Enhanced Oil Recovery (EOR) projects are an expanding technology. In an effort to provide an incentive to industry to create more EOR projects, the Railroad Commission recommended and endorsed new legislation, which would grant severance tax incentives to Railroad Commission approved EOR projects. The Legislature recognized the benefit EOR projects could be to the State of Texas and enacted amendments to the Texas Tax Code § 202.052 and added new section 202.054. This legislation gave the Railroad Commission the authority to implement Statewide Rule 50.

Statewide Rule 50, as originally adopted on September 1, 1989, provided a severance tax incentive to all oil produced from EOR projects which qualified as "new and distinct" and met the other requirements of the rule.

Statewide Rule 50 provides for a state severance tax rate decrease for an approved EOR project for 10 years, unless the project is sooner terminated, beginning the first day of the month following the date the Railroad Commission certifies that a positive production response has occurred.

EOR projects which may qualify include secondary recovery applications as well as tertiary recovery programs which includes alkaline flooding, carbon dioxide, cyclic steam, miscible and immiscible displacement processes, in-situ combustion, microemulsion, polymer augmented and steam drive projects.

It is necessary that industry understands the intent of the rule which governs those projects which qualify versus those projects which the Commission has determined do not qualify. Since September 1, 1989, several cases which were not administratively approved have been considered and acted upon by the Commission.

In the recent Legislative session, the Railroad Commission recommended amendments to Tax Code section 202.054 to specifically provide for expansions of existing EOR projects. The legislature amended the Tax Code effective September 1, 1991. On September 1, 1991, the Railroad Commission adopted emergency amendments to Statewide Rule 50 to implement these provisions.

Project expansions which previously did not qualify as "new and distinct" under the- original Rule 50 may qualify under the amendments and receive a severance tax exemption as to the incremental oil produced by the project.

This paper will assist industry in deciding under which section of the rule that their proposed EOR project may qualify.

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