Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › Rule 006.05.08-005 - Rule 2008-4: Natural Gas Severance Tax Rules

Current through Register Vol. 49, No. 6, June, 2024
Pursuant to the authority granted by Ark. Code Ann. §§
								26-18-301 and
				26-58-129,
				the Director of the Arkansas Department of Finance and Administration
				promulgates the following rules for the purpose of facilitating compliance with
				the Act 4 of the First Extraordinary Session of 2008 (the Act to Increase the
				Severance Tax Rate on Natural Gas) and to facilitate the administration,
				enforcement, and collection of the tax.
NG-1.
EFFECTIVE DATE:
These rules shall be effective from and after January 1,
				2009.
NG-2.
PURPOSE
			 OF RULES:
The following rules are promulgated to implement and clarify
				Title 26, Chapter 58 of the Arkansas Code as it relates to severance tax levied
				upon natural gas production. All persons affected by or relying upon these
				rules are advised to read them in their entirety because the meaning of the
				provisions of one rule may depend upon the provisions contained in another
				rule.
NG-3.
DEFINITIONS:
For purposes of these rules, unless otherwise required by their
				context, the following definitions apply:
A. The term "Director" means the Director of
			 the Department of
Finance and Administration or any of his or her duly appointed
				deputies or agents.
B. The
			 terms "Completion" or "Completed" means the act of making a well capable of
			 producing gas.
C. "Conventional Gas
			 Well" means any gas well that is not classified by the Director of the Oil and
			 Gas Commission as a high-cost gas well.
D. "Date of First Production", when used in
			 reference to a particular gas well, means the first day in the month that the
			 gas well produces natural gas for sale.
E. "High-cost Gas Well" means any gas well
			 that is completed as a well capable of producing high-cost gas.
F. "Marginal Gas Well" means any gas well
			 that produces or is capable of producing marginal gas, as determined by the
			 Director of the Oil and Gas Commission using the current wellhead
			 deliverability rate methodology utilized by the Oil and Gas
			 Commission.
G. "Market Value" means
			 the producer's actual cash receipts from the sale of natural gas to the first
			 purchaser less the actual costs to the producer of dehydrating, treating,
			 compressing, and delivering the gas to the first purchaser.
H. "New Discovery Gas Well" means any
			 conventional gas well that is completed as a well capable of producing
			 gas.
I.
1. The term "Payout" means the date the
			 cumulative working interest revenues from a high-cost gas well equal the sum
			 of:
a. All reasonable and necessary drilling
			 and completion costs incurred in connection with the high-cost gas well;
			 and
b. All reasonable and necessary
			 operating costs incurred or accrued in connection with the operation of the
			 high-cost gas well during the period of cost recovery.
2. In calculating allowable "Payout", the
			 following definitions shall apply:
a.
			 "Drilling and Completion Costs" shall mean all reasonable and necessary
			 drilling and completion costs incurred and paid by the cumulative working
			 interests in connection with the high-cost gas well.
b. "Operating Costs" shall mean all
			 reasonable and necessary operating costs incurred or accrued by the cumulative
			 working interests during the period of cost recovery.
3. In calculating allowable "Payout",
			 drilling, completion, and operating costs shall not include lease acquisition
			 costs, tank batteries, meters, pipelines, or any other surface equipment except
			 the wellhead equipment and separator.
J. The term "Producer" means any person,
			 firm, receiver, or other fiduciary, corporation, or association, who or which
			 engages in the business of severing natural gas. For purposes of these rules,
			 any person, firm, receiver, or other fiduciary, corporation, or association
			 that elects to take in-kind and separately sell its share of the natural gas
			 produced from a well shall be deemed to be a "producer" and engaged in the
			 business of severing natural gas with respect to such share of natural gas
			 production.
K. The term "Purchaser"
			 means any person, firm, receiver, or other fiduciary, corporation, or
			 association, consignor, agent, or other dealer, by whatever name called, who or
			 which acquires title outright or conditionally to any interest in severed
			 natural gas.
L. The terms "Sever",
			 "Severed", or "Severing" mean natural gas taken or removed for commercial
			 purposes from the soil or water. However, "Sever", "Severed", or "Severing" as
			 defined in this rule do not apply to any natural gas returned to any formation,
			 in recycling, repressuring, pressure maintenance operation, or other operation,
			 for the production of oil or any other liquid hydrocarbon. Further, "Sever",
			 "Severed", or "Severing" as defined in this rule do not apply to any
			 hydrocarbons in gaseous or liquid form which are burned, used, consumed, or
			 otherwise employed in oil and gas operations including but not limited to,
			 secondary recovery operations and fuel for engines in the same leasehold,
			 drilling, or production unit, or unit area of a unitized reservoir from which
			 such hydrocarbons are produced.
M.
			 The term "Transporter" means any person, firm, receiver, or other fiduciary,
			 corporation, or association, who or which transports severed natural gas to any
			 point within, across, or out of the State of Arkansas.
N. "Tight Gas Formation" means any natural
			 gas bearing formation that:
1. Has previously
			 been determined by Oil and Gas Commission orders or field rules to be a low
			 permeability formation, including:
a.
			 Booneville and Chismville-OR# 84-2003-07;
b. Gragg-OR# 89-2004-07;
c. Waveland-OR# 86-2007-07;
d. Rich Mountain-OR# 304-2006-09;
e. Mansfield-OR# 28-2003-03; and
f. Witcherville and Excelsior-OR#
			 103-2005-07; or
2. Is
			 determined by the Director of the Oil and Gas Commission to have an estimated
			 in situ permeability of one-tenth milliDarcy (0.1 mD) or less; or
3. Is determined to be a tight gas formation
			 by field rules, general rules, or orders issued by the Director of the Oil and
			 Gas Commission.
O. The
			 term "Well" means a hole or shaft dug or drilled to obtain natural gas and
			 includes production from all zones and multilateral branches without regard to
			 whether the production is separately metered.
Source: Ark. Code Ann. §
										26-58-101.