The Railroad Commission of Texas will be closed Wednesday, Nov. 22 through Friday, Nov. 24 in observance of Thanksgiving. The RRC will reopen for regular business Monday morning, Nov. 27. We wish everyone a safe and happy holiday.
Texas Severance Tax Incentives: Past and Present
By providing exemptions from or reductions of the severance tax on oil and gas production, these incentive programs in effect lower the cost of production
The reduction or elimination of state severance taxes provides an economic incentive to operators to undertake activities that produce oil and gas resources that otherwise might remain unrecovered. Texas recognized back in the late 1980’s that incentives to increase the state’s oil and gas production were extremely valuable. Economic studies have shown that for each dollar invested in the oil and gas industry and for each dollar of production, there is a positive effect on the state’s economy.
Prior to the oil and gas bust that began in the mid-1980s, the oil and gas sector was among the strongest in the Texas economy. In the late-1980s and early 1990s, the poor health of the industry was reflected in the poor health of the state’s economy. The incentive programs are targeted to help strengthen the economy by encouraging investment in exploration and production and to maximize responsible development and efficient recovery of the state’s valuable natural resources.
By providing exemptions from or reductions of the severance tax on oil and gas production, these incentive programs in effect lower the cost of production. For marginal operations, in particular, these incentives might mean the difference between shutting in a well, keeping a well in production, or bringing a well back into production. For others, the incentives are factored into decisions of drilling or not drilling a well, initiating an enhanced recovery project, or servicing a well to increase its production.
Texas incentive programs have been so successful that other states have used them as models. Severance tax incentives continue to be needed in the future to encourage production and expansion of oil and gas operations, and sustain a vital segment of the state’s economy.
The baseline Texas severance tax on oil and gas is:
Gas severance tax = 7.5% of market value of gas produced and saved
Oil severance tax = 4.6% of market value of oil produced