On the rail Commison on the production on my well’s it is saying “high cost tight sand”. I’m just trying to find out what that means. Thank you very much for your response.
Dear Jean,
This is really a question for a regulatory or tax expert, but I will take a stab at it.
High Cost Tight Gas Sand, refers to Section 107 of the old Natural Gas Policy Act, which allows some tax breaks on the IRS code and also qualifies for some Severance Tax reduction or abatement on the State of Texas level. Actually the sands do not need to be tight to qualify. As I recall, there is a depth trigger as well.
Natural Gas became regulated for intrastate commerce in 1978 by FERC. Section 107 was gas not subject to the price controls.
Now, what are tight sands? This is really a Kenny Dubose question.
There are many elements relevant to reservoir characteristics, but two basic measurements are porosity and permeability. I will define in lay terms that porosity is all that part of rock that is not rock (the spaces between the grains of sandstone, shale or whatever…that is called interstitial space) and permeability is how well those pores are connected (the ability to flow to the low pressure area created by the well-bore). Tight sands would include the Cotton Valley in East Texas and all of the shales and laminated sands. These sands require stimulation (hydrofrac, acid, etc) to produce at profitable rates, or to give up any hydrocarbons to speak of at all. You can also replace “stimulation” in the previous sentence with “lots of extra money.”
(Kenny, how did I do?)
Buddy Cotten said:
Dear Jean,
This is really a question for a regulatory or tax expert, but I will take a stab at it.
High Cost Tight Gas Sand, refers to Section 107 of the old Natural Gas Policy Act, which allows some tax breaks on the IRS code and also qualifies for some Severance Tax reduction or abatement on the State of Texas level. Actually the sands do not need to be tight to qualify. As I recall, there is a depth trigger as well.
Natural Gas became regulated for intrastate commerce in 1978 by FERC. Section 107 was gas not subject to the price controls.
Now, what are tight sands? This is really a Kenny Dubose question.
There are many elements relevant to reservoir characteristics, but two basic measurements are porosity and permeability. I will define in lay terms that porosity is all that part of rock that is not rock (the spaces between the grains of sandstone, shale or whatever…that is called interstitial space) and permeability is how well those pores are connected (the ability to flow to the low pressure area created by the well-bore). Tight sands would include the Cotton Valley in East Texas and all of the shales and laminated sands. These sands require stimulation (hydrofrac, acid, etc) to produce at profitable rates, or to give up any hydrocarbons to speak of at all. You can also replace “stimulation” in the previous sentence with “lots of extra money.”
(Kenny, how did I do?)
Buddy Cotten
www.cottenoilproperties.com
Does this mean extra monies for the owners are for XTO? Do we have the mpney?
Thanks Jean
Dear Jean.
The severance taxes rates are as follows:
Gas: 7.5% (.075) of market value of gas.
Condensate Production Tax: 4.6% (.046) of market value of gas.
Regulatory Fee: For report period prior to September 2001, 1/30 of a cent (.000333) for thousand cubic feet of gas produced. For report periods September 2001 and later, .000667 for thousand cubic feet of gas produced.
High-Cost Gas Reduced Tax Rate 0.0% to 7.4% (.000 to .074) of the market value of gas, the rate varies by well depending on how the well’s drilling and completion costs compare to the median cost of all High-Cost gas wells (previous State fiscal year);
Bottom line is that if your royalty is paying less taxes, you have more money in the check. The producer and royalty owners benefit by the producer requesting and receiving the high cost reduced tax rate.
Send XTO a thank you note.
Jean said:
Does this mean extra monies for the owners are for XTO? Do we have the mpney?
Thanks Jean