Texas Railroad Commissioner Michael Williams is pushing for legislation to give an investment tax credit to oil and gas operators that drill exploratory wells in the state. Williams, speaking to the Texas Energy Planning Council last week, said the credit would accelerate exploratory drilling and combat the state’s production decline rates.
According to Williams, the investment credit would be earned against future severance tax liability if the number of exploratory wells drilled statewide exceeded the statewide average by 5%, or a total of 530 exploratory wells. “The amount of the tax credit would depend on the depth of the well,” said Williams, “with deeper, more expensive wells receiving a greater tax credit. For the average exploratory well drilled in Texas at 8,000 feet, the tax credit would be $74,000. That credit would save operators about 10% of the cost of drilling the well.”
The Texas State Comptroller’s Office estimates that a “modest” increase in exploratory drilling — about 20% — would “conservatively generate the equivalent of 27-plus million boe, $616 million of new revenue and $38 million of new severance taxes…assuming the price of $22.50/bbl,” said Williams.
Under the commission plan, the proposed tax credit would allow $10,000 for each qualifying exploratory well drilled, plus an incentive credit rate of $1 for each 1,000 feet drilled. For example, an 8,000-foot well would receive a $10,000 credit plus $8 times 8,000, for a total tax credit of $74,000.
The commission also wants more credits to encourage operators to implement desalination plans in their oil and gas facilities. Williams noted that if “just 10%” of the 2 billion barrels of wastewater associated with oil and natural gas production were converted to fresh water, the commission estimates that “Texas would recover approximately 8.4 billion gallons of water annually.”
Williams said, “we should expand consideration to look at encouraging efforts to convert oilfield produced water.” With “support, such as tax deductions and expansion of desalination equipment,” Williams said technology could be used to “significantly impact the quality of water, and the quality of life, in Texas.”
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