Tax Update – Energy Industry

Texas and Wyoming Severance Tax Exemption

8/17/2023: Texas and Wyoming both provide waivers from the severance tax that is otherwise imposed on flared gas consumed on the site of a qualifying well. While the exemptions have been heralded as an incentive for cryptocurrency mining, both states’ exemptions apply broadly to stranded gas of a qualifying well that is consumed on site for any purpose (not specifically related to cryptocurrency mining.) The Texas and Wyoming rules related to this exemption are nearly identical. In the absence of these exemptions, gas used onsite is subject to the gas severance tax. As such, producers that qualify for the exemption will not need to consider the tax implications of using versus flaring on-site gas.

The Texas exemption was enacted by the state legislature earlier this year, and the state will begin accepting applications on September 1, 2023. Wyoming has provided an exemption since January 1, 2022.

A qualifying well is a well that meets one of the following criteria:

  • Is not connected to a pipeline and is operated by a well operator who has not contractually dedicated to a pipeline operator: the well, the gas produced from the well, or the land or lease on which the well is located or
  • Is not connected to a pipeline and for which connection to a pipeline is technically or commercially unfeasible or
  • Is connected to a pipeline on which the pipeline takeaway capacity is a constraint

The Texas rules also require that gas was flared for at least 30 days during the year preceding the application and require that the stranded gas be consumed within 1,000 feet of the qualifying well.

Both Texas and Wyoming require an application to be submitted in order to qualify the well before the waiver can be utilized.

Read more here.

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Brandon Newton

Senior Tax Manager

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