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STATE OF OKLAHOMA
2nd Session of the 58th Legislature (2022 )
HOUSE BILL 3568 By: McBride
AS INTRODUCED
An Act relating to revenue and taxation ; amending 68
O.S. 2021, Section 1001, which relates to gross
production tax; creating exemption for certain
secondary recovery projects; limiting exemption under
certain circumstances; defining terms; authorizing
Corporation Commission to promulgate rules; providing
procedure to qualify for exemption; creating
exemption for certain production enhance ment
projects; allowing a refund for certain projects;
defining terms; prescribing refund procedure;
providing an effective date ; and declaring an
emergency.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1. AMENDATORY 68 O.S. 2021, Section 1001, is
amended to read as follows:
Section 1001. A. There is hereby levied upon the production of
asphalt, ores bearing lead, zinc, jack and copper a tax equal to
three-fourths of one percent (3/4 of 1%) on the gross value thereof.
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B. On or after the effective date of this a ct and except as
provided by paragraph 4 of this subsection, there shall be levied a
tax on the gross value of the production of oil and gas as follows:
1. Upon the production of oil a tax equal to seven percent (7%)
of the gross value of the production o f oil based on a per barrel
measurement of forty -two (42) U.S. gallons of two hundred thirty -one
(231) cubic inches per gallon, computed at a temperature of sixty
(60) degrees Fahrenheit;
2. Upon the production of gas a tax equal to seven percent (7%)
of the gross value of the production of gas;
3. Notwithstanding the levies in paragraphs 1 and 2 of this
subsection, the production of oil, gas, or oil and gas from wells
spudded prior to the effective date of this act, and on or after the
effective date of this act, shall be taxed at a rate of five percent
(5%) commencing with the month of first production for a period of
thirty-six (36) months. Thereafter, the production shall be taxed
as provided in paragraphs 1 and 2 of this subsection; and
4. If the provisions of Article XIII-C of the Oklahoma
Constitution are approved by the people pursuant to adoption of
State Question No. 795, the rate of gross production tax imposed by
paragraph 3 of this subsection shall be reduced to two percent (2%)
for the first thirty-six (36) months of production and thereafter
the rate of taxation shall be seven percent (7%).
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C. The taxes hereby levied shall also attach to, and are levied
on, what is known as t he royalty interest, and the amount of such
tax shall be a lien on such interest.
D. 1. Except as otherwise provided in this section, for
secondary recovery projects approved or having an initial project
start date on or after July 1, 2022 , any incremental production
attributable to the working interest owners which re sults from such
secondary recovery projects shall be exempt from the gross
production tax levied pursuant to this section for a period not to
exceed five (5) years from the initial project start date or for a
period ending upon the termination of the secon dary recovery
process, whichever occurs first .
2. Except as otherwise provided in this section, for tertiary
recovery projects approved and having a project start date on or
after July 1, 2022, any incremental production attributable to the
working interest owners which results from such tertiary recovery
projects shall be exempt from the gross production tax levied
pursuant to this section from the project start date until project
payback is achieved, but not to exceed a period of ten (10) years.
Project payback pursuant to this paragraph shall be determined by
appropriate payback indicators which provide for the recovery of
capital expenses and operating expenses, excluding administrative
expenses, in determining project payback. The capital expenses of
pipelines constructed to transport carbon dioxide to a tertiary
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recovery project shall not be included in determining project
payback pursuant to this paragraph .
3. The provisions of this s ubsection shall not apply to any
enhanced recovery project using f resh water as the primary
injectant, except when using steam .
4. For purposes of this subsection:
a. "incremental production " means the amount of crude oil
or other liquid hydrocarbons whic h is produced during
an enhanced recovery project and which is in excess of
the base production amount of crude oil or other
liquid hydrocarbons. The base production amount shall
be the average monthly amount of production for the
twelve-month period immediately prior to the project
start date minus the monthly rate of production
decline for the project for each month beginning one
hundred eighty (180) days prior to the project start
date. The monthly rate of production decline shall be
equal to the average extrapolated monthly decline rate
for the twelve-month period immediately prior to the
project start date as determined by the Corporation
Commission based on the production history of the
field, its current status, and sound reservoir
engineering principles, and
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b. "project start date" means the date on which the
injection of liquids, gases, or other matter begins on
an enhanced recovery project .
5. The Corporation Commission shall promulgate rules for the
qualification for this exemption which shall i nclude, but not be
limited to, procedures for determining incremen tal production as
defined in subparagraph a of paragraph 4 of this subsection, and the
establishment of appropriate payback indicators as approved by the
Oklahoma Tax Commission for the dete rmination of project payback for
each of the exemption s authorized by this subsection.
6. For new secondary recovery projects and tertiary recovery
projects approved by the Corporation Commission on or after July 1,
2022, such approval shall constitute qualification for an exemption .
7. Any person seeking an exemption shall file an application
for such exemption with the Tax Commission which, upon determination
of qualification by the Corporation Commission, shall approve the
application for such exemptio n.
8. The Tax Commission may require any person requesting such
exemption to furnish information or records concerning the exemption
as is deemed necessary by the Tax Commission .
9. Upon the expiration of the exemption granted pursuant to
this subsection, the Tax Commission shall collect the gross
production tax levied pursuant to this section.
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E. 1. Except as otherwise provided by this section, any
incremental production which results from a production enhancement
project shall be exempt from the gross production tax levied
pursuant to subsection B of this section fo r a period of twenty-
eight (28) months from the date of first sale after project
completion of the production enhancement project. This exemption
shall take effect July 1, 2022, and shall a pply to production
enhancement projects having a project start date on or after July 1,
2022. For all such production, a refund against gross production
taxes shall be issued as provided in subsection F of this section.
2. As used in this subsection:
a. for production enhancement projects having a project
start date on or after July 1, 2022, "production
enhancement project" means any workover as defined in
this paragraph, recompletion as defined in this
paragraph, reentry of plugged and abandoned wellbore s,
or addition of a well or field compression,
b. "incremental production" means the amount of crude
oil, natural gas, or other hydrocarbons which are
produced as a result of the production enhancement
project in excess of the base production,
c. "base production" means the average monthly amount of
production for the tw elve-month period immediately
prior to the commencement of the project or the
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average monthly amount of production for the twelve -
month period immediately prior to the commencement of
the project less the monthly rate of production
decline for the project for each month beginning one
hundred eighty (180) days prior to the commencement of
the project. The monthly rate of production decline
shall be equal to the average extrapolated monthly
decline rate for the twelve -month period immediately
prior to the commencement of the project based on the
production history of the well. If the well or wells
covered in the application had production for less
than the full twelve -month period prior to the filing
of the application for the production enhancement
project, the base production shall be the average
monthly production for the months during that period
that the well or wells produced,
d. for production enhancement projects having a project
start date on or after July 1, 2022 , "recompletion"
means any downhole o peration in an existing oil or gas
well that is conducted to establish production of oil
or gas from any geologic interval not currently
completed or producing in such existing oil or gas
well within the same or a different geologic
formation, and
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e. "workover" means any downhole operation in an existing
oil or gas well that is designed to sustain, restore ,
or increase the production rate or ultimate recovery
in a geologic interval currently completed or
producing in the existing oil or gas well. For
production enhancement projects having a project start
date on or after July 1, 2022 , workover includes, but
is not limited to:
(1) acidizing,
(2) reperforating,
(3) fracture treating,
(4) sand, paraffin, or scale removal or other
wellbore cleanouts,
(5) casing repair,
(6) squeeze cementing,
(7) installation of compression on a well or group of
wells or initial installation of artificial lifts
on gas wells, including plunger lifts, rod pumps,
submersible pumps, and coiled tubing velocity
strings,
(8) downsizing existing tubing to reduce well
loading,
(9) downhole commingling,
(10) bacteria treatments,
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(11) upgrading the size of pumping unit equipment,
(12) setting bridge plugs to isolate water prod uction
zones, or
(13) any combination thereof.
"Workover" shall not mean the routine maintenance, routine
repair, or like-for-like replacement of downhole equipment such as
rods, pumps, tubing, packers, or other mechanical devices.
F. On or after July 1, 2022, for all oil and gas production
exempt from gross production taxes pursuant to subsection E of this
section during a given fiscal year, a refund of gross production
taxes shall be issued to the well operator or a designee in the
amount of such gross p roduction taxes paid during such period,
subject to the following provisions:
1. A refund shall not be claimed until after the end of such
fiscal year. As used in this subsection, a fiscal year shall be
deemed to begin on July 1 of one calendar year and shall end on June
30 of the subsequent calendar year;
2. Unless otherwise specified, no claims for refunds pursuant
to the provisions of this subsection shall be filed more than
eighteen (18) months after the first day of the fiscal year in whic h
the refund is first available;
3. No claims for refunds pursuant to the p rovisions of this
subsection shall be filed by or on behalf of persons other than the
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operator or a working interest owner of record at the t ime of
production; and
4. No refund shall be pai d unless the person making the claim
for refund demonstrates by af fidavit or other means prescribed by
the Tax Commission that an amount equal to or greater than the
amount of the refund has been invested in the exploration for or
production of crude oil o r natural gas in this state by such person
not more than three (3) years prior to the date of the claim. No
amount of investment used to qualify for a refund pursuant to the
provisions of this paragraph may be used to qualify for another
refund pursuant to the provisions of this paragraph.
If there are insufficient fund s collected from the production of
oil or gas to satisfy the refunds claimed for oil or gas production
pursuant to subsection E of this section, the Tax Commission shall
pay the balance of t he refund claims out of the gross production
taxes collected from either the production of oil or gas, as
necessary.
G. On or after July 1, 2022, all persons shall only be entitled
to either the exemption granted pursuant to subsection D or E of
this section for each oil, gas, or oil and gas well drilled or
recompleted in this state. However, any person who qualifies for
the exemption granted pursuant to subsection E of this section shall
not be prohibited from qualification for the exemption granted
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pursuant to subsection D of this section if the exemption granted
pursuant to subsection E of this section has expired.
H. The Tax Commission shall have the power to require any such
person engaged in mining or the production or the purchase of such
asphalt, mineral ores aforesaid, oil, or gas, or the owner of any
royalty interest therein to furnish any additional information by it
deemed to be necessary for the purpose of correctly computing the
amount of the tax; and to examine the books, records and files o f
such person; and shall have power to conduct hearings and compel the
attendance of witnesses, and the production of books, records and
papers of any person.
E. I. Any person or any member of any firm or association, or
any officer, official, agent or em ployee of any corporation who
shall fail or refuse to testify; or who shall fail or refuse to
produce any books, records or papers which the Tax Commission shall
require; or who shall fail or refuse to furnish any other evidence
or information which the Ta x Commission may require; or who shall
fail or refuse to answer an y competent questions which may be put to
him or her by the Tax Commission, touching the business, property,
assets or effects of any such person relating to the gross
production tax imposed by this article or exemption authorized
pursuant to this section or other laws, shall be guilty of a
misdemeanor, and, upon conviction thereof, shall be punished by a
fine of not more than Five Hundred Dollars ($500.00), or
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imprisonment in the jail of the county where such offense shall have
been committed, for not more than one (1) year, or by both such fine
and imprisonment; and each day of such refusal on the part of such
person shall constitute a separate and distinct offense.
F. J. The Tax Commission shall have the power and authority to
ascertain and determine whe ther or not any report herein required to
be filed with it is a true and correct report of the gross products,
and of the value thereof, of such person engaged in the mining or
production or purchase of asphalt and ores bearing minerals
aforesaid and of oil and gas. If any person has made an untrue or
incorrect report of the gross production or value or volume thereof,
or shall have failed or refused to make such report, the Tax
Commission shall, under the rules prescribed by it, ascertain the
correct amount of either, and compute the tax.
G. K. The payment of the taxes herein levied shall be in full,
and in lieu of all taxes by the state, counties, cities, towns,
school districts and other municipalities upon any property rights
attached to or inherent in the right to the minerals, upon producing
leases for the mining of asphalt and ores bearing lead, zinc, jack
or copper, or for oil, or for gas, upon the mineral rights and
privileges for the minerals aforesaid belonging or appertaining to
land, upon the machinery, appliances and equipment used in and
around any well producing oil, or gas, or any mine producing asphalt
or any of the mineral ores aforesaid and actually used in the
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operation of such well or mine. The payment of gross production tax
shall also be in lieu of all taxes upon the oil, gas, asphalt or
ores bearing minerals hereinbefore mentioned during the tax year in
which the same is produced, and upon any investment in any of the
leases, rights, privileges, minerals or other property described
herein. Any interest in the land, other than that herein
enumerated, and oil in storage, asphalt and ores bearing minerals
hereinbefore named, mined, produced and on hand at the date as of
which property is assessed for general and ad valorem taxation for
any subsequent tax year, shall be assessed and taxed as other
property within the taxing district in which such property is
situated at the time.
H. L. No equipment, material or property sh all be exempt from
the payment of ad valorem tax by reason of the payment of the gross
production tax except such equipment, machinery, tools, material or
property as is actually necessary and being used and in use in the
production of asphalt or of ores b earing lead, zinc, jack or copper
or of oil or gas. Provided, the exemption shall include the
wellbore and non-recoverable down-hole material, including casing,
actually used in the disposal of waste materials produced with such
oil or gas. It is express ly declared that no ice plants, hospitals,
office buildings, garag es, residences, gasoline extraction or
absorption plants, water systems, fuel systems, rooming houses and
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other buildings, nor any equipment or material used in connection
therewith, shall be exempt from ad valorem tax.
SECTION 2. This act shall become effective July 1, 2022.
SECTION 3. It being immediately necessary for the preservation
of the public peace, health or safety, an emergency is hereby
declared to exist, by reason whereof this act shall take effect and
be in full force from and after its passage and approval.
58-2-8904 AQH 12/30/21