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Tax Break For “Stripper Wells” Increased As Oil Price Slump Continues

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Texas state officials are increasing a special tax break for “stripper wells” as crude oil prices stubbornly remain stuck in the $30-per-barrel range.

New figures released by Texas Comptroller of Public Accounts reveals that the prolonged price slump has now triggered a 50 percent severance tax exemption for low-producing oil wells, often referred to as stripper wells.

Under state law, there is a 4.6 percent severance tax on the market value of oil produced at each well, but lawmakers created exemptions for wells producing less than 15 barrels per day when prices fall below certain levels for three months or longer.

The Comptroller’s Office made history in March when it issued a 25 percent tax break to low-producing oil wells for the first time since the law was created in 2005.

In a previous interview, Texas Comptroller Glenn Hegar said the law was created as an incentive for producers to keep marginal wells in production during hard times.

While it’s unclear how many wells would be affected, December 2015 figures from the Texas Independent Producers & Royalty Owners Association show that there are easily more than 131,000 of them.

If crude oil prices decline even further for a prolonged period of time, the severance tax exemption could be increased to a 75 percent or even 100 percent tax break.

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