| The Severance Tax Relief Program allows the suspension of
severance taxes due on production from a qualifying well for
a variable time period depending on the category.
The Severance Tax Relief Program (STRP) was created by Act
2 of the 1994 Regular Session then amended by Act 16 of the
1996 Regular Session, Act 7 of the 1998 Regular Session and
Act 74 of the 2002 Regular Session and has been amended and extended by Act 492 of the 2005 Regular Session for inactive wells.
The Office of Conservation certifies qualification under
this program in four (4) categories, three (3) of which involve a Well Cost Statement:
- Inactive Well
- Deep Well
- Horizontal Well
- New Discovery Well
Well Status Determinations are evaluated by the office policy
set forth in the following Office of Conservation Memorandums
that address the issue:
INACTIVE WELL REQUIREMENTS**
(Act No. 492 of the 2005 Regular Session)
- REQUIREMENTS
- Form STRP-IW
- List of day(s) producted. (if applicable
- The qualification period for Inactive Well Status:
- July 01, 2002 to June 30, 2010
- NOTES
- Act 492 applies to certifications granted on or after January 1, 2005
- The well must have thirty days or less production for two consecutive years during the qualifying period.
- The five-year exemption period shall begin on the first occurrence of:
- the date of first production or ninety days after the application is received in our office, whichever occurs first
- A well previously approved for severence tax exemption can qualify again if
- a new application for well status determination is approved
- it meets the current qualification criteria
- the well had produced and the previous incentive period has expired
- the well had not been produced and the previous incentive period has not expired
- The qualifications of a well is determined by focusing on its well bore:
- If the well has a dual side, triple side, etc. that produced during the two year qualification period, that production will count against the 30 day period.
- Download Form STRP-IW:
**Eligible for a five year exemption from the date of first production or ninety days after receipt date, whichever comes first.
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DEEP WELL REQUIREMENTS**
- Form STRP-DW.
- Detailed Itemized Well Cost Statement
- Form WH-1
- Form COMP
- Directional Survey (if applicable)
- Well must be drilled to a true vertical depth (TVD) of 15,000 feet or greater.
- First production must commence after July 31, 1994.
- Note: Wells sidetracked below 15,000 feet TVD from which
production commenced after July 31, 1994 in the sidetrack
hole are also eligible, however,
- the only costs allowed are those associated
with the sidetrack
**Eligible for a two year exemption from the date of first
production or until payout of qualified costs, whichever comes
first.
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HORIZONTAL WELL REQUIREMENTS
- Form STRP-HW.
- Detailed Itemized Well Cost Statement
- Form WH-1
- Directional Survey
- First production must commence after July 31, 1994.
- Well must be horizontally drilled or recompleted with
80° deviation from the vertical and at least a 50 foot
penetration into the sand.
Note: Horizontal recompletions are defined as horizontal
drilling in an existing well bore. Horizontal recompletion
costs are limited to only those costs associated with the
horizontal portion of the well bore. Extensions of existing
horizontal well bores, in the same sand, are not considered
horizontal recompletions.
**Eligible for a two year exemption from the date of first
production or until payout of qualified costs, whichever comes
first.
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NEW DISCOVERY REQUIREMENTS**
- Form STRP-ND.
- Detailed Itemized Well Cost Statement.
- Well must have spud after September 30, 1994.
- Well must be completed between September 30, 1994 and
September 30, 2000.
- Well must be completed in a new reservoir, i.e., a reservoir
that was not produced before September 30, 1994 and not
penetrated by a well capable of producing hydrocarbons in
commercial quantities from such reservoir before said date.
- Note: A well drilled and completed in a new reservoir
and located in a new field requires a “New Field”
designation from the Geological Division of the Office of
Conservation. A developmental well drilled and completed
in a new reservoir, but located in an old field requires
a hearing. Only the discovery well in each new reservoir
qualifies for the tax exemption, any developmental wells
in the same reservoir do not qualify.
- The Order recognizing a developmental well as a "New Discovery" must be attached to form STRP-ND. (if applicable)
**Eligible for a two year exemption from the date of first
production or until payout of qualified costs, whichever comes
first.
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WELL COST STATEMENT
A well cost statement must accompany every STRP application for Deep Well, Horizontal Well, and New Discovery
Well categories. This cost statement must be a detailed
itemized listing of the actual costs to drill, complete, and
equip the well for production. No AFE or estimated costs
are allowed. Applicants are encouraged to hold the filing
of applications until they have a firm cost figure. Applicants
are allowed to collect, retroactively, any severance taxes
paid back to the date of first production on a qualifying well.
Costs such as building a board road, preparing the location,
logging, cement, drill bits, pipe, labor, 3-D seismic*, etc.
can be included on the cost statement. The cost to build a
flowline to a facility and any new equipment needed to hook
the well up to the facility can also be included, however,
the cost of an existing facility is not eligible and a newly
constructed facility's cost must be prorated to the number
of wells it is designed to serve. Lease-related costs, legal
fees, hearing costs, saltwater disposal wells, title searches,
etc. are examples of costs that are not allowed on the cost
statement.
Cost statements should be organized and easy to read. Each
line item must be identified by actual service or material,
not just vendor/provider. It is preferable for expenditures for the same service
or material to be grouped together in one line item rather
than listed by vendor/provider each time such service or material
is charged. Any accounting or in-house codes should be defined.
*The 3-D seismic cost requested on Form STRP-3D must be included in the cost statement as a line item and in the total cost shown on forms STRP-DW (Deep Well), STRP-HW (Horizontal Well), or STRP-ND (New Discovery Well).
Applications claiming 3-D seismic costs must include Form STRP 3-D.
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