Texas Comptroller of Public Accounts    STAR System


9203R1163E01



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 9203R1163E01

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX


Rule 3.553. Taxable Capital: Oil and Gas Reserves.

(a) The provisions of this rule apply only to the computation of taxable 
capital.

(b) Corporations with $1 million or more in taxable capital must choose one of 
the following four methods for estimating the volume of oil and gas reserves to 
be used in amortizing intangible drilling costs for franchise tax reports 
originally due on or after January 1, 1988.

(1) Reserves per Securities Exchange Commission reporting. The estimates of 
reserves used by the corporation in complying with Securities Exchange 
Commission (SEC) Regulation SX 210.4-10, or a subsequent regulation which 
supersedes this regulation.

(2) Evaluation by registered engineer. An evaluation of the volume of reserves 
performed by a person who is an engineer registered with the State Board of 
Registration for Professional Engineers under Texas Civil Statutes, Article 
3271a, or under a comparable law of the jurisdiction in which the property 
being evaluated is located, and who is proficient in petroleum engineering.

(3) Volume per ad valorem valuation.

(A) The volume of reserves calculated for ad valorem tax purposes by the 
central appraisal district for the Texas county in which the property being 
evaluated is located.

(B) The volume of reserves calculated for ad valorem tax purposes by a property 
taxing jurisdiction outside of Texas in which the property being evaluated is 
located, provided:

(i) the out-of-state jurisdiction's law requires a complete and full evaluation 
of reserves that is reasonably comparable to that required by Texas law; and

(ii) the other jurisdiction provides corporations a convenient opportunity to 
contest such evaluations prior to formal suit in a court of law and in a manner 
reasonably comparable to that provided under Texas law.

(4) Volume per standard industry reserve estimating equations. An evaluation 
performed by the corporation using the following standard industry reserve 
estimating equations, with the following qualifications.

(A) For oil wells.

(i) Wells under five years old. For wells that have been producing for less 
than five years, the corporation shall calculate oil reserves attributable to 
the corporation's property using the industry standard exponential decline 
equation.

(ii) Wells over five years old. For wells that have been producing for over 
five years, the corporation may have the option of using the industry standard 
exponential decline equation as in clause (i) of this subparagraph, or 
calculating oil reserves attributable to the corporation's property using the 
industry standard hyperbolic decline equation.

(iii) All wells.

(I) Calculations using the exponential and hyperbolic decline equations shall 
be based on production data submitted to the Texas Railroad Commission under 
Texas law, or on data comparable to that submitted to the Texas Railroad 
Commission but submitted to another jurisdiction under that jurisdiction's law, 
where applicable.

(II) Production data and estimated decline rates used to calculate reserves for 
ad valorem tax purposes by a central appraisal district for the Texas county in 
which a property is located are acceptable substitutes for such data obtained 
directly from the Texas Railroad Commission. The corporation may obtain 
comparable data used to calculate reserves for ad valorem tax purposes by a 
property taxing jurisdiction outside of Texas in which the property being 
evaluated is located, provided:

(-a-) the out-of-state jurisdiction's law requires a complete and full 
evaluation of reserves that is reasonably comparable to that required by Texas 
law; and

(-b-) the other jurisdiction provides corporations a convenient opportunity to 
contest such evaluations prior to formal suit in a court of law and in a manner 
reasonably comparable to that provided under Texas law.

(III) All corporations opting to perform their own evaluations using the 
exponential or hyperbolic decline equations shall use an abandonment flow rate 
of 1.5 barrels per day per well. Corporations using a higher abandonment flow 
rate are required to justify such deviations based on regional, economic, or 
well-specific criteria. The burden of proof in supporting such deviations shall 
rest with the corporation.

(B) For gas wells.

(i) Exponential decline method. For gas wells, the corporation may calculate 
gas reserves attributable to the corporation's property using the industry 
standard exponential decline equation. All corporations electing to use this 
method must use a reasonable abandonment flow rate based on regional, economic, 
or well-specific criteria. The burden of proof in supporting the abandonment 
flow rate shall rest with the corporation.

(ii) P/Z reserves method. As an alternative to using the exponential decline 
equation in clause (i) of this subparagraph, the corporation may calculate gas 
reserves attributable to the corporation's property by using the industry 
standard equation for curve fitting the decline of reservoir pressure versus 
cumulative production. Abandonment pressures must be reasonably related to the 
local pipeline pressures. A graph of p/z versus cumulative production shall be 
extrapolated to the abandonment pressure point. Using this method, reserves 
equal the cumulative production at abandonment minus the cumulative production 
to date.

(iii) Rules applicable to either method.

(I) Calculations using the exponential decline or the p/z reserves methods 
shall be based on production data submitted to the Texas Railroad Commission 
under Texas law, or on data comparable to that submitted to the Texas Railroad 
Commission but submitted to another jurisdiction under that jurisdiction's 
laws, where applicable.

(II) Production data and estimated decline rates used to calculate reserves for 
ad valorem tax purposes by the central appraisal district for the Texas county 
in which a property is located are acceptable substitutes for data obtained 
directly from the Texas Railroad Commission. The corporation may obtain 
comparable data used to calculate reserves for ad valorem tax purposes by a 
property taxing jurisdiction outside of Texas in which the property being 
evaluated is located, provided:

(-a-) the out-of-state jurisdiction's law requires a complete and full 
evaluation of reserves that is reasonably comparable to that required by Texas 
law; and

(-b-) the other jurisdiction provides taxpayers a convenient opportunity to 
contest such evaluations prior to formal suit in a court of law and in a manner 
reasonably comparable to that provided under Texas law.

(c) The method chosen to calculate the volume of reserves must be used to 
amortize intangible drilling costs under the successful efforts or full-cost 
methods of accounting, as described in SEC Regulation SX 210.4-10.

(d) Requests made to central appraisal districts for oil and gas reserve volume 
calculated for ad valorem purposes should be made on the form set out in 
Exhibit A as follows. It is the responsibility of each corporation to correctly 
identify the property on which a reserve volume is requested. Appraisal 
district will only provide an aggregate volume for a property. Each corporation 
must break out its fractional interest in the reserve volume provided by the 
appraisal district.


Effective Date: March 16, 1992
Filed with Section of State: February 24, 1992


 
Comptroller of Public Accounts




ACCESSION NUMBER: 9203R1163E01   
SUPERSEDED: Y 
DOCUMENT TYPE: R 
DATE: 03/16/1992
TAX TYPE: FRANCHISE