SENATE BILL 64

56th legislature - STATE OF NEW MEXICO - second session, 2024

INTRODUCED BY

Ron Griggs

 

 

 

 

 

AN ACT

RELATING TO TAXATION; PROVIDING AN OIL AND GAS SEVERANCE TAX EXEMPTION FOR THE SEVERANCE OF OIL AND NATURAL GAS FROM A PRODUCTION COMPLIANCE PROJECT COMPLETED TO COMPLY WITH CERTAIN AGENCY RULES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. Section 7-29-4 NMSA 1978 (being Laws 1980, Chapter 62, Section 5, as amended) is amended to read:

     "7-29-4. OIL AND GAS SEVERANCE TAX IMPOSED--

COLLECTION--INTEREST OWNER'S LIABILITY TO STATE--INDIAN LIABILITY--EXCLUSIONS.--

          A. There is imposed and shall be collected by the department a tax on all products that are severed and sold, except as provided in Subsection B of this section. The measure of the tax and the rates are:

                (1) on natural gas severed and sold, except as provided in Paragraphs (4), (6) and (7) of this subsection, three and three-fourths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978;

                (2) on oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead, except as provided in Paragraphs (3), (5), (8) and (9) of this subsection, three and three-fourths percent of taxable value determined pursuant to Section 7-29-4.1 NMSA 1978;

                (3) on oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead produced from a qualified enhanced recovery project, one and seven-eighths percent of the taxable value determined pursuant to Section

7-29-4.1 NMSA 1978, provided that the annual average price of west Texas intermediate crude oil, determined by the department by averaging the posted prices in effect on the last day of each month of the twelve-month period ending on May 31 prior to the fiscal year in which the tax rate is to be imposed, was less than twenty-eight dollars ($28.00) per barrel;

                (4) on the natural gas from a well workover project that is certified by the oil conservation division of the energy, minerals and natural resources department in its approval of the well workover project, two and forty-five hundredths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978, provided that the annual average price of west Texas intermediate crude oil, determined by the department by averaging the posted prices in effect on the last day of each month of the twelve-month period ending on May 31 prior to the fiscal year in which the tax rate is to be imposed, was less than twenty-four dollars ($24.00) per barrel;

                (5) on the oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead from a well workover project that is certified by the oil conservation division of the energy, minerals and natural resources department in its approval of the well workover project, two and forty-five hundredths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978, provided that the annual average price of west Texas intermediate crude oil, determined by the department by averaging the posted prices in effect on the last day of each month of the twelve-month period ending on May 31 prior to the fiscal year in which the tax rate is to be imposed, was less than twenty-four dollars ($24.00) per barrel;

                (6) on the natural gas from a stripper well property, one and seven-eighths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978, provided

the average annual taxable value of natural gas was equal to or less than one dollar fifteen cents ($1.15) per thousand cubic feet in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed;

                (7) on the natural gas from a stripper well property, two and thirteen-sixteenths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978, provided that the average annual taxable value of natural gas was greater than one dollar fifteen cents ($1.15) per thousand cubic feet but not more than one dollar thirty-five cents ($1.35) per thousand cubic feet in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed;

                (8) on the oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead from a stripper well property, one and seven-eighths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978, provided that the average annual taxable value of oil was equal to or less than fifteen dollars ($15.00) per barrel in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed;

                (9) on the oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead from a stripper well property, two and thirteen-sixteenths percent of the taxable value determined pursuant to Section

7-29-4.1 NMSA 1978, provided that the average annual taxable value of oil was greater than fifteen dollars ($15.00) per barrel but not more than eighteen dollars ($18.00) per barrel in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed; and

                (10) on carbon dioxide, helium and non-hydrocarbon gases, three and three-fourths percent of the taxable value determined pursuant to Section 7-29-4.1 NMSA 1978.

          B. The tax imposed in Subsection A of this section shall not be imposed on:

                (1) natural gas severed and sold from a production restoration project during the first ten years of production following the restoration of production, provided that the annual average price of west Texas intermediate crude oil, determined by the department by averaging the posted prices in effect on the last day of each month of the twelve-month period ending on May 31 prior to each fiscal year in which the tax exemption is to be effective, was less than twenty-four dollars ($24.00) per barrel;

                (2) natural gas severed from a stripper well property and sold from a production compliance project during the first ten years of production following the completion of the project or until the date the total amount of tax that would have been imposed but for this subsection equals the cost of the production compliance project, whichever occurs first;

                (3) oil and other liquid hydrocarbons removed from natural gas at or near the wellhead from a stripper well property production compliance project during the first ten years of production following the completion of the project or until the date the total amount of tax that would have been imposed but for this subsection equals the cost of the production compliance project, whichever occurs first; and

                [(2)] (4) oil and other liquid hydrocarbons removed from natural gas at or near the wellhead from a production restoration project during the first ten years of production following the restoration of production, provided that the annual average price of west Texas intermediate crude oil, determined by the department by averaging the posted prices in effect on the last day of each month of the twelve-month period ending on May 31 prior to each fiscal year in which the tax exemption is to be effective, was less than twenty-four dollars ($24.00) per barrel.

          C. Every interest owner shall be liable for the tax to the extent of [his] the interest owner's interest in such products. Any Indian tribe, Indian pueblo or Indian shall be liable for the tax to the extent authorized or permitted by law.

          D. The tax imposed by this section may be referred to as the "oil and gas severance tax".

          E. As used in this section, "production compliance project" means a procedure undertaken by the operator of a natural gas or crude oil well that, in order to continue production from the well, is required by rules promulgated on or after January 1, 2022 by the oil conservation commission to reduce the venting and flaring of natural gas from wells and production equipment and facilities and of natural gas from natural gas gathering systems or by the environmental improvement board to reduce ambient ozone concentrations."

     SECTION 2. Section 7-29B-1 NMSA 1978 (being Laws 1995, Chapter 15, Section 1) is amended to read:

     "7-29B-1. SHORT TITLE.--[Sections 1 through 6 of this act] Chapter 7, Article 29B NMSA 1978 may be cited as the "Natural Gas and Crude Oil Production Incentive Act"."

     SECTION 3. Section 7-29B-2 NMSA 1978 (being Laws 1995, Chapter 15, Section 2, as amended by Laws 1999, Chapter 7, Section 2 and as further amended by Laws 1999, Chapter 256, Section 3) is amended to read:

     "7-29B-2. DEFINITIONS.--As used in the Natural Gas and Crude Oil Production Incentive Act:

          A. "average annual taxable value" means the average of the taxable value per barrel, determined pursuant to Section 7-31-5 NMSA 1978, of all oil produced in New Mexico for the specified calendar year as determined by the department;

          B. "average daily production" means, for any crude oil or natural gas property assigned a single production number by the department, the number derived by dividing the total volume of crude oil or natural gas production from the property reported to the division during a calendar year by the sum of the number of days each eligible well within the property produced or injected during that calendar year;

          C. "department" means the taxation and revenue department;

          D. "division" means the oil conservation division of the energy, minerals and natural resources department;

          E. "eligible well" means a crude oil or natural gas well that produces or an injection well that injects and is integral to production for any period of time during the preceding calendar year;

          F. "natural gas" means any combustible vapor composed chiefly of hydrocarbons occurring naturally;

          G. "operator" means the person responsible for the actual physical operation of a natural gas or oil well;

          H. "person" means any individual or other legal entity, including any group or combination of individuals or other legal entities acting as a unit;

          I. "production compliance project" means a procedure undertaken by the operator of a natural gas or crude oil well that, in order to continue production from the well, is required by rules promulgated on or after January 1, 2022 by the oil conservation commission to reduce the venting and flaring of natural gas from wells and production equipment and facilities and of natural gas from natural gas gathering systems or by the environmental improvement board to reduce ambient ozone concentrations;

          [I.] J. "production restoration incentive tax exemption" means the tax exemption set forth in Subsection B of Section 7-29-4 NMSA 1978 for natural gas or oil produced from a production restoration project;

          [J.] K. "production restoration project" means the use of any process for returning to production a natural gas or oil well that had thirty days or less of production in any period of twenty-four consecutive months beginning on or after January 1, 1993 as approved and certified by the division;

          [K.] L. "severance" means the taking from the soil of any product in any manner whatsoever;

          [L.] M. "stripper well property" means a crude oil or natural gas producing property that is assigned a single production unit number by the department and:

                (1) if a crude oil producing property, produced an average daily production of less than ten barrels of oil per eligible well per day for the preceding calendar year;

                (2) if a natural gas producing property, produced an average daily production of less than sixty thousand cubic feet of natural gas per eligible well per day during the preceding calendar year; or

                (3) if a property with wells that produce both crude oil and natural gas, produced an average daily production of less than ten barrels of oil per eligible well per day for the preceding calendar year, as determined by converting the volume of natural gas produced by the well to barrels of oil by using a ratio of six thousand cubic feet to one barrel of oil;

          [M.] N. "stripper well incentive tax rates" means the tax rates set forth in Paragraphs (6) through (9) of Subsection A of Section 7-29-4 NMSA 1978 and in Paragraphs (4) through (7) of Subsection A of Section 7-31-4 NMSA 1978 for natural gas or oil produced from a well within a stripper well property;

          [N.] O. "well workover incentive tax rate" means the tax rate set forth in Paragraphs (4) and (5) of Subsection A of Section 7-29-4 NMSA 1978 on the natural gas or oil produced from a well workover project; and

          [O.] P. "well workover project" means any procedure undertaken by the operator of a natural gas or oil well that is intended to increase the production from the well and that has been approved and certified by the division."

     SECTION 4. Section 7-29B-3 NMSA 1978 (being Laws 1995, Chapter 15, Section 3, as amended by Laws 1999, Chapter 7, Section 3 and as further amended by Laws 1999, Chapter 256, Section 4) is amended to read:

     "7-29B-3. APPROVAL OF PRODUCTION RESTORATION PROJECTS, PRODUCTION COMPLIANCE PROJECTS, WELL WORKOVER PROJECTS AND STRIPPER WELL PROPERTIES.--

          A. A natural gas or oil well shall be approved by the division as a production restoration project if:

                (1) the operator of the well makes application to the division in accordance with the provisions of the Natural Gas and Crude Oil Production Incentive Act and rules adopted pursuant to that act for approval of a production restoration project and the application is made within twelve months of the completion of the production restoration project; an