Calling an oil well a gas well yields tax cash

With oil and gas prices at multiyear lows, producers in Texas are hurting. They have a real need to shore up their finances.

Now the Texas Railroad Commission, the state’s oil and gas industry regulator, is faced with deciding on requests from some of those companies who want to improve their bottom lines with an injection of taxpayer money.

The companies want to reclassify some of their oil wells, some drilled years ago, to have them officially designated as gas wells. That would make them eligible for a reduction in natural gas severance tax rates, possibly for refunds dating back to when the wells were drilled.

Comptroller Glenn Hegar has estimated the cost to Texas during the current two-year budget cycle at as much as $250 million — and that’s only from wells in the Eagle Ford Shale in South Texas. The hit could be another $200 million in the next budget, Hegar said.

Even though wells drilled in Texas typically produce a combination of oil and gas, the Railroad Commission classifies each one as an oil well or a gas well — not both.

Gas wells completed after 1996 qualify for a tax incentive originally meant to spur drilling and production. The measure delivered tax breaks worth more than $8 billion from 2008 to through 2014.

With that much money involved, the tax break routinely gets a lot of legislative attention during lean years.

In early 2013, the Legislative Budget Board proposed changes to the incentive program, but lawmakers did not act. Neither did they this year.

The rush to cash in by turning oil wells into gas wells shows that legislators should re-examine the policy.

This story was originally published December 23, 2015 at 5:17 PM with the headline "Calling an oil well a gas well yields tax cash."