What mineral severance tax exemptions and abandoned-well credit did Kansas add in 1998?

Plain-English summary

This 1998 legislative update for oil and gas producers/operators summarizes new mineral severance tax exemptions (effective July 1, 1998) and an income tax credit.

Severance tax exemptions:

• Gas: severance/production of gas from a well whose average daily production has a gross value of $87 or less per day is exempt (July 1998 reporting period onward).
• Oil (May 1998 reporting period onward) from a lease/unit producing: 5 or fewer bbl/day; or 6 or fewer bbl/day at depth 2,000 ft or more; or 6 or fewer bbl/day for a waterflood lease under 2,000 ft; or 7 or fewer bbl/day for a waterflood lease at 2,000 ft or more. The 6- and 7-barrel tiers apply because the average oil price ($17.64 for May 1998-April 1999) is at or below the statutory level.
• Production enhancement: incremental oil/gas from a KCC-certified enhancement project (workovers, recompletions, secondary recovery, new equipment, new-technology discoveries) begun on or after July 1, 1998 is exempt for seven years, unless the weighted average price exceeds statutory thresholds.

Income tax credit -- plugging an abandoned well: 50% of expenditures to plug an abandoned oil or gas well, for tax years after December 31, 1997 and before January 1, 2001, with unused credit carried forward, but total statewide credits capped at $250,000 per fiscal year on a first-filed, first-served basis. An 'abandoned well' is one the KCC may plug (pollution/water loss), on which drilling began before January 1, 1970, located on the taxpayer's land.

The document carries no printed notice number; the Department indexes it as Notice 98-0701.

What this means for you

If you produce oil or gas from low-output or waterflood Kansas leases, or run a certified production enhancement project, the 1998 changes may exempt that production from severance tax. If you plugged an old (pre-1970) abandoned well on your land, you could claim a 50% income tax credit for 1998-2000, subject to the statewide $250,000-per-year cap.

Common questions

Q: Which low-output oil leases became exempt from Kansas severance tax in 1998?
A: Leases producing 5 or fewer barrels/day; 6 or fewer at 2,000+ ft; 6 or fewer for waterflood under 2,000 ft; or 7 or fewer for waterflood at 2,000+ ft (the higher tiers tied to the $17.64 average oil price).

Q: What is the abandoned-well income tax credit?
A: 50% of expenditures to plug an abandoned pre-1970 oil or gas well on the taxpayer's land, for tax years 1998-2000, carryforward allowed, capped statewide at $250,000 per fiscal year, first-filed first-served.

Citations and references

• 1998 Kansas mineral severance tax exemptions (low-output oil and gas; production enhancement)
• 1998 income tax credit for plugging an abandoned oil or gas well (50%, capped $250,000/fiscal year statewide)

Subject

Mineral Severance Tax 1998 Legislative Update

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 98-0701

Original ruling text

Notice
Notice Number:
Tax Type: Mineral Severance Tax
Brief Description: Mineral Severance Tax 1998 LEGISLATIVE UPDATE
Keywords:

Body:

                  NOTICE TO ALL OIL AND GAS PRODUCERS AND OPERATORS
                                1998 LEGISLATIVE UPDATE

The following is a summary of this year’s mineral tax legislation.

EXEMPTIONS

1. Effective July 1, 1998 beginning with the reporting period of July 1998, the severance and production of gas which
   is severed from a well having an average daily production during a calendar month having a gross value of not more
   than $87.00 per day shall be exempt.

2. Effective July 1, 1998 beginning with the reporting period of May 1998, the exemption requirements for the
   severance and production of oil are as follows:

   A. From a lease or unit whose average daily production is five or less barrels of oil per day.

   B. From a lease or unit with a depth of 2000 ft or more and whose average daily production is six or less barrels
   of oil per day. This exemption level is determined by the average price of oil, which is $17.64 for the production
   period of May, 1998 through April, 1999.

   C. From a water flood lease or unit with a depth less than 2000 ft and whose average daily production is six or
   less barrels of oil per day.

   D. From a water flood lease or unit with a depth of 2000 ft or more and whose average daily production is seven
   or less barrels of oil per day. This exemption level is determined by the average price of oil, which is $17.64 for
   the production period of May,1 998 through April, 1999.

3. The incremental severance and production of oil or gas resulting from a production enhancement project begun on
   or after July 1, 1998 shall be exempt unless the weighted average price of oil or gas exceeds established statutory
   thresholds.

   A production enhancement project includes workovers, recompletions, secondary recovery projects, installation
   or enhancement of certain equipment, and new discoveries as a result of use of new technology. The Kansas
   Corporation Commission (KCC) will certify the eligibility of the enhancement project. A base production level
   will be established by the taxpayer and filed with the KCC. Determination of base production levels must adhere
   to the criteria established by the KCC. The monthly increase of incremental production will be exempt for a
   period of seven years. Qualifying guidelines and procedures are currently being developed by the KCC and the
   department to administer this new exemption.

INCOME TAX CREDIT FOR PLUGGING AN ABANDONED WELL

The 1998 legislature created an income tax credit for taxpayers who make expenditures during the tax year to plug an
abandoned oil or gas well on their land in accordance with the rules and regulations of the Kansas Corporation

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Commission (KCC). The credit is 50% of the expenditures make during the tax year and is applicable for taxable
years beginning after Dec. 31, 1997 and before Jan. 1, 2001. If the credit exceeds the income tax liability for the
taxable year the expenditures are made, any unused credit maybe carried forward until used. However, the total
amount of credits taken by all taxpayers (including any credit carry over) may not exceed $250,000 in any fiscal
years. Taxpayers qualifying for the credit will receive the credit on “first filed, first serve” basis.

For purposes of this credit, an abandoned oil or gas well is any well:1) the Kansas Corporation Commission has the
authority to plug, replug or repair because such well is polluting or is likely to pollute any usable water strata or
supply, or causing the loss of usable water; 2) on which drilling began prior to January 1, 1970; and 3) is located on
land owned by the taxpayer claiming the credit.

For more information on plugging an abandoned oil or gas well or production enhancement project, contact the:
Kansas Corporation Commission
Conservation Division
130 S. Market, Room 2078
Wichita KS 67202-3802
(316) 337-6200

If you have any questions concerning the changes to the oil and gas exemption requirements, contact the:
Customer Relations - Mineral Tax
Kansas Department of Revenue
915 SW Harrison St.
Topeka KS 66625-0001
(785) 296-7713.

Date Composed: 06/30/1998 Date Modified: 10/10/2001

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