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Office of Conservation

Severance Tax Relief Program

Applications received on or after August 1, 2015 will be charged a $504 fee. The fee will be for each serial number, not per application.  Please follow this link for more information regarding fee and rule changes.

The Severance Tax Relief Program allows the suspension of severance taxes due on production from a qualifying well for a variable time period depending on the category.

The Severance Tax Relief Program (STRP) was created by Act 2 of the 1994 Regular Session then amended by Act 16 of the 1996 Regular Session, Act 7 of the 1998 Regular Session, Act 74 of the 2002 Regular Session and has been amended and extended by Act 492 of the 2005 Regular Session for inactive wells.

The Office of Conservation certifies qualification under this program in four (4) categories, three (3) of which involve a Well Cost Statement:

  1. Inactive Well
  2. Deep Well
  3. Horizontal Well
  4. New Discovery Well

Well Status Determinations are evaluated by the office policy set forth in the following Office of Conservation Memorandums that address the issue:

INACTIVE WELL REQUIREMENTS** (Act No. 492 of the 2005 Regular Session)

  • REQUIREMENTS
    • Form STRP-IW
      • List of day(s) produced. (if applicable)
    • The qualification period for Inactive Well Status:
      • July 01, 2002 to June 30, 2010  
  • NOTES
    • Act 492 applies to certifications granted on or after January 1, 2005  
    • The well must have thirty days or less production for two consecutive years during the qualifying period.  
    • The five-year exemption period shall begin on the first occurrence of:
      • the date of first production or ninety days after the application is received in our office, whichever occurs first  
    • A well previously approved for severence tax exemption can qualify again if
      • a new application for well status determination is approved
        • it meets the current qualification criteria
        • the well had produced and the previous incentive period has expired
        • the well had not been produced and the previous incentive period has not expired  
    • The qualifications of a well is determined by focusing on its well bore:
      • If the well has a dual side, triple side, etc. that produced during the two year qualification period, that production will count against the 30 day period.  
     
  • Download Form STRP-IW:

**Eligible for a five year exemption from the date of first production or ninety days after receipt date, whichever comes first.

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DEEP WELL REQUIREMENTS**

  • Form STRP-DW (.pdf or .xls)
  • Detailed Itemized Well Cost Statement  
  • Form WH-1  
  • Form COMP  
  • Directional Survey (if applicable)
    • Well must be drilled to a true vertical depth (TVD) of 15,000 feet or greater.
    • First production must commence after July 31, 1994.  
  • Note: Wells sidetracked below 15,000 feet TVD from which production commenced after July 31, 1994 in the sidetrack hole are also eligible, however,
    • the only costs allowed are those associated with the sidetrack

**Eligible for a two year exemption from the date of first production or until payout of qualified costs, whichever comes first.

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HORIZONTAL WELL REQUIREMENTS

  • Form STRP-HW (.pdf or .xls)
  • Detailed Itemized Well Cost Statement  
  • Form WH-1  
  • Directional Survey  
  • First production must commence after July 31, 1994.  
  • Well must be horizontally drilled or recompleted with 80° deviation from the vertical and at least a 50 foot penetration into the sand.

Note: Horizontal recompletions are defined as horizontal drilling in an existing well bore. Horizontal recompletion costs are limited to only those costs associated with the horizontal portion of the well bore. Extensions of existing horizontal well bores, in the same sand, are not considered horizontal recompletions.

**Eligible for a two year exemption from the date of first production or until payout of qualified costs, whichever comes first.

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NEW DISCOVERY REQUIREMENTS**

  • Form STRP-ND (.pdf or .xlsx)
  • Detailed Itemized Well Cost Statement.  
  • Well must have spud after September 30, 1994.  
  • Well must be completed between September 30, 1994 and September 30, 2000.  
  • Well must be completed in a new reservoir, i.e., a reservoir that was not produced before September 30, 1994 and not penetrated by a well capable of producing hydrocarbons in commercial quantities from such reservoir before said date.  
  • Note: A well drilled and completed in a new reservoir and located in a new field requires a "New Field" designation from the Geological Division of the Office of Conservation. A developmental well drilled and completed in a new reservoir, but located in an old field requires a hearing. Only the discovery well in each new reservoir qualifies for the tax exemption, any developmental wells in the same reservoir do not qualify.  
  • The Order recognizing a developmental well as a "New Discovery" must be attached to form STRP-ND. (if applicable)

**Eligible for a two year exemption from the date of first production or until payout of qualified costs, whichever comes first.

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WELL COST STATEMENT

A well cost statement must accompany every STRP application for Deep Well, Horizontal Well, and New Discovery Well categories. This cost statement must be a detailed itemized listing of the actual costs to drill, complete, and equip the well for production. No AFE or estimated costs are allowed. Applicants are encouraged to hold the filing of applications until they have a firm cost figure. Applicants are allowed to collect, retroactively, any severance taxes paid back to the date of first production on a qualifying well.

Costs such as building a board road, preparing the location, logging, cement, drill bits, pipe, labor, 3-D seismic*, etc. can be included on the cost statement. The cost to build a flowline to a facility and any new equipment needed to hook the well up to the facility can also be included, however, the cost of an existing facility is not eligible and a newly constructed facility's cost must be prorated to the number of wells it is designed to serve. Lease-related costs, legal fees, hearing costs, saltwater disposal wells, title searches, etc. are examples of costs that are not allowed on the cost statement.

Cost statements should be organized and easy to read. Each line item must be identified by actual service or material, not just vendor/provider. It is preferable for expenditures for the same service or material to be grouped together in one line item rather than listed by vendor/provider each time such service or material is charged. Any accounting or in-house codes should be defined.

*The 3-D seismic cost requested on Form STRP-3D must be included in the cost statement as a line item and in the total cost shown on forms STRP-DW (Deep Well), STRP-HW (Horizontal Well), or STRP-ND (New Discovery Well).

Applications claiming 3-D seismic costs must include Form STRP 3-D (.pdf or .xls).

Any questions regarding Act 2 should be directed to: Permit and Reservoir Section Manager

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