December 23, 1952 

Hon. Robert S. Calvert 

Comptroller of Public Accouka 

Austin, Texas Opinion 

Re: Reconsideration of Att’y 

Gen. Op. V-1353 (1951) 

and all related prior 

Dear Sir: opinions. 

You have requested a reconsideration of Attorney 

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 1 of Article 7060a, was amended 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 in Austin, 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?rt preceding. 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 by various; members of the oil industry, defining terms’, explaining various operations involved in drilling, 

testing and surveying wells, an d giving reasons why each of said 

operations is ,or is not embraced by the provisions of Subsection 
kon. Robert S. Calvert, page 2 (V-1567) 

(b) of Section 1 of Article 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 

the cementing of the casing seat of any oil or gas well 0 $ *” 

The bottom of the producing or oil string of casing, 

the last column of casing placed in a well, 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 in the well. In the course’ of drilling, it may 

be found desfrable to run a string or s,everal strings 

of casings jdor to the running of the producing’string. 

These casing string6 are commonly referred to as 

conductor, surface, intermediate OP protective 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 to facilitatedrilling operations for 

various reasons: (1) to exclude water; (2) to reduce 
Hon. 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&s well, and therefore is not 

Tzkixz 

*Cementing to control wells 

Eementmg for lost circulation 

“On bccasion, it may be found necessary to 

pump cement into a well for the urpose of: (1) 

bringing the well undei control; P 2) shutting, off 

undesirable flows of fluids; or (3) sealing off 

intervalS in the hole where drilling fluid is being 

lost. These operaticins are under,taken to facilitate drilling and are not, the”operdtion of cementing of the ca,sing seat, ixi an.oWor~ gas~well. 

“Plug back opdrations 

“A plug back operation is one in which the 

bottom section of the well bore is cement&d off 

to prevent the ,inflow ,of fluid from that,portion 

of’the hole.’ Mariy. types of @lugs are used. This 

operation is ‘not the c&rienting of the casing seat 

in &n oil,or gas well. 

“Ccmentin(i for abanddnment 

“Before abandoning a well; cement plugs are 

placed in the hole to prevent escape of fluids 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 in which 

a fluid cement, after being placed in the desired 
Hon. Robert S. Calvert, page 4 (V-1567) 

position in a well, is subjected to high pump 

pressure to force some of the cement into the 

surrounding formations. This operation is not 

the cementing of the casing seat in an oil 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 the well, When such defects cannot 

be repaired by cementing alone, then a liner may 

be cemented through tha defective section. Such 

operations are not cementing of the casing seat in 

an oil 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 of a 

well, is known as a whipstock. It is a long, slender, 

tapered steel wedge which is supported in the well 

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 a whipstock 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. 

In Attorney 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 ,of cement). Will he be permitted to 
Hon. 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 a fee 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 u e aR 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 the various 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, or jets 

“Shooting of the formation is done in order 

to commence or increase the flow of flui,ds into 

the well 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, or jets, 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 

t 2) The use of shaped charges or jets. 

“The operation is performed any time during 

the life of a well when it is believed production may 

be commenced or increased by providing means of 

fluid flow from a formation into the casing. 

“The operation is performed as follows: 

“A device called a gun which contains a number 

of explosive charges is lowered on an insulated cable 

to a, predetermined depth in a well, Electric current 

sets off the charges. In the case of a perforating gun, 

openings or holes are created by detonation of the 

charges causing projectiles to pierce the pipe, In the 

case of shaped charges or jets, 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 of the string of pipe as possible; 

(3) When a well 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 a wire 

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 in fishing operations 

” ‘Fish’ are any obstructions in a well 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 up more 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 a wire 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 

the jet 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 of fluid 

flow through the screen slots and not an action of 

shooting the formation, and, therefore, is a nontaxable service.” 

The above quoted conclusions as to the taxability of the 

described, operations are ins accord with prior rulings of this office, In Attorney General Opinion O-3627 (1941) it was 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, page 9’ (V- 1,567) 

oil and gas industry. It is 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 it was not shown 

that a formation 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 ppe 7-9 of the 

Opinion. Shooting for the purpose of cleaning out a well 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 note in connection with a named taxable 

operation was not d taxable’ service. Attorney General Opinions 

04261 (1942) and V-1353 (1951) also recognize that perforating is 

nontaxable unless performed in connection with a taxable service. 

L 

. . * acidis- the formation of such wells e e .*, as 

well. of course, as services performed ‘in connection with” acidlaing formationa. la a taxable service. The submitted report 

classifies as aontaxable the following services: acidizing to recwer duck fkh OP stack drill pipe or casing; acidiaing to clean 

screens; acidlmimg to dissolve mud sheaths; and acidizing soluble 

metals. With this we agree since no formations of the earth are 

acidiced. It ho been suggested that Opinipn O-3627 holds that 

acidimiag to clean out a well is taxable without any showing that 

a formation of the earth was acidized. We do not think that the 

OpMoncan be so interpreted in view of the definition of acidizfng, quoted at page 9, as a “process of intro,ducing acid into the 

pore space of an acid-soluble producing formation D D .n; however, that there m%y be no doubt on this point, we expressly hold 

that acidizing which does not have for its purpose the dissolution 

of a formation is.not a taxable service unless it is performed in 

connection with a taxable service, 

The report has classified as taxable as services *performed in cdn&ecti4n with . . 0 the surveying . . e of the sands or 

other formations of the earth in any . . 0 of1 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. In Attorney General Opinion O-3698 (1941)) it was held 

that a dip surrey was h taxable serrica.~ A!1 of the other above 

enumerated msrvices are clearly ‘surveys” 4f the formations 

of ths earth and are 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 

the submitted report an follows: 

“A aurveyy made in a well while drilling which 

utiline~ an inetrument on a wire line, or on pipe to 

record an angle of thedrill hole from vertical, The 

purpose of tbie rurvey i.s to determine the course of 

the drill bole in order to reach the desired objective 

and not to survey formations.” 

Consistently with aome of the conclusions reached in 

opinion O-3698, thin seryike would be considered taxable; however, we are of the opinion that the above described operation is 

in fact a survey of the drjll hole rather than a survey of the’formations of the earth and is not a taxable service under Article 7060a. 

“Depth measurement’ is described in the report, as 

“a suryey for the purpose of determining the depth of a point in 

a well bz the use of a weighted wire and a calibrated measur~inS 

device. Opinion O-3698 said of -depth determination”: 

‘This operation consirrts of locating the depth 

in the well of certaimobjects or pa& of the well 

equipment. and it clearly come6 within the definition of a survey.” 

We agree that the operation is a “survey* but think 

it properly should be treated as a survey of a portion of the well 

bore. Since it is not a survey “of the aantla or other formations 

of the earth,* it is not a taxable aerviceg and Opinion O-3698 is 

overruled on this point. 

Surveys to locate the free point of stuck pipe ar’e explained in the report as follows:, 

‘A hrvey of this type involved the use of in: 

strument8 to measure the’ &retch of the pipe so that 

the pomt of seimtre can be determined. An inatrument is lower,ed into the pipe and measures the 

rtretch of the pipe. This operation is ,repeated at 

variow depth8 until no further .&retch i.s indicated. 

Thiaiirdikates the point of seisure.” 

we do not consider Wt thbopeiation constitutes a 

survey “of the sands or other formations of the earth” and therefore hold that it ,is not taxable under Article 7060a. For the same 

reason, we hold that the following operationa, as explained~in the 

report, are not subject 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 a wire 

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 of assisting drilling operations by knowing the diameter 

of the 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 

a wire 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 of an instrument with 

mechanical feelers run on a wire line with recordings at the surface or within the instrument-itself. 

” 

. . 0 . 

*Fluid level surveys 

“Fluid level surveys are made after a well has 

ceased to flow naturally and is being produced by 
Hon. 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 of value in determining if a decrease in production is due to the pump or gas lift 

valves being set too high or if the equipment is not 

functtoning properly. If the 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 COO1ing effects of flowing oil, the heat 

generative effects of hardening cement, the following results are made possible: 

“a. Location of oil and gas bearing formations and differentiation between the two. 

“b. Location of cement top behind the Casing. 

“c. Determination of the base of the gas to 

permit the casing to be 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 of weil 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 in wells, 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 e 0 e 

” ‘In the last few years an electricalresistance thermometer has been evolved 

which responds to temperature variations 

rapidly and records ,them within 0.2 degr,ees 

Fahrenheit of accuracy. 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. 

In West 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 to your 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 surveys 
Hon. 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 of the 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 of the 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. 

In Opinion 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 19 suspected fluid 19 entering a well at a point 

where such flow is not. desired or when it is suspected certain sections. of a horizon are taking a 

disproportionate volume of the injected fluid. Exit 

surveys are run whenever it is thought fluid is 

leaving a well at a point where such flow is not 

wanted or when it is thought certain strata of a 

horizon are producing a disproportionate volume, 

principally water, of the produced fluid. This 

may be determined in various ways but probably 

the moat common. method is by use of a mechanical 

device lowered in the hole to measure the relative 

volume of fluid 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 D 0 . oil or gas wells 

. . . The submitted report has defined “sands” and “formations” 

as not including the “fluids” - liquid and gaseous materials - which 
Hon. Robert S. Calvert, page 15 (V-1567) 

may be contained in or produced from the porous space of the 

formation or sand. If this definition is the correct guide to the 

meaning of the statute, Attorney General Opinions O-3698, O-4188 

and V-1353 are erroneous either in part or in toto. 

We quote the following excerpt from Attorney General 

Opinion O-4188 (1942). 

“The services described in paragraphs 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 language 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 to be remembered that the purpose of drilling oil and gas 

wells is to produce oil or gas. It would 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 of non-productive 

formations through which the drill must necessarily 

pass, and exempt the testing of the properties of the 

very product, i.e., gas and oil, ‘which is sought to be 

produced. We therefore are of the opinion that analysis 

of bottom-hole fluids, the testing of pressures at various 

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 

the eart ---Ii-+ 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”. 

In Sheppard Co., 208 S.W.2d 656 

(Te~.Civ.App. 1948), the court held that the service of operating a 

portable laboratory, set up on 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 of the opinion: 

“The service performed is the analysis of 

drill cuttings whCch are taken possession of by 

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 the well owner and appellee 

is paid for the service. 

“It is not necessary to here further set out 

the methods employed by appellee since it is not 

material to the issue to be 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 in this 

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 of the volume of water. . . . We seal this container and 

put it in what 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, and we 

pull a vacuum on these cuttings equivalent to 

four inches of mercury. By leaving the return 

valve closed, and opening up the suction side, 

we create a vacuum, and reduce the cuttings 

below atmospheric pressure, which is sufficient 

with four inches of mercury to release any 
Hon. 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 a Wheatstone Bridge 

gas analyzer. [ S.F., p. g] 

u 

. . . 

‘Q So you arrive at two conclusions by the 

use of this 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 to fluoresce and become 

visible to the naked eye. D L) D [S.F., pp” 

11,121” 

The following further details as to these tests were 

also included fin the 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 it be 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 it has 

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. 

It is 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 it was 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 if you think it is in what you think is 

oil -- liquid hydro-carbons, I believe you 

call it? 

Yes. 

If you find some evidence of that, or if 

you believe it should be there, you put 

it through the other part of your laboratory, which you call ultra-violet radiation? 

Yes, sir. 

And you look at it and you can tell from that, 

in a general way, at least, as to whether or 

not it is a low gravity oil or a high gravity 

oil, according to the difference in color? 

That’s right.” 

Thus it is apparent that at least some .of the 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 a formation 

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 of the formations 

of the earth. Temperature surveys are taxable only 

if made 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 

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