December 23, 1952

Hon. Robert S. Calvert Comptroller of Public Accouka Austin, Texas Opinion Re: Reconsideration ofAtt’y Gen. Op. V-1353 (1951) and all related prior Dear Sir: opinions.

You have requested a reconsideration ofAttorney General Opinion V-1~353 (1951) and.of all related prior Attorney General Opinions. Opinion V-1353 passed upon the taxability under Article 7060a, V.C.S., of certain well servicing operations. Subsection (b) of Section 1ofArticle 7060a, wasamended by Section XIV of House Bill 285, Acts 52nd Leg., R.S. 1951, ch. 402, p. 695, reads as follows:

“(b) Every person in this State engaged in the business of furnishing any service or performing any duty for others for a consideration or compensation, with the use of any devices, tools, instruments or equipment, electrical, mechanical, or otherwise, or by means of any chemical, electrical or mechanical process when such service is performed in connection with the cementing of the casing seat of any oil or gas well or the shooting or acidizing the formation of such wells or the surveying or testing of the sands or other formations of the earth in any such oil or gas wells, shall report on the 20th day of each month and pay to the Comptroller, at his office inAustin, Texas, anoccupation tax equal to 2.42% of the gross amount received fr&m.said service furnished or duty performed, during the calendar month ne?rtpreceding. The said report shall be,executed under oath on a form prescribed and furnished by the Comptroller

.” In connection with your request, there has been submitted a report, compiled byvarious; members ofthe oil industry, defining terms’, explaining various operations involved in drilling, testing and surveying wells, and giving reasons why each of said operations is,or is not embraced by the provisions ofSubsectionkon. Robert S. Calvert, page 2 (V-1567)

(b) of Section 1ofArticle 706Oa above~,quoted. Likewise, a legal brief has been furnished us). This brief discusses the submitted report **in the**  light of **court** decisions and prior opfnions of this office. We wit1 firat consider operations which might or might **not** be taxable as a service ,performed “in connection with 

### thecementing ofthecasing seat 

### ofanyoil or gas well 0$*”

The bottom of the producing or oil string of casing, the last column of casing placed in awell, is commonly referred to as the *casing aeat.” Placing cement between the oil string and the sides of the well bore is, of course, the exact operation named **in the**  **statute** and is a taxable service, Cementing ‘liners’ (strings of casing whose tops are situated below the surface) is also a taxable 

### service if the linere are used a6 extensions of the oil string as distinguished 

### from liners used to repair defective strings of casing. 

### Various other cementing services ape explained and **classified** in the report as nontaxable. We quote the following therefrom. “Cementing conductor, surface, intermediate or

protective casisg striags

“In oilfield terminology, the casing seat of an oil or gas well is the bottom of the producing strfng of casing inthe well. In the course’ of drilling, itmay be found desfrable to run a string 

### or s,everal strings of casings

### jdor to the running 

### ofthe producing’string. These casing string6 are commonly referred to as **conductor,** surface, intermediate OPprotective strings. -A conductor string is a rhort string of casing extending 

### from tha surface to a comparatively shallow depth used to support loosely consolidated surface formations, to keep the top of the well bore open, and to provide a means of conveyfng fluid used in drilling from the well bore. “A surface string is a string run to greater depth than a conductor string and fulfills the same, requirements outlined above for a **conductor** 6tring. In addition, it excludes waters, and may provide support for strings of casing subsequently rus in the well.

“Intermediate and protective strings, when employed, are run tofacilitatedrilling operations for various reasons: (1) to exclude water; (2) to reduceHon. Robert S. Calvert, page 3 (V-1567)

the cost 

### of,drilling fluid by keeping contaminants such as salt from entering the yell bore; (3) to eliminate, the loss of drilling fluids in ‘thiefing’ formatioti.9; (4) as a precautiondry measure to provide a means of,controlling pressure in the event excessive pressures are encountered; and (5) to prevent caving. “Conductor, surfa&, intermediate and protective strings of casing, When used, are used to facilita,t+ drilling operations. Cementing of these strings .cannot be considered bs Fementing the casin Geat in an oil or g&swell, and therefore is not Tzkixz *Cementing to control wells Eementmg for lost circulation “On bccasion, it may be found necessary to pump cement into awell for the urpose of: (1) bringing thewell undei control; 2) shutting, off P undesirable flows of fluids; or (3) sealing off intervalS in the hole where drilling fluid is being lost. These operaticins are under,taken tofacilitate drilling and are not,the”operdtion of cementing of the ca,sing seat, ixian.oWor~ gas~well. “Plug back opdrations “A plug back operation is one inwhich the bottom section of the well bore is cement&d off to prevent the,inflow ,offluid from that,portion of’the hole.’ Mariy.types of @lugs are used. This operation is ‘not the c&rienting of the casing seat in &noil,or gas well. “Ccmentin(i for abanddnment “Before abandoning awell; cement plugs are placed in the hole to prevent escape offluids from one formation to another and to protect fresh water sands. The dperation of placing a cement plug in a well is ndt the cementing of the casing seat in an oil or gas well.

‘Squeeze cementing bperations ” ‘Squeeqe cementing’ is an opera&n inwhich afluid cement, after being placed in the desiredHon. Robert S. Calvert, page 4 (V-1567)

position in a well, is subjected to high pump pressure toforce some of the cement into the 

### surrounding formations. This operation is not the 

### cementing ofthecasing seat inanoil or gas well. “Cementing to repair defective casing Cementing liners for remedial or repair operations “Casing that is defective when **run** in the hole or becomes defective after being in the hole (becomes corroded, etc.) may permit unwanted fluids to enter the well or allow well fluids to excape from thewell, When such defects cannot **be** repaired by cementing alone, then a liner may 

### becemented throughthadefective section. Such operations are not cementing of the casing 

### seat in anoil or gas well. “Cementing for whipstock operations

“In the **course** of drilling operations, it frequently becomes desirable to deflect or change the direction of the hole for one of several reasons: (1) to complete drilling in a predetermined target area; (2) to correct a ‘crooked hole’ condition that has developed during the **course** of drilling; or (3) to drill around an obstacle (lost tools, pipe, etc..) that cannot be removed from the hole, A deflecting tool which permits directing the course ofa well, is known as awhipstock. It is a long, slender, tapered steel wedge which is supported in thewell in such a position that the drilling tools are deflected from their previous course and in the desired direction. Whipstocks are sometimes cemented in place, 

### Cementing of awhipstock is not the cementing of the casing seat in an oil or gas well,” -
We agree with the foregoing classifications for the reasons stated in the report.

InAttorney General Opinion O-3627 (1941) the following questions were considered:

“1. A party takes a contract from the operator to cement a well for a stipulated price (perhaps he uses 500 sacks ,ofcement). Will he be permitted toHon. Robert S. Calvert, page,5 (V-1567)

deduct the cost of cement before computing the tax?

“2. There is a tool known as a ‘cement packer’ which is used in cementing liners in wells. This tool is leased or rented to the owner of the well or contractor {for afee of $12 per day operators time, plus car mileage to location and operator’s expenses, Would the party who receives rent for the ‘packer’ be subject to the tax on the rental received or rental plus expenses of the operator? )I The first question on its face seems to imply that all cementing operations are taxable: however, the Opinion’s answer thereto limits its scope to “a party who cements a casing seat of an oil or gas well ueaR The cost of the cement w-held to be deductible from the gross receipts before computing the tax on this service. The Opinion also held that the furnishing of the

“cement packer” was. the furnishing of a material and that “if the furnishing and installing of the ‘cement packer’ in questi= is one of the four taxable operations named in th,e**statute [or**  is performed in connection with one of said operations] ,the charge for furnishing the ‘cement packer’ should not be included in the receipts on which the tax is computed and the charge for furnishing the operator should’be included,” The previously quoted classification of thevarious cementing services is consistent with the results reached in Opinion O-3627.,

This office has also specifically ruled that a temperature **survey** made to locate the top of the cement behind the casing for the purpose of determining the **success** of the cementing is a taxable service since it is performed in connection with the cementing of the casing seat. Att’y Gen, Op..V-1353 (1951).

We will next consider whether certain operations are taxable as services performed “in connection with the shooting D

. . the formation of such wells j i **We** quote the following discussion from the submitted report.,

“Open hole shooting with explosives, projectiles, shaped charges, orjets

“Shooting of the formation is done in order to commence or increase the flow offlui,ds into thewell bore. It is done by detonating an explosive charge in **an** open hole below the casing seat. This operation can be performed with the use of explosives,Hon. Robert S. Calvert, page 6 (V-1567)

projectiles, shaped charges, orjets, The operation may be performed any time during the life of the well when the operator believes he can commence or increase the flow of oil or gas into the well bore. “This process is ‘shooting the formation’ in the **language** and meaning of the act, Article 7060-a; hence, is taxable, II

. . . “Perforating pipe to provide opening in pipe

“In oil field terminology, shooting for the purpose of perforating pipe is the creation of openings or holes in the pipe by explosive means. There are several methods:

1) The use of projectiles, and t2) The use of shaped charges orjets. “The operation is performed any time during the life of awell when it is believed production may be commenced or increased by providing means of fluid flow 

### from aformation into the casing. “The operation is performed as follows: “A device called **a** gunwhich contains a number of explosive charges is lowered on an insulated cable to a,predetermined depth in awell, Electric current sets off the charges. Inthe case of a perforating **gun,** openings or holes are created by detonation of the charges causing projectiles to pierce the pipe, Inthe case of shaped charges orjets, openings or holes are created by detonation of explosives which generate jets of high temperature, high velocity gases. These **gases disintegrate**  the metal of the pipe, This operation is not the shooting of the formation in an oil or gas well, and therefore is not taxable. *Shooting off pipe or casing Shooting “These terms mean, generally, salvage operations,Hon. Robert S. Calvert, page 7(V-1567)

“Salvage operations may be necessitated by several. occurrences, notably: (1) In a dry hole where casing has been ins,talled and cemented in the well bore and it is desirable to recover as much of the casing as possible for use elsewhere; (2) When drill pipe has been stuck in the well due to the slaughing of the formation into the well bore, and it is desirable to recover as much ofthe string of pipe as possible; (3) When awell has produced its ultimate recovery and can no longer be produced economically, and it is desirable to recover as much of the casing as possible for use elsewhere. In all of these cases, the casing or pipe is cut with an explosive charge lowered on awire line. The form,of the explosive charge may vary widely, consisting of dynamite, solid or liquid nitroglycerin, or specially designed shaped charges known as jet’ casing cutters.

‘Since these operations concern salvage of materials rather than action on productive formations, they are non-taxable.

“Shooting to recover or remove fish infishing operations ” ‘Fish’ are any obstructions in awell bore which are not natural. These may include drill bits or parts of them which have’been broken off or otherwise disconnected from the drill pipe. The fish may be any number of sections of pipe and drill collars which have twisted off in the threads or broken in two along their length. The fish may be hand tools or other metal objects which have fallen into the well bore from the surface. *Shooting to recover or remove fish is done for the purpose of breaking these obstructions into small pieces with an explosive charge. The smaller pieces are picked upmore readily by magnets or special baskets.Hon. Robert S. Calvert, page 8 (V-1567)

“The disintegration can be accomplished by an ordinary nitroglycerin charge lowered
on awire line and exploded on contact with the fish. This **usually** causes sloughing of the formation. The preferred method is to **use** the shaped charge, similar to that used in casing perforations. In this case, it is pointed directly downward and thejet effect is concentrated directly on the obstruction which is under attack. “The procedure of using an explosive charge to clean out obstructions is not concerned with any formation fracturing and is not taxable.

“String shot shooting to open screen or perforations

u‘String Shot’, ‘Cord Shot’, or ‘Primacord Shot’ are similar terms used to describe a light explosive charge lowered into the well to clean ‘

. the plugged openings of the screen or perforations. ” ‘Cord’ is an abbreviation of ‘Primacord’

.
u ‘Primacord is the trade name for an im-’ pregnated fuse cord which has explosive power. Normally used as **a**booster explosion for detonating dynamite, it has enough power of its own to do cleanout jobs without rupturing screens or casing, ” ‘String Shot’ is a colloquialism which describes the cord. “When the string shot is detonated, fluid is forced through the openings in the screen or the perforations, removing the solid matter from the exterior surfaces so that flow of oil will resume. “This is a cleaning out or restoring offluid flow through the screen slots and not an action of shooting the formation, and, therefore, is anontaxable service.” The above quoted conclusions as to the taxability of the described, operations are insaccord with prior rulings of this office, InAttorney General Opinion O-3627 (1941) itwas held that perforating the casing with a cutting tool called a *‘perforator” did not constitute “shooting” in the sense attributer! to that word by the

### Hon. Robert S. Calvert, page9’(V- 1,567)

oil and gas industry. Itis suggested in the brief that was furnished us that Opinion G-3627 holds that shooting for the purpose of cleaning out an oil well is subject to tax even though itwas not shown that aformation of the earth was shattered. We do not so interpret Opinion O-3627 since we think such interpretation would be inconsistent with the discussion 

### of “sho4ting” given at ppe7-9 of the Opinion. Shooting for the purpose of cleaning out awell is subject to tax only if the shooting operation is done in connection with one of the named taxable operations. Attorney General Opinion O-3784 (1941) held that the use of a gun perforator in an open hole to fire bullets into the formations of the edrth served the purpose of ‘shooting” even though the **use** of a mechanical perforator or a gun perfoin its ordinary 

### maxmer and notein connection with anamed taxable 

### operation was notdtaxable’service. Attorney General 

### Opinions 04261 (1942) 

### andV-1353 (1951) also recognize that perforating is 

### nontaxable unless performed in connection with a taxable service.

L

. . *acidis- the formation of such wells ee.*, as well. of course, as services performed ‘in connection with” acid

### laingformationa. laataxable service. The submitted report classifies as 

### aontaxable the following services: acidizing to recwer 

### duck fkh OPstack drill pipe or casing; acidiaing to clean screens; 

### acidlmimgto dissolve mud sheaths; and acidizing soluble metals. With this we agree since no formations ofthe 

### earth are acidiced. 

### Itho been suggested that Opinipn O-3627 holds that acidimiag to clean out awell is taxable without any showing that a

### formation of

### the earth was acidized. We do not think that the OpMoncan be so interpreted inview of the definition ofacidizfng, quoted at page 9, as a “process of intro,ducing acid into the pore space of an acid-soluble producing formation DD.n; how

### ever, that 

### there m%ybe no doubt on this point, we expressly hold that acidizing which does not have for its purpose the dissolution of a formation is.not 

### ataxable service unless it is performed in connection with a taxable service,

The report has classified as taxable as services *performed in cdn&ecti4n with

. . 0the surveying

. . eof the sands 

### or other formations of the earth in any . . 0of1 or gas wells” the following operations: electric logging to record geological formations, radioactive logging, magnetic logging and dip recording. Radioactive logging is separated~into gamma 

### ray logging and **neutron** lo&ng. 

### Magnetic logging is still in the experimental 

### stage. InAttorney General OpinionO-3698 (1941)) itwas held 

### thatadipsurrey was htaxable serrica.~ A!1 oftheother above enumerated msrvices are clearly **‘ surveys** **”** 4f the formations 

### ofths earth 

### andare taxable. See Petroleum Production Practice 

### by F. EA.Pbmme 

### r, Part I, Sec. 24, (1939) 0

### Hon. Robert S. Calvert, page 10(V-1567)

Deflection or deviation surveys are explained in thesubmitted report anfollows:

“A aurveyymade inawell while drilling which utiline~ aninetrument onawire line,or onpipeto record anangle ofthedrill hole from vertical, The purpose oftbie rurvey i.stodetermine the **course** 

### of thedrill bole inorder toreach thedesired objective andnottosurvey formations.” Consistently withaome oftheconclusions reached in opinion O-3698, thinseryike wouldbe considered taxable; however, weare oftheopinion thattheabove described operation is infact asurvey ofthedrjll hole rather thanasurvey ofthe’formations oftheearth andis notataxable service underArticle 7060a.

“Depth measurement’ is described inthereport,as
“a suryey for thepurpose ofdetermining thedepthofapointin awell bz the **use** 

### ofaweighted wire andacalibrated measur~inS device. Opinion O-3698 said of -depth determination”:

‘This operation consirrtsoflocating thedepth **in the**  **well** 

### of **certaimobjects or**  **pa&** 

### ofthewell equipment. andit clearly 

### come6 withinthedefinitionofa **survey. ”**  

### We agree thattheoperation is a “survey* butthink itproperly shouldbetreated as asurvey ofaportion ofthewell bore. Since itis nota survey “of theaantlaor other formations oftheearth,* itis notataxable **aerviceg and**  

### OpinionO-3698 is overruled onthis point.

**Surveys** 

### tolocate thefree pointofstuck pipear’eexplained inthereport asfollows:,

‘A hrvey ofthis typeinvolved theuse ofin: strument8 tomeasure the’&retch ofthepipe so that thepomtofseimtre 

### canbedetermined. An inatrument is lower,edintothepipeandmeasures the rtretch ofthepipe. This operation is,repeated at variow depth8untilnofurther .&retch i.sindicated. Thiaiirdikates thepointofseisure.”

**we** 

### donotconsider **Wt** 

### thbopeiation **constitutes a**  

### survey “ofthesands or otherformations oftheearth” andtherefore holdthatit,isnottaxable **under** 

### Article 7060a. For thesame reason, weholdthatthefollowing operationa, as explained~in the report, are notsubject to:tax.Hon. Robert S. Calvert, page 11 (V-1567)

“Caliper logs

‘This **BUrViy** (sometimes called section Sage) involves the use of instruments with mechanical feelers or arms run in an uncased hole on awire line or insulated electric cable to determine the siae or diameter of the hole which has been drilled. The recording can be made at the surface simultaneous with the running, or it can be made by means of mechanical stylus contained within the instrument itself. This survey is for theprimary purpose ofassisting drilling operations by knowing the diameter ofthe hole being drilled. *Collar location “A **survey** run in the well to locate the depth of the collars in the producing casing string. It is performed by means of mechanical feelers run on awire line. This type survey is often **run** in conjunction with radioactive logs for the purpose of substantiating or measuring the depth of the collars. “Electric log to locate junk or fish in the hole “This survey involves the use of electric log or ‘Schlumberger’ to determine by means of surface recording of depth and electrical resistivity the point ant which pipe,‘tools, or other objects have been lost and embedded in the wall of the bore hole. The electric log in this case **iS** a useful tool to the drilling operator as a substitute for mechanical feelers. *Corrosion surveys %urveys run inside pipe of an oil or gas well to determine the extent of corrosion of the metal. These **surveys** involve the **use** ofan instrument with mechanical feelers run on awire line with recordings at the surface or within the instrument-itself. ”

.. 0

. *Fluid level surveys “Fluid level surveys are made after awell has ceased toflow naturally and is being produced byHon. Robert S. Calvert, page 12 (V-1567)

artificial means. The level of the fluid is usually obtained by a sonic device which measures the period of time for a sound wave to travel from the surface to the fluid level and back to the surface. By 

### knowing the speed 

### of the sound wave and the time for the reflected wave to return, it is possible to calculate the height of the fluid in the well. The data obtained are ofvalue indetermining if a decrease inproduction is **due** to the pump or gas lift valves being set too high or if the equipment is not functtoning properly. Ifthe fluid level is near or at the depth where the pump or gas lift valve is set, the equipment 

### is Bet too high. On the other hand, if the fluid level is found relatively higher than where the pump or gas lift valve is set, the decreased productton may be due to the equipment not operating properly.” We are urged to reconsider and overrule the holdings of Opinbm Q-3698 and V-1353 on the taxability of “temperature **surveys ”** 

**.** The following question was considered in Opinion **O-3698.**

“4. There:is performed in drilling for oil and gas a service known as ‘temperature determination.’ By lowering into the well an electrical resistance thermometer and recording at the surface in the form of a graph all its readings, the temperature of the entire length of the well is available. By deduction from the known cooling effects of flowing gas, the less COO1ingeffects offlowing oil, the heat **generative** effects ofhardening cement, the following results are made possible: “a. Location of oil and gas bearing formations and differentiation between the two.

“b. Location of cement topbehind the Casing.

“c. Determination of the base of the gas to permit the casing tobe set at the proper depth. “Please tell me whether or not this service would be subject to this tax?” The following reply was made to the above quoted query.Hon. Robert S. Calvert, page 13 (k-1567)

“Ascertaining the temperature in the various parts of the well is clearly a form of survey, according to the definitions ofweil survey. See ‘PetrOieUm Production Practic,e,’ Part I, su ra. In a booklet entitled ‘Schlumberge~r Auxiliary ervices,’ --%- recently published by Schlumberger Well Surveying Corporation, on page 2, iS a diSCuSSiOn Of‘temperature determination inwells, and,the diSCUSSiOn is headed ‘Temperature Surveys’ and reads in part as fOllOW9: * ‘It has ,long been realized that the study of temperature in a drill hole could be of,great value if it could be accurately and practically ‘meas,ured e0e ” ‘In the last few years an electricalresistance thermometer has been evolved which responds to temperature variations rapidly and records ,themwithin 0.2 degr,ees Fahrenheit ofaccuracy. This thermometer is lowered into the well at the end of the insulated cable used for electr,ical logging and all temperature readings are recorded at the surface, in the form of a continuous graph. ” ‘The most profitable purpose served by this type of temperature survey is the location of oil and gas bearing formations in limestone. InWest Texas and Kansas this has been accomplished in several’hundred temperature surveys which, in conjunction with electrical logging, located the pay and differentiated between oil and gas.’ (Underscoring ours) “Our answer toyour fourth question is that,the service of,‘temperature determination’ in the manner you describe in a survey within, the meaning of the statute and is therefore a taxable service.’ In so far as this answer goes, we believe it is correct; but we do not think it covered the entire question. The quoted authority was dealing with a type tempeiature survey which resulted in locating and defining various formations of the earth. It thus accomplished a survey of the sands or other formations of the earth, just as electric logging does, and is, in our opinion, a taxable service. However,,we do agree with the proposition submitted in the brief and report that not all temperature surveysHon. Robert S. Calvert, page 14 (V-1567)

are surveys of the formations of the earth. Temperature surveys made in the **course** of producing operations to check the mechanical condition of equipment in the hole **are** not surveys of the formations of the earth and **are** not taxable. A temperature **survey** made to check the **success** of a nontaxable cementing job is not taxable for the same reason. To the extent that Opinion O-3698 holds to the contrary, it is hereby overruled. However, as we have previously stated, we think that a temperature survey made for the purpose of determining the **BUCC@BB** of the cementing 

### ofthe casing seat is a taxable **service** since it is a service rendered in connection with one of the enumerated taxable services. This, as we interpret it, is the holding of Opinion V-1353; and it is hereby affirmed. We believe a **general** test ofthe taxability of temperature surveys can be stated in these terms: Temperature **surveys** are taxable only if made for the purpose of **surveying** the sands or other formations of the earth or if they are made in connection with one of the named taxable 

### services. InOpinion O-3698 it was held that a “water-flow survey” was a taxable 

### service. As stated in the submitted report:

“Fluid 

### ingress **surveys are**  obtained whenever ’ it 19suspected fluid 19entering awell at a point where such flow is not.desired or when it is suspected certain sections. of 

### ahorizon are taking a disproportionate volume ofthe injected fluid. Exit surveys are run whenever it is thought fluid is leaving awell at a point where such flow is not wanted or when it is thought certain strata ofa horizon are producing adisproportionate volume, principally water, of the produced fluid. This may be determined invarious ways but probably the moat **common.** method is by use of a mechanical device lowered in the hole to measure the relative volume offluid flowing at any given point. One of the principal methods used is called a ‘spinner **3urvey ’** **.n** We think that a determination of the relative volume of fluid flowing at a given point or in a given formation constitutes a survey of that formation within the meaning of the statute, and Opinion O-3698 is affirmed on this point.

The last .enumerated taxable service is ‘testing of the sand: or other formations of the earth in any D0

. oil or gas wells

. . . The submitted report has defined “sands” and “formations” as not including the “fluids” - liquid and gaseous materials - whichHon. Robert S. Calvert, page 15 (V-1567)

may be contained in or produced from the porous space of the formation or sand. Ifthis definition is the correct guide to the meaning of the statute, Attorney General Opinions O-3698, O-4188 and V-1353 are erroneous either inpart or in toto.

We quote the following excerpt from Attorney General Opinion O-4188 (1942).

“The services described inparagraphs II, III and IV all relate to tests of the properties of fluids and gasin wells as distinguished from tests of solid materials found in the wells. The statute expressly enumerates ‘the surveying or testing of the sands or other formations of the earth in any such oil or gas wells.’ We believe that this lan**guage** is intended to embrace not only the solid material actually composing the sand, but the gas, oil or water with which the sand may be saturated or other formations permeated. It is tobe remembered that the purpose of drilling oil and gas wells is to produce oil or gas. Itwould be strange indeed if a statute, patently designed to tax technical services customarily rendered by persons other than the driller in connection with the efficient cornpletion and operation of oil and gas wells, were construed so as to tax the testing ofnon-productive formations through which the drill must necessarily pass, and exempt the testing of the properties ofthe very product, i.e., gas and oil, ‘which is sought to be produced. We therefore are of the opinion that analysis ofbottom-hole fluids, the testing of pressures atvarious points in the well and ascertainment of the productivity index of the well are all services which come within the intended scope of the statute under consideration.” In Opinion O-3698 (1941) the following ruling was made: “Testin of the sands or other formations of ---Ii-+ the eart o oil and gas wells is the taking of samples of the earth formations and fluid contents from the walls or bottom of the well and analyzing the same so as to ascertain the composition of said earth formations and fluid contents. See ‘Fundamentals of the Petroleum Industry,’ by Dorsey Hogar, 1939, pages 226 to 231, and ‘Drilling Practices, by Charles Cyrus, 1939, pages 182 to 195;”Hon. Robert S. Calvert, page 16 (V-1567)

Bottom hole pressure tests, depth pressure tests, productivity index tests, gas-oil ratio testing, bottom hole sampling and analysis, open flow potential tests and gas-condensate well tests were held taxable services in Opinion V-1353 (1951). All of these tests are tests of “fluids”

.

InSheppard Co., 208 S.W.2d 656 (Te~.Civ.App. 1948), the court held that the service of operating a portable laboratory, set upon the well location, for the purpose of analyzing drill cuttings was a taxable service under Article 7060a. We quote the following excerpts from page 657 ofthe opinion:

“The service performed is the analysis of drill cuttings whCch are taken possession ofby appellee after the same have been brought to the surface and separated from the drilling fluid by means of a shale-shaker.

. . .The test made on the drill cuttings is to determine the gas and oil contents of the strata or formations of the earth encountered by the drill bit. The laboratory findings are furnished to thewell owner and appellee is paid for the service.

“It is not necessary tohere further set out the methods employed by appellee since it is not material to the issue tobe here~decided; except it may be added the’laboratory of appellee consists of such equipment as enables it to make the analysis of the cuttings it takes possession of.” An examination of the record before the court inthis case shows that the plaintiff taxpayer performed, among others, the following tests: “A We take the cuttin& and put them in a quart container. We put one pint of cuttings in this container, and we put one-quarter ofthe volume ofwater.
. . .We seal this container and put it inwhat we call an agitator

. . .then we hook two hoses to this container. One is a suction hose, and the other is the return. There is a compressor motor in this system, andwe pull avacuum on these cuttings equivalent to four inches of mercury. By leaving the return valve closed, and opening upthe suction side, we create a vacuum, and reduce the cuttings below atmospheric pressure, which is sufficient with four inches ofmercury to release anyHon. Robert S. Calvert, page 17 (V-1567)

contained gases that are in the pore spaces or interstitial spaces. [S.F., pp- 6 &71 “Q Now, what is the diagram, Plaintiff’s Exhibit No. 27 “A This is a diagram of aWheatstone Bridge gas analyzer. [S.F., p. g]
u

. . .

‘Q So you arrive at two conclusions by the use ofthis device; namely, the volume of the gas contained in the cuttings, and some notion of the quality of the gas? “A It is a qualitative analysis, that’s right.

. . . “Q After you have completed the gas analysis, what is your next step? “A We take these samples and wash them very thoroughly and subject them to ultra-violet ray radiation.

. e.

‘Q What is the purpose of that process7 “A Ultra-violet rays coming in contact with liquid hydro-carbons will cause them to be energized and tofluoresce and become visible to the naked eye. DL) D [S.F., pp” 11,121” The following further details as to these tests were also included finthe record:

“Q And then you take those cuttings into the portable laboratory and you test these samples to determine the volume of the gas in it, and also to test whether or not, if there is gas there, it is high or **low** fraction gas? “A Yes. “Q And you test it for that purpose?Hon. Robert S. Calvert, page 18 (V-1567)

“A “Q

“A “Q

*A “Q

“A

which were held itbe taxable in the Rotary case were test of

..“fluids”

. This being so, we think that the words “sands” and “formations” must be interpreted as including the fluid contents of said “sands” and “formations”

. this question. Indeed, we think the Rotary case is decisive of

In this connection, we think it pertinent that the Legislature has met twice since the decision in the Rotary case. Since ithas not seen fit to amend Article 7060a by excludvom taxable services the testing of “fluids, ” it must be presumed to have acquiesced in the judicial interpretation of legislative intent.

Itis also submitted that analyses of cuttings are not analyses but inspections. Microscopic inspections of cuttings was one of the services performed by the taxpayer in the Rotat bley;nze. For the reason just stated we think such service is a taxa

In Opinions O-3698 and V-1353 itwas held that side wall sampling was a taxable service. We are urged to make a distinction between the taking of the sample and the testing of the sample for the re~ason that many samples are never tested. There is presently pending before the Court of Civil Appeals for the Third Supreme Judicial District of Texas Robert S. Calvert and Williati B. Davis v,

Yes. And ifyou think it is inwhat you think is oil -- liquid hydro-carbons, Ibelieve you call it? Yes. Ifyou find some evidence of that, or if you believe it should be there, you put it through the other part ofyour laboratory, which you call ultra-violet radiation? Yes, sir. And you look at it and you can tell from that, ina general way, at least, as towhether or not it is a low gravity oil or ahigh gravity oil, according to the difference in color? That’s right.” Thus it is apparent that at least some .ofthe services. . .

Hon. Robert S. Calvert, page 19 (V-1567)

A-1, Bit and Tool Company. A decision in this case could be decrsrve of this questron and for that reason we deem it improper for us to reconsider it at this time. SUMMARY Cementing “liners” (strings of casing whose tops are situated below the surface) is a taxable service under Article 7060a, V.C.S., if the liners are used as extensions of the oil string as distinguished from liners used to repair defective casing. The following operations are not taxable under Article 7060a because they do,not constitute nor are they done in connection with cementing the casing seat: cementing conductor, surface, intermediate or protective casing strings; cementing to control wells; cementing for lost circulation; plugback operations; cementing for abandonment; squeeze cementing operations; cementing liners for remedial or repair operations; cementing for whipstock operations

. Temperature surveying done to determine the success of cementing a casing seat is a taxable service since it is performed in connection with cementing the casing seat. Shooting operations which are not concerned with formation fracturing and which are not performed in connection with one of the taxable services enumerated in Article 7060a are not taxable services. Acidieing operations which do not have for~their purpose the dissolution of aformation are not taxable services unless they are performed in connection with a taxable service. El,ectric logging to record geological formations, radioactive logging, magnetic logging and dip recording are taxable services. A deflection or deviation survey is a survey of the drill hole rather than a survey of the formations of the earth and such surveying is not a taxable service. Neither depth measurement surveys nor surveys to locate the free.point of stuck pipe, nor caliper logging, nor surveys to locate the depth of collars, nor electric logging to locate junk or fish in the hole, nor corrosion surveys, nor fluid level surveys are taxable surveys because they are not surveys ofthe formations of the earth. Temperature surveys are taxable only ifmade for the purpose of surveying the formations of the earth or if they are made in connection with a taxable service. To the extent that Attorney General Opinion O-3698 (1941) holds to the contrary it is overruled.-
. .

Hon. Robert S. Calvert, page 20 (V-1567)

Water-flow 

### surveys are taxable as a survey of the formations of the earth. The words ‘sands” and

“formations” must be interpreted as including the fluid contents of said “sands” and “formations”

. Sheppard v. Rotary Engineering Co., 208 S.W.Zd 6 (Tex.Civ.App. 1948). Therefore bottom hole pressure testing, depth.pressure testing, productivity index testing, gas-oil ratio testing, bottom hole sampling and analyning, open flow potential testing and gas-condensate well testing are taxable services. Microscopic inspection of drill cuttings is a taxable service. Sheppard v. Rotary Engineering Co., supra. APPROVED: Yours very truly, W. V. Geppert PRICE DANIEL Taxation Division Attorney General E. Jacobson Executive Assistant Charles D. Mathews First Assistant By,$%( ;I;i;;-
,’ .I, 1 //

’ / i’!<, i Marietta McGregor Creel Assistant

MMcc:mw