HOUSE BILL NO. 658
INTRODUCED BY E. CLARK, G. ROUSH
AN ACT EXEMPTING FROM THE OIL PRODUCTION TAX THAT IS ATTRIBUTABLE TO COUNTY AND SCHOOL TAXING UNITS OIL PRODUCTION FROM A STRIPPER WELL THAT PRODUCES 3 BARRELS A DAY OR LESS IF THE AVERAGE PRICE OF A BARREL OF OIL DURING A CALENDAR QUARTER IS LESS THAN $30; PROVIDING A DEFINITION OF "STRIPPER WELL EXEMPTION"; AMENDING SECTIONS 15-36-303, 15-36-304, AND 15-36-324, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND AN APPLICABILITY DATE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1. Section 15-36-303, MCA, is amended to read:
"15-36-303. Definitions. As used in this part, the following definitions apply:
(1) "Board" means the board of oil and gas conservation provided for in 2-15-3303.
(2) "Department" means the department of revenue provided for in 2-15-1301;.
(3) "Enhanced recovery project" means the use of any process for the displacement of oil from the earth other than primary recovery and includes the use of an immiscible, miscible, chemical, thermal, or biological process.
(4) "Existing enhanced recovery project" means an enhanced recovery project that began development before January 1, 1994.
(5) "Expanded enhanced recovery project" or "expansion" means the addition of injection wells or production wells, the recompletion of existing wells as horizontally completed wells, the change of an injection pattern, or other operating changes to an existing enhanced recovery project that will result in the recovery of oil that would not otherwise be recovered. The project must be developed after December 31, 1993, and before January 1, 2002.
(6) "Gross taxable value", for the purpose of computing the oil and natural gas production tax, means the gross value of the product as determined in 15-36-305.
(7) "Horizontal drain hole" means that portion of a well bore with 70 degrees to 110 degrees deviation from the vertical and a horizontal projection within the common source of supply, as that term is defined by the board, that exceeds 100 feet.
(8) "Horizontally completed well" means:
(a) a well with one or more horizontal drain holes; and
(b) any other well classified by the board as a horizontally completed well.
(9) "Incremental production" means:
(a) the volume of oil produced by a new enhanced recovery project, by a well in primary recovery recompleted as a horizontally completed well, or by an expanded enhanced recovery project, which volume of production is in excess of the production decline rate established under the conditions existing before:
(i) the commencement of the recompletion of a well as a horizontally completed well;
(ii) expansion of the existing enhanced recovery project; or
(iii) commencing a new enhanced recovery project; or
(b) in the case of any project that had no taxable production prior to commencing the enhanced recovery project, all production of oil from the enhanced recovery project.
(10) "Natural gas" or "gas" means natural gas and other fluid hydrocarbons, other than oil, produced at the wellhead.
(11) "New enhanced recovery project" means an enhanced recovery project that began development after December 31, 1993, and before January 1, 2002.
(12) "Nonworking interest owner" means any interest owner who does not share in the exploration, development, and operation costs of the lease or unit, except for production taxes.
(13) "Oil" means crude petroleum or mineral oil and other hydrocarbons, regardless of gravity, that are produced at the wellhead in liquid form and that are not the result of condensation of gas after it leaves the wellhead.
(14) "Operator" or "producer" means a person who produces oil or natural gas within this state or who owns, controls, manages, leases, or operates within this state any well or wells from which any marketable oil or natural gas is extracted or produced.
(15) "Post-1985 well" means an oil or natural gas well drilled after June 30, 1985, other than horizontally completed or recompleted oil wells drilled after December 31, 1993, that produces oil or natural gas or a well that has not produced oil or natural gas during the 5 years immediately preceding the first month of qualifying as a post-1985 well.
(16) "Pre-1985 well" means an oil or natural gas well that was drilled before July 1, 1985.
(17) "Primary recovery" means the displacement of oil from the earth into the well bore by means of the natural pressure of the oil reservoir and includes artificial lift.
(18) "Production decline rate" means the projected rate of future oil production, extrapolated by a method approved by the board, that must be determined for a project area prior to commencing a new or expanded enhanced recovery project or the recompletion of a well as a horizontally completed well. The approved production decline rate must be certified in writing to the department by the board. In that certification, the board shall identify the project area and shall specify the projected rate of future oil production by calendar year and by calendar quarter within each year. The certified rate of future oil production must be used to determine the volume of incremental production that qualifies for the tax rate imposed under 15-36-304(4)(d).
(19) "Qualifying production" means the first 24 months of production of oil or natural gas from any post-1985 well drilled after March 31, 1995, or from a well that has not produced oil or natural gas during the 5 years immediately preceding the first month of qualifying production. Qualifying production does not include oil production from a horizontally recompleted well.
(20) "Secondary recovery project" means an enhanced recovery project, other than a tertiary recovery project, that commenced or was expanded after December 31, 1993, and before January 1, 2002, and meets each of the following requirements:
(a) The project must be certified as a secondary recovery project to the department by the board. The certification may be extended only after notice and hearing in accordance with Title 2, chapter 4.
(b) The property to be affected by the project must be adequately delineated according to the specifications required by the board.
(c) The project must involve the application of secondary recovery methods that can reasonably be expected to result in an increase, determined by the board to be significant in light of all the facts and circumstances, in the amount of oil that may potentially be recovered. For purposes of this part, secondary recovery methods include but are not limited to:
(i) the injection of water into the producing formation for the purposes of maintaining pressure in that formation or for the purpose of increasing the flow of oil from the producing formation to a producing well bore; or
(ii) any other method approved by the board as a secondary recovery method.
(21) "Stripper exemption" means the first 3 barrels a day for petroleum and other mineral or crude oil produced by a stripper well if the average price per barrel of oil as reported in the Wall Street Journal for west Texas intermediate crude oil during a calendar quarter is less than $30 a barrel. If the price of oil is equal to or greater than $30 a barrel in a calendar quarter, there is no stripper exemption in that quarter. The average price per barrel is computed by dividing the sum of the daily price for west Texas intermediate crude oil as reported in the Wall Street Journal for the calendar quarter by the number of days on which the price was reported in the quarter.
(22) "Stripper natural gas" means the natural gas produced from any well that produces less than 60,000 cubic feet of natural gas a day during the calendar year immediately preceding the current year. Production must be determined by dividing the amount of production from a lease or unitized area for the year immediately preceding the current calendar year by the number of producing wells in the lease or unitized area and by dividing the resulting quotient by 365.
(23) "Stripper oil" means the oil produced from any well that produces less than 10 barrels a day for the calendar year immediately preceding the current year. Production must be determined by dividing the amount of production from a lease or unitized area for the year immediately preceding the current calendar year by the number of producing wells in the lease or unitized area and by dividing the resulting quotient by 365.
(24) "Stripper well exemption" means petroleum and other mineral or crude oil produced by a stripper well that produces 3 barrels a day or less [when the average price per barrel of oil as reported in the Wall Street Journal for west Texas intermediate crude oil during a calendar quarter is less than $30 a barrel. If the price of oil is equal to or greater than $30 a barrel in a calendar quarter, there is no stripper well exemption in that quarter. However, the stripper exemption would apply subject to the conditions of subsection (21). The average price per barrel is computed by dividing the sum of the daily price for west Texas intermediate crude oil as reported in the Wall Street Journal for the calendar quarter by the number of days on which the price was reported in the quarter].
(24)(25) "Tertiary recovery project" means an enhanced recovery project, other than a secondary recovery project, using
a tertiary recovery method that meets the following requirements:
(a) The project must be certified as a tertiary recovery project to the department by the board. The certification may be extended only after notice and hearing in accordance with Title 2, chapter 4.
(b) The property to be affected by the project must be adequately delineated in the certification according to the specifications required by the board.
(c) The project must involve the application of one or more tertiary recovery methods that can reasonably be expected to result in an increase, determined by the board to be significant in light of all the facts and circumstances, in the amount of crude oil that may potentially be recovered. For purposes of this part, tertiary recovery methods include but are not limited to:
(i) miscible fluid displacement;
(ii) steam drive injection;
(iii) micellar/emulsion flooding;
(iv) in situ combustion;
(v) polymer augmented water flooding;
(vi) cyclic steam injection;
(vii) alkaline or caustic flooding;
(viii) carbon dioxide water flooding;
(ix) immiscible carbon dioxide displacement; or
(x) any other method approved by the board as a tertiary recovery method.
(25)(26) "Well" or "wells" means a single well or a group of wells in one field or production unit and under the control
of one operator or producer.
(26)(27) "Working interest owner" means the owner of an interest in an oil or natural gas well or wells who bears any
portion of the exploration, development, and operating costs of the well or wells."
Section 2. Section 15-36-304, MCA, is amended to read:
"15-36-304. Production tax rates imposed on oil and natural gas. (1) The production of oil and natural gas is taxed as provided in this section. The tax is distributed as provided in 15-36-324.
(2) Natural gas is taxed on the gross taxable value of production based on the type of well and type of production according to the following schedule for working interest and nonworking interest owners:
Working Nonworking
Interest Interest
(a) pre-1985 wells 18.55% 14.8%
(b) post-1985 wells
(i) first 12 months of qualifying
production 0.5% 14.8%
(ii) next 12 months of qualifying
production 12.5% 14.8%
(iii) after 24 months 15.15% 14.8%
(c) stripper natural gas pre-1985
and post-1985 wells 11% 14.8%
(3) The reduced tax rates under subsections (2)(b)(i) and (2)(b)(ii) on production for the first 24 months of natural gas production from a post-1985 well begin following the last day of the calendar month immediately preceding the month in which natural gas is placed in a natural gas distribution system, provided that notification has been given to the department.
(4) Oil is taxed on the gross taxable value of production based on the type of well and type of production according to the following schedule for working interest and nonworking interest owners:
Working Nonworking
Interest Interest
(a) primary recovery production
(i) pre-1985 wells 13.9% 16.9%
(ii) post-1985 wells
(A) first 12 months of qualifying
production 0.5% 14.8%
(B) next 12 months of qualifying
production 7.5% 14.8%
(C) after 24 months 12.5% 14.8%
(b) stripper oil production
(i) pre-1985 wells 10.5% 16.9%
(ii) post-1985 wells 10.5% 14.8%
(iii) stripper exemption production
(A) pre-1985 wells 5.5% 16.9%
(B) post-1985 wells 5.5% 14.8%
(iv) stripper well exemption production 0.5% 14.8%
(c) horizontally completed well production
(i) first 18 months of qualifying
production 0.5% 5.5%
(ii) next 6 months of qualifying
production 7.5% 12.5%
(iii) after 24 months 12.5% 12.5%
(d) incremental production
(i) new or expanded secondary recovery production
(A) pre-1985 wells 8.5% 16%
(B) post-1985 wells 8.5% 10.5%
(ii) new or expanded tertiary production
(A) pre-1985 wells 5.8% 15%
(B) post-1985 wells 5.8% 9.5%
(e) horizontally recompleted well
(i) first 18 months 5.5% 5.5%
(ii) after 18 months 12.5% 12.5%
(5) (a) The reduced tax rates under subsections (4)(a)(ii)(A) and (4)(a)(ii)(B) for the first 24 months of oil production from a post-1985 well begin following the last day of the calendar month immediately preceding the month in which oil is pumped or flows, provided that notification has been given to the department.
(b) (i) The reduced tax rates under subsections (4)(c)(i) and (4)(c)(ii) on oil production from a horizontally completed well for the first 24 months of production begin following the last day of the calendar month immediately preceding the month in which oil is pumped or flows, provided that the well has been certified as a horizontally completed well to the department by the board.
(ii) The reduced tax rate under subsection (4)(e)(i) on oil production from a horizontally recompleted well for the first 18 months of production begins following the last day of the calendar month immediately preceding the month in which oil is pumped or flows, provided that the well has been certified as a horizontally recompleted well to the department by the board.
(c) Incremental production is taxed as provided in subsection (4)(d) if the average price per barrel of oil as reported in the Wall Street Journal for west Texas intermediate crude oil during a calendar quarter is less than $30 a barrel. If the price of oil is equal to or greater than $30 a barrel in a calendar quarter as determined in subsection (5)(d), then incremental production from pre-1985 wells and from post-1985 wells is taxed at the rate imposed on primary recovery production under subsections (4)(a)(i) and (4)(a)(ii)(C), respectively, for production occurring in that quarter.
(d) For the purposes of subsection (5)(c), the average price per barrel must be computed by dividing the sum of the daily price for west Texas intermediate crude oil as reported in the Wall Street Journal for the calendar quarter by the number of days on which the price was reported in the quarter.
(6) The tax rates imposed under subsections (2) and (4) on working interest owners and nonworking interest owners must be adjusted to include the privilege and license tax adopted by the board of oil and gas conservation pursuant to 82-11-131."
Section 3. Section 15-36-324, MCA, is amended to read:
"15-36-324. Distribution of taxes -- rules. (1) For each calendar quarter, the department of revenue shall determine the amount of tax, late payment interest, and penalty collected under this part. For purposes of distribution of the taxes to county and school taxing units, the department shall determine the amount of oil and natural gas production taxes paid on production from pre-1985 wells, post-1985 wells, and horizontally completed wells located in the taxing unit.
(2) Except as provided in subsections (3) through (5), oil production taxes must be distributed as follows:
(a) The amount equal to 39.3% of the oil production taxes, including late payment interest and penalty, collected under this part must be distributed as provided in subsection (8).
(b) The remaining 60.7% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (2)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(3) (a) The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on production from post-1985 wells occurring during the first 12 months of production must be distributed as provided in subsection (9).
(b) (i) The amount equal to 10.25% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on production from post-1985 wells occurring during the next 12 months of production must be distributed as provided in subsection (9).
(ii) The remaining 89.75% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (3)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(4) (a) The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected under this part on production from horizontally completed wells occurring during the first 18 months of production must be distributed as provided in subsection (9).
(b) (i) The amount equal to 10.25% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on production from horizontally completed wells occurring during the next 6 months of production must be distributed as provided in subsection (9).
(ii) The remaining 89.75% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (4)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(c) The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected under this part on the incremental production from horizontally recompleted wells occurring during the first 18 months of production must be distributed as provided in subsection (8).
(5) (a) The amount equal to 13.8% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on stripper exemption production from pre-1985 wells and post-1985 wells must be distributed as provided in subsection (9).
(b) The remaining 86.2% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (5)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(c) The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on stripper well exemption production from pre-1985 wells and post-1985 wells must be distributed as provided in subsection (9).
(6) Except as provided in subsection (7), natural gas production taxes must be allocated as follows:
(a) The amount equal to 14% of the natural gas production taxes, including late payment interest and penalty, collected under this part must be distributed as provided in subsection (10).
(b) The remaining 86% of the natural gas production taxes, plus accumulated interest earned on the amount allocated under this subsection (6)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(7) (a) The amount equal to 100% of the natural gas production taxes, including late payment interest and penalty, collected from working interest owners under this part on production from post-1985 wells occurring during the first 12 months of production must be distributed as provided in subsection (9).
(b) (i) The amount equal to 6.25% of the natural gas production taxes, including late payment interest and penalty, collected from working interest owners on production from post-1985 wells occurring during the next 12 months of production must be distributed as provided in subsection (9).
(ii) The remaining 93.75% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (7)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (11).
(8) The department shall, in accordance with the provisions of 15-1-501, distribute the state portion of oil production taxes specified in subsections (2)(a) and (4)(c), including late payment interest and penalty collected, as follows:
(a) 86.21% to the state general fund;
(b) 5.17% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and
(c) 8.62% to be distributed as provided by 15-38-106(2).
(9) The department shall distribute the state portion of oil and natural gas production taxes specified in subsections (3)(a), (3)(b)(i), (4)(a), (4)(b)(i), (5)(a), (5)(c), (7)(a), and (7)(b)(i), including late payment interest and penalty collected, as follows:
(a) 37.5% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and
(b) 62.5% to be distributed as provided by 15-38-106(2).
(10) The department shall, in accordance with the provisions of 15-1-501, distribute the state portion of natural gas production taxes specified in subsection (6)(a), including late payment interest and penalty collected, as follows:
(a) 76.8% to the state general fund;
(b) 8.7% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and
(c) 14.5% to be distributed as provided by 15-38-106(2).
(11) (a) For the purpose of distribution of the oil and natural gas production taxes from pre-1985 wells, the department shall each calendar quarter adjust the unit value determined under 15-36-323 according to the ratio that the oil and natural gas production taxes from pre-1985 wells collected during the calendar quarter for which the distribution occurs plus penalties and interest on delinquent oil and natural gas production taxes from pre-1985 wells bears to the total liability for the oil and natural gas production taxes from pre-1985 wells for the quarter for which the distribution occurs. The amount of oil and natural gas production taxes distributions must be calculated and distributed as follows:
(i) By the dates referred to in subsection (12), the department shall calculate and distribute to each eligible county the amount of oil and natural gas production taxes from pre-1985 wells for the quarter, determined by multiplying the unit value, as adjusted in this subsection (11)(a), by the units of production on which oil and natural gas production taxes from pre-1985 wells were owed for the calendar quarter for which the distribution occurs.
(ii) Any amount by which the total tax liability exceeds or is less than the total distributions determined in this subsection (11)(a) must be calculated and distributed in the following manner:
(A) The excess amount or shortage must be divided by the total distribution determined for that period to obtain an excess or shortage percentage.
(B) The excess percentage must be multiplied by the distribution to each taxing unit, and this amount must be added to the distribution to each respective taxing unit.
(C) The shortage percentage must be multiplied by the distribution to each taxing unit, and this amount must be subtracted from the distribution to each respective taxing unit.
(b) Except as provided in subsection (11)(c), the county treasurer shall distribute the money received under subsection (12) from pre-1985 wells to the taxing units that levied mills in fiscal year 1990 against calendar year 1988 production in the same manner that all other property tax proceeds were distributed during fiscal year 1990 in the taxing unit, except that a distribution may not be made to a municipal taxing unit.
(c) The board of county commissioners of a county may direct the county treasurer to reallocate the distribution of oil and natural gas production tax money that would have gone to a taxing unit, as provided in subsection (11)(b), to another taxing unit or taxing units, other than an elementary school or high school, within the county under the following conditions:
(i) The county treasurer shall first allocate the oil and natural gas production taxes to the taxing units within the county in the same proportion that all other property tax proceeds were distributed in the county in fiscal year 1990.
(ii) If the allocation in subsection (11)(c)(i) exceeds the total budget for a taxing unit, the commissioners may direct the county treasurer to allocate the excess to any taxing unit within the county.
(d) The board of trustees of an elementary or high school district may reallocate the oil and natural gas production taxes distributed to the district by the county treasurer under the following conditions:
(i) The district shall first allocate the oil and natural gas production taxes to the budgeted funds of the district in the same proportion that all other property tax proceeds were distributed in the district in fiscal year 1990.
(ii) If the allocation under subsection (11)(d)(i) exceeds the total budget for a fund, the trustees may allocate the excess to any budgeted fund of the school district.
(e) For all production from post-1985 wells and horizontally drilled wells completed after December 31, 1993, the county treasurer shall distribute oil and natural gas production taxes received under subsections (2)(b), (3)(b)(ii), (4)(b)(ii), (5)(b), (6)(b), and (7)(b)(ii) between county and school taxing units in the relative proportions required by the levies for state, county, and school district purposes in the same manner as property taxes were distributed in the preceding fiscal year.
(f) The allocation to the county in subsection (11)(e) must be distributed by the county treasurer in the relative proportions required by the levies for county taxing units and in the same manner as property taxes were distributed in the preceding fiscal year.
(g) The money distributed in subsection (11)(e) that is required for the county mill levies for school district retirement obligations and transportation schedules must be deposited to the funds established for these purposes.
(h) The oil and natural gas production taxes distributed under subsection (11)(b) that are required for the 6-mill university levy imposed under 20-25-423 and for the county equalization levies imposed under 20-9-331 and 20-9-333, as those sections read on July 1, 1989, must be remitted by the county treasurer to the state treasurer.
(i) The oil and natural gas production taxes distributed under subsection (11)(e) that are required for the 6-mill university levy imposed under 20-25-423, for the county equalization levies imposed under 20-9-331 and 20-9-333, and for the state equalization aid levy imposed under 20-9-360 must be remitted by the county treasurer to the state treasurer.
(j) The amount of oil and natural gas production taxes remaining after the treasurer has remitted the amounts determined in subsections (11)(h) and (11)(i) is for the exclusive use and benefit of the county and school taxing units.
(12) The department shall remit the amounts to be distributed in subsection (11) to the county treasurer by the following dates:
(a) On or before August 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending March 31 of the current year.
(b) On or before November 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending June 30 of the current year.
(c) On or before February 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending September 30 of the previous year.
(d) On or before May 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending December 31 of the previous calendar year.
(13) The department shall provide to each county by May 31 of each year the amount of gross taxable value represented by all types of production taxed under 15-36-304 for the previous calendar year multiplied by 60%. The resulting value must be treated as taxable value for county classification purposes and for county bonding purposes.
(14) (a) In the event that the board of oil and gas conservation revises the privilege and license tax pursuant to 82-11-131, the department shall, by rule, change the formula under this section for distribution of taxes collected under 15-36-304. The revised formula must provide for the distribution of taxes in an amount equal to the rate adopted by the board of oil and gas conservation for the expenses of the board.
(b) Before the department adopts a rule pursuant to subsection (14)(a), it shall present the proposed rule to the revenue oversight committee.
(15) The distribution to taxing units under this section is statutorily appropriated as provided in 17-7-502."
Section 4. Coordination instruction. If House Bill No. 661 is passed and approved, then the bracketed material in [this act] in the definition of "stripper well exemption" in 15-36-303(24) is void.
Section 5. Effective date -- applicability. [This act] is effective on passage and approval and applies to oil produced and sold during the quarters beginning after June 30, 1999.
- END -
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