West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-01J - Valuation of Producing and Reserve Oil, Natural Gas Liquids, and Natural Gas for Ad Valorem Property Tax Purposes › Section 110-1J-3 - Definitions

Current through Register Vol. XLI, No. 28, July 12, 2024
As used in this rule and unless the context clearly requires
				  a different meaning, the following terms have the meaning ascribed in this
				  section.
3.1. "Abandoned well" means
				any well which is required to be plugged under the provisions of W. Va. Code
				§
									22-6-19.
3.2. "Actual annual operating costs" means
				all lease operating expenses, lifting costs, gathering, compression,
				processing, separation, fractionation, and transportation costs. These costs
				are limited to the actual costs incurred by the producer, prior to the
				arm-length sale of the well output to a buyer, without reference to items such
				as general administration, overhead, or any costs indirectly related to
				producing, processing, or transporting the well output.
3.3. "Appraised value" means the value of oil
				producing properties or natural gas producing properties, including real and
				personal property, determined in accordance with this rule.
3.4. "Assessment date" means the July 1 date
				preceding the start of the property tax year as defined in W. Va. Code §
									11-3-1,
et
				seq
.
3.5. "Bands of
				investment discount component" means a discount rate derived by assigning rates
				to various debt and equity investment financing tiers and summing these rates,
				weighted by their respective percentages of total financing, as specified in
				the annual variables filed pursuant to section heading 10 of this
				rule.
3.6. "Barrel" or "BBL" means
				a unit of measurement of volume equal to 42 US gallons.
3.7. "Barren property" means those acres,
				tracts, and parcels owned in fee in West Virginia where data suggests with
				reasonable certainty that the presence of oil, natural gas liquids, or natural
				gas is very unlikely.
3.8.
				"Capitalization rate" means a single state-wide capitalization rate for oil,
				natural gas, and natural gas liquids producing property, which shall be
				determined annually by the Tax Department based on a "Build-up-Model" of the
				Weighted Average Cost of Capital (WACC).
3.9. "Coalbed methane" means methane gas, and
				other well output which can be produced from a coal seam, the rock or other
				strata in communication with a coal seam, a mined-out area, or a gob
				well.
3.10. "Commissioner" or "Tax
				Commissioner" means the Tax Commissioner of the State of West Virginia, or his
				or her delegate.
3.11.
				"Communitized area" means an area involving more than one lease, due to a
				cooperative agreement or legal mandate, and is developed for the drilling and
				operation of a single or multiple oil or gas wells, or both, by one or more
				operator.
3.12. "Compression costs"
				are the actual costs in the process of raising the pressure of
				minerals.
3.13. "Condensate" means
				liquid hydrocarbons (normally exceeding 40 degrees of API gravity) recovered at
				the surface without processing. For purposes of this rule, condensate, along
				with certain other components of well output, constitutes a natural gas
				liquid.
3.14. "Deeded acre" means
				an acre of land one owner transferred, or deeded, to a new owner.
3.15. "Discount component" means an element
				in the determination of a rate reflecting a provision for returning to an
				investor a sum of money equal to the aggregate of the anticipated
				return-on-investment over the economic life of an investment.
3.16. "Economic interest" in oil, natural gas
				liquids or natural gas means that the person has acquired by investment any
				interest in oil, natural gas liquids or natural gas in place and secures, by
				any form of legal relationship, current, future, or potential income derived
				from the extraction of the oil, natural gas liquids or natural gas, to which
				the person must look for a return of the person's capital.
3.17. "Farm-use well" means a gas well that
				produces gas solely for the use of the farmer who owns the land where the gas
				is in place. Ownership of the gas by the farmer is not required to qualify as a
				farm-use well. The gas produced may not be sold, traded, or bartered.
3.18. "Flat Rate royalty" means a royalty
				rate in which the amount paid per year (e.g., $100 per year) is set within a
				lease and is not dependent on the production or income derived from the
				well.
3.19. "Flush production"
				means the production of oil and/or natural gas from any well on an oil and/or
				natural gas property with an initial production date that is two (2) calendar
				years or less prior to the July 1st assessment date. Production beginning after
				December 31st and prior to the July 1st assessment date must be
				reported.
3.20. "Gathering costs"
				means the actual costs of transportation of oil, natural gas, natural gas
				liquids, condensate, or any combination thereof from multiple wells by separate
				and individual pipelines to a central point of accumulation, dehydration,
				compression, separation, heating and treating or storage.
3.21. "Fractionation costs" means the actual
				costs incurred by the producer in fractionation. Fractionation is the
				separating of components of a mixture through differences in physical or
				chemical properties. Fractionation is the process by which raw hydrocarbons are
				separated into products.
3.22.
				"Gross receipts" or "gross proceeds" means the total income received for the
				production on any well, without reduction for any royalties, costs, allowances,
				expenses, or adjustments of any kind, determined at the point of a metered or
				measured first sale to an unrelated third party. "Gross receipts" or "gross
				proceeds" includes total monies and other consideration paid, payable or
				accruing to a producer for the disposition of the oil, natural gas liquids,
				natural gas, residue gas, well output, or gas plant products, or any
				combination thereof, produced. "Gross receipts" or "gross proceeds" also
				includes, but is not limited to, payments and accruals to the operator for
				certain services such as metering, dehydration, liquids separation,
				measurement, and gathering, or any combination thereof. Monies and other
				consideration, to which an operator is contractually or legally entitled, but
				which the operator does not seek to collect through reasonable efforts, are
				also part of "gross receipts" or "gross proceeds." For purposes of this
				definition, the total amounts paid, payable, or accruing shall be determined
				under the method of accounting used for federal income tax purposes.
3.23. "Horizontal well" or "directional well"
				- For purposes of this rule, and notwithstanding the definitions set forth in
				W. Va. Code §
									22-6A-4 and §
									22-6B-2, the term "horizontal
				well" or "directional well" means a well, the wellbore of which is initially
				drilled on a vertical or directional plane and which is curved to become
				horizontal or nearly horizontal, in order to parallel a particular geological
				formation and which may include multiple horizontal or stacked
				laterals.
3.24. "Home-use well"
				means a gas well that produces gas solely for the use of the homeowner who
				occupies the land where the gas in place. Ownership of the gas by the homeowner
				is not required to qualify as a home-use well. The gas produced may not be
				sold, traded, or bartered.
3.25.
				"Lease" means the area encompassed in the leasehold granting the right to
				explore for or produce oil or natural gas, which may include a single tract or
				multiple tracts of land described in the instrument granting the
				leasehold;
3.26. "Lease operating
				expenses" means the actual costs incurred to bring the subsurface minerals
				(oil, natural gas, and natural gas liquids) up to the surface and convert them
				to marketable products. Lease operating expenses refers to the costs of
				operating the wells and equipment. "Lease operating expenses" includes actual
				costs of labor, fuel, utilities, materials, rent or supplies, which are
				directly related to the production, processing, or transportation of oil,
				natural gas, natural gas liquids, or any combination thereof and that can be
				documented by the producer. For the purposes of this calculation, depreciation,
				depletion, extraordinary expenses, ad valorem taxes, capital expenditures,
				intangible drilling costs, expenditures relating to vehicles or other tangible
				personal property not permanently used in the production of oil, natural gas,
				natural gas liquids, or any combination thereof shall not be included as lease
				operating expenses.
3.27. "Lifting
				costs" means the actual costs incurred to operate a well during
				production.
3.28. "Marginal well"
				means a well that, in the calendar year immediately preceding the July 1
				assessment date, has an average daily production of two (2) barrels of oil or
				less, and an average daily production of ten (10) MCF of natural gas or
				less.
3.29. "Marketing affiliate"
				means an affiliate of the lessee whose function is to acquire only the lessee's
				production and to market that production.
3.30. "M.C.F." or "MCF" when used with
				respect to natural gas, means 1,000 cubic feet of natural gas measured at a
				pressure of 14.73 pounds per square inch (absolute) and a temperature of 60
				degrees Fahrenheit.
3.31. "Natural
				gas" means natural gas, coalbed methane, synthetic gas useable for fuel, or
				mixtures of natural gas and synthetic gas. For purposes of the valuation of
				natural gas producing property under this rule, references to "natural gas"
				includes natural gas liquids and liquefied natural gas when those products have
				not been processed from the natural gas.
3.32. "Natural gas liquids" means propane,
				ethane, butanes, and pentanes (also referred to as condensate), or a
				combination of them that are subject to recovery from raw gas liquids by
				processing in field separators, scrubbers, gas processing and reprocessing
				plants, or cycling plants.
3.33.
				"Natural gas producing property" means the property from which natural gas or
				natural gas liquids has been produced or extracted at any time during the
				calendar year preceding the July 1 assessment date. Natural gas producing
				property includes the interest or interests underlying an area of up to one
				hundred twenty-five (125) acres of surface per vertical well for property with
				active wells on the parcel; and communitized acres of surface per horizontal
				well for properties with one or more active wells. All acreage of a natural gas
				producing property in excess of one hundred twenty-five (125) acres per
				vertical well, or the communitized acres per horizontal well, shall be valued
				at the non-producing rate per acre referenced in section heading 4 of this
				rule.
3.34. "Net proceeds" means
				actual gross receipts on a sales volume basis determined from the actual price
				received by the taxpayers as reported on the taxpayer's returns, less royalty
				interest receipts, and less actual annual operating costs as reported on the
				taxpayer's returns.
3.35.
				"Non-Producing or Shut-in Well" means a well, which due to the producer's
				decisions, market reasons, or product performance, or any other reason or
				combination of reasons, was non-productive during the entire most recent
				calendar year preceding the July 1 assessment date.
3.36. "Non-producing property" means
				properties that were not engaged in production of well output, as herein
				defined, during the calendar year next preceding the July 1 assessment date.
				This category includes any acreage that has been shut-in for the entire
				year.
3.37. "Oil" means natural
				crude oil or petroleum, and other hydrocarbons, regardless of gravity, which
				are produced at the well in liquid form by ordinary production methods and
				which are not the result of condensation of gas after it leaves the underground
				reservoir.
3.38. "Oil producing
				property" means property from which oil has been produced or extracted at any
				time during the calendar year preceding the July 1 assessment date. Oil
				producing property includes the interest or interests underlying an area of up
				to forty (40) acres of surface per well with one (1) or more active well(s) on
				the parcel. All acreage of an oil producing property in excess of forty (40)
				acres per well, shall be valued at the non-producing rate per acre referenced
				in section heading 4 of this rule.
3.39. "Overriding royalty" means the
				fractional interest in the gross production payable to a person who is neither
				the producer nor the owner of the oil or natural gas estate and who is not
				required to bear a share of the development or operating costs of the
				well.
3.40. "Personal property"
				used in oil or natural gas production means machinery and equipment on the
				lease or communitized area used in oil production or natural gas production
				from the well to the point of sale. It shall not include vehicles or other
				tangible personal property not permanently used in production, nor shall it
				include third party equipment used to enhance or remarket the gas after the oil
				or natural gas has left the lease or communitized area.
3.41. "Plant gas products" means separate
				marketable elements, compounds, or mixtures, whether in liquid, gaseous, or
				solid form, resulting from processing natural gas, excluding residual
				gas.
3.42. "Plugged and abandoned
				well property" means plugged and abandoned wells that produced or were intended
				to produce well output, as herein defined, without regard to whether the well
				historically produced well output or was a so-called "dry hole" that failed to
				produce well output.
3.43.
				"Processing costs" means the actual costs incurred by the producer for
				activities occurring beyond the inlet to an oil, natural gas, or natural gas
				liquids processing facility that changes the physical or chemical
				characteristics, enhances the marketability, or enhances the value of the
				separate components. Processing costs are limited to the costs for the
				following activities: fractionation, adsorption, flashing, refrigeration,
				cryogenics, sweetening, dehydration within a processing facility,
				beneficiation, stabilizing, compression, and separation which occurs within a
				processing facility.
3.44.
				"Processing, separation and fractionation costs" means de-ethnization fees,
				processing or fractionation fees, pipeline or transportation fees, fuel fees,
				and electric fees charged by a processing or fractionation plant to the
				producer.
3.45. "Producer" or
				"Operator" means any person or persons, corporation, partnership, joint venture
				or other enterprise or entity that proposes to or does locate, drill, produce,
				manage, or abandon any well. "Producer" or "Operator" includes, but is not
				limited to, lessees, as herein defined, and any person or persons,
				corporations, partnership, joint venture or other enterprise or entity that
				owns the economic interest in the natural resource produced, as the term
				economic interest is defined in §
									110-13A-1,
et
				seq
., Code of State Rules.
3.46. "Property owner" means the person or
				persons who own the natural gas or oil in place, except where a different
				meaning is required by the context in which "property owner" is used in this
				article.
3.47. "Raw gas" or "raw
				natural gas" means natural gas as it is produced from the underground
				reservoir.
3.48. "Raw gas liquids"
				or "raw make" is a combined stream of propane, butane and pentanes, plus any
				other liquid hydrocarbon, or any mixtures thereof, which are separated from
				residue gas and processed at a processing or fractionation plant into plant gas
				products.
3.49 "Related parties"
				shall have the same meaning as in the Severance And Business Privilege Tax Act,
				W.Va. Code §
									11-13A-1,
et.
				seq
.
3.50. "Residue gas"
				means the hydrocarbon gas, consisting principally of methane, resulting from
				processing gas.
3.51. "Risk rate"
				means a rate reflecting a return to an investor necessary to attract capital to
				an investment containing a possible loss of principal, or interest, or
				both.
3.52. "Royalty interest"
				means the fractional interest in oil production or natural gas production, or
				both, that may or may not be subject to development costs or operating expenses
				and extends undiminished over the life of the property. Typically, it is
				retained by the oil or natural gas rights owner or lessor or the oil or natural
				gas, or both.
3.53. "Storage wells"
				means drilled and completed wells on any property used for the artificial
				injection or storage of natural gas into a natural reservoir strata.
3.54. "Total Production" means the total
				amount of well output. It includes the total amount of oil, measured in
				barrels, total amount of natural gas liquids, measured in MCF, and the total
				amount of natural gas, measured in MCF, of all oil, natural gas liquids and,
				natural gas actually produced and sold from a single well that is developed and
				producing on the assessment date. For commonly metered wells, "total
				production" means the total amount of oil, the total amount of natural gas, and
				the total amount of natural gas liquids, of all oil, natural gas liquids, and
				natural gas actually produced and sold from the commonly metered wells divided
				by the number of the commonly metered wells.
3.55. "Transportation costs" means the actual
				costs of moving oil, natural gas, natural gas liquids, unprocessed gas, residue
				gas, or gas plant products or any combination thereof to a point of
				sale.
3.56. "Vertical well" means
				any well producing either gas or oil, or both gas and oil, that is not a
				horizontal well as defined in this rule.
3.57. "Well" means any shaft or hole sunk,
				drilled, bored, or dug into the earth or into underground strata for the
				extraction of oil or gas.
3.58.
				"Well output" means oil, natural gas liquids, natural gas, condensate, raw gas,
				raw natural gas liquids, plant gas products, residue gas, or any other natural
				resource produced from a well or any combination thereof.
3.59. "Working interest" means the fractional
				interest in oil production or natural gas production, or both, subject to
				development and operating expenses and owned by the leaseholder or operator, or
				both.