, 2004, the total allowable credit for taxes paid for reporting periods before the date the application is filed may not exceed the total tax paid on the gas that otherwise qualified for the exemption or tax reduction and that was produced during the 24 consecutive calendar months immediately preceding the month in which the application for certification under this section was filed with the Commission.
  (3) The plug back or deepening of an existing wellbore qualifies as a completion under this section. When the plug back or deepening is completed prior to September 1, 1996, the gas produced may qualify for a tax exemption. When the plug back or deepening is completed after August 31, 1996, the gas produced may qualify for a tax reduction. The plug back or deepening qualifies as a completion if:
    (A) it is the initial completion in a commission-designated or newly discovered field that has not been previously produced from that wellbore; or
    (B) the operator can demonstrate that the strata between the former completion and the new completion contain a minimum of 20 vertical feet of impermeable strata; or
    (C) the operator submits the results of bottom hole pressure surveys, gas analyses or other methods or calculations comparing the new completion with previous completions in the wellbore that were in existence prior to May 24, 1989. The application shall include an explanation of the engineering principles, calculations, and reasoning to show that the gas to be produced from the applied-for completion could not have been produced from any completion in existence prior to May 24, 1989.
  (4) If the operator determines that a gas well previously certified as producing high-cost gas no longer produces high-cost gas or if the operator takes any action or discovers any information that affects the eligibility of gas for an exemption or tax reduction under Texas Tax Code, §201.057, the operator shall notify the Commission in writing within 30 days after such an event occurs.
  (5) If the Commission determines that a gas well previously certified as producing high-cost gas no longer produces high-cost gas or if the commission takes any action or discovers any information that affects the eligibility of gas for an exemption or tax reduction under Texas Tax Code, §201.057, the Commission shall notify within 48 hours, in writing, the comptroller and the operator.
(d) Application procedure.
  (1) An application for a state severance tax exemption or tax reduction for a gas well may be made only by the operator of that well. The operator shall file one copy of the required application form, one copy of the required attachments specified in subsection (e)(1)-(6) of this section and any additional information deemed necessary by the Commission to clarify, explain and support the required attachments. Submission of legible copies of required attachments shall comply if the application includes a statement, signed by the operator, that the attachments are true and correct copies of the documents originally filed with the Commission. However, the Commission may require an operator to file certified copies of required attachments or other documents from Commission files if necessary for a certification.
  (2) Filings and correspondence on high-cost gas state severance tax applications shall be addressed to the Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967, Attention: High-Cost Gas Severance Tax Section. No filings may be made at the district offices.
(e) Application requirements for individual well certifications. To qualify for the severance tax exemption or tax reduction, the operator shall prove that the gas produced is high-cost gas by providing the following information:
  (1) Applications for wells producing deep high-cost gas shall include:
    (A) the completed applicable commission form; and
    (B) copies of all Gas Well Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on the subject well.
  (2) Applications for wells producing geopressured brine shall include:
    (A) the completed applicable commission form;
    (B) copies of all Gas Well Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on the subject well;
    (C) a bottom-hole pressure test report and other information establishing the initial reservoir pressure gradient; and
    (D) evidence to establish that, before production, the gas from the well was in solution in a brine aquifer with at least 10,000 parts of dissolved solids per million parts of water.
  (3) Applications for wells producing coal seam gas shall include:
    (A) the completed applicable commission form;
    (B) copies of all Gas Well Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on the subject well if the gas is produced through a wellbore, or a detailed description of the production process if the gas is not produced through a wellbore;
    (C) a radioactivity, electric or other log which will define the coal seams or, if such logs are not reasonably available, a detailed lithologic description of the gas-producing interval; and
    (D) evidence to establish that the natural gas was produced from coal seams.
  (4) Applications for wells producing Devonian shale gas shall include:
    (A) the completed applicable commission form;
    (B) copies of all Gas Well Back Pressure Test, Completion or Recompletion Reports and Logs ever filed on the subject well;
Cont'd...