57-51.1 Oil Extraction Tax

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CHAPTER 57-51.1OIL EXTRACTION TAX57-51.1-01. Definitions for oil extraction tax. For the purposes of the oil extraction taxlaw, the following words and terms shall have the meaning ascribed to them in this section:1."Average daily production" of a well means the qualified maximum total production of oil from the well during a calendar month period divided by the number of calendar days in that period, and "qualified maximum total production" of a well means that the well must have been maintained at the maximum efficient rate of production as defined and determined by rule adopted by the industrial commission in furtherance of its authority under chapter 38-08.2."Average price" of a barrel of crude oil means the monthly average of the daily closing price for a barrel of west Texas intermediate cushing crude oil, as those prices appear in the Wall Street Journal, midwest edition, minus two dollars and fifty cents. When computing the monthly average price, the most recent previous daily closing price must be considered the daily closing price for the days on which the market is closed.3."Horizontal reentry well" means a well that was not initially drilled and completed as a horizontal well, including any well initially plugged and abandoned as a dry hole, which is reentered and recompleted as a horizontal well.4."Horizontal well" means a well with a horizontal displacement of the well bore drilled at an angle of at least eighty degrees within the productive formation of at least three hundred feet [91.44 meters].5."Oil" means petroleum, crude oil, mineral oil, casinghead gasoline, and all liquid hydrocarbons that are recovered from gas on the lease incidental to the production of the gas.6."Property" means the right which arises from a lease or fee interest, as a whole or any designated portion thereof, to produce oil. A producer shall treat as a separate property each separate and distinct producing reservoir subject to the same right to produce crude oil; provided, that such reservoir is recognized by the industrial commission as a producing formation that is separate and distinct from, and not in communication with, any other producing formation.7."Qualifying secondary recovery project" means a project employing water flooding. To be eligible for the tax reduction provided under section 57-51.1-02, a secondary recovery project must be certified as qualifying by the industrial commission and the project operator must have achieved for six consecutive months an average production level of at least twenty-five percent above the level that would have been recovered under normal recovery operations. To be eligible for the tax exemption provided under section 57-51.1-03 and subsequent thereto the rate reduction provided under section 57-51.1-02, a secondary recovery project must be certified as qualifying by the industrial commission and the project operator must have obtained incremental production as defined in subsection 5 of section 57-51.1-03.8."Qualifying tertiary recovery project" means a project for enhancing recovery of oil which meets the requirements of section 4993(c), Internal Revenue Code of 1954, as amended through December 31, 1986, and includes the following methods for recovery:a.Miscible fluid displacement.b.Steam drive injection.Page No. 1c.Microemulsion.d.In situ combustion.e.Polymer augmented water flooding.f.Cyclic steam injection.g.Alkaline flooding.h.Carbonated water flooding.i.Immiscible carbon dioxide displacement.j.New tertiary recovery methods certified by the industrial commission.It does not include water flooding, unless the water flooding is used as an element of one of the qualifying tertiary recovery techniques described in this subsection, or immiscible natural gas injection. To be eligible for the tax reduction provided under section 57-51.1-02, a tertiary recovery project must be certified as qualifying by the industrial commission, the project operator must continue to operate the unit as a qualifying tertiary recovery project, and the project operator must have achieved for at least one month a production level of at least fifteen percent above the level that would have been recovered under normal recovery operations. To be eligible for the tax exemption provided under section 57-51.1-03 and subsequent thereto the rate reduction provided under section 57-51.1-02, a tertiary recovery project must be certified as qualifying by the industrial commission, the project operator must continue to operate the unit as a qualifying tertiary recovery project, and the project operator must have obtained incremental production as defined in subsection 5 of section 57-51.1-03.9."Royalty owner" means an owner of what is commonly known as the royalty interest and shall not include the owner of any overriding royalty or other payment carved out of the working interest.10."Stripper well property" means a "property" whose average daily production of oil, excluding condensate recovered in nonassociated production, per well did not exceed ten barrels per day for wells of a depth of six thousand feet [1828.80 meters] or less, fifteen barrels per day for wells of a depth of more than six thousand feet [1828.80 meters] but not more than ten thousand feet [3048 meters], and thirty barrels per day for wells of a depth of more than ten thousand feet [3048 meters] during any preceding consecutive twelve-month period. Wells which did not actually yield or produce oil during the qualifying twelve-month period, including disposal wells, dry wells, spent wells, and shut-in wells, are not production wells for the purpose of determining whether the stripper well property exemption applies.11."Trigger price" means thirty-five dollars and fifty cents, as indexed for inflation. By December thirty-first of each year, the tax commissioner shall compute an indexed trigger price by applying to the current trigger price the rate of change of the producer price index for industrial commodities as calculated and published by the United States department of labor, bureau of labor statistics, for the twelve months ending June thirtieth of that year and the indexed trigger price so determined is the trigger price for the following calendar year.12."Two-year inactive well" means any well certified by the industrial commission that did not produce oil in more than one month in any consecutive twenty-four-month period before being recompleted or otherwise returned to production after July 31, 1995. A well that has never produced oil, a dry hole, and a plugged and abandoned well are eligible for status as a two-year inactive well.Page No. 257-51.1-02. Imposition of oil extraction tax. There is hereby imposed an excise tax, tobe known as the "oil extraction tax", upon the activity in this state of extracting oil from the earth, and every owner, including any royalty owner, of any part of the oil extracted is deemed for the purposes of this chapter to be engaged in the activity of extracting that oil.The rate of tax is six and one-half percent of the gross value at the well of the oilextracted, except that the rate of tax is four percent of the gross value at the well of the oil extracted in the following situations:1.For oil produced from wells drilled and completed after April 27, 1987, commonly referred to as new wells, and not otherwise exempt under section 57-51.1-03;2.For oil produced from a secondary or tertiary recovery project that was certified as qualifying by the industrial commission before July 1, 1991;3.For oil that does not qualify as incremental oil but is produced from a secondary or tertiary recovery project that is certified as qualifying by the industrial commission after June 30, 1991;4.For incremental oil produced from a secondary or tertiary recovery project that is certified as qualifying by the industrial commission after June 30, 1991, and which production is not otherwise exempt under section 57-51.1-03; or5.For oil produced from a well that receives an exemption pursuant to subsection 4 of section 57-51.1-03 after June 30, 1993, and which production is not otherwise exempt under section 57-51.1-03.However, if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period, then the rate of tax on oil extracted from all taxable wells is six and one-half percent of the gross value at the well of the oil extracted until the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period, in which case the rate of tax reverts to four percent of the gross value at the well of the oil extracted for any wells subject to a reduced rate under subsections 1 through 5.57-51.1-03. (Effective through June 30, 2012) Exemptions from oil extraction tax.The following activities are specifically exempted from the oil extraction tax:1.The activity of extracting from the earth any oil that is exempt from the gross production tax imposed by chapter 57-51.2.The activity of extracting from the earth any oil from a stripper well property.3.For a well drilled and completed as a vertical well, the initial production of oil from the well is exempt from any taxes imposed under this chapter for a period of fifteen months, except that oil produced from any well drilled and completed as a horizontal well is exempt from any taxes imposed under this chapter for a period of twenty-four months. Oil recovered during testing prior to well completion is exempt from the oil extraction tax.The exemption under this subsection becomes ineffective if theaverage price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.4.The production of oil from a qualifying well that was worked over is exempt from any taxes imposed under this chapter for a period of twelve months, beginning with the first day of the third calendar month after the completion of the work-over project. The exemption provided by this subsection is only effective if the well operator establishes to the satisfaction of the industrial commission upon completion of the project that the cost of the project exceeded sixty-five thousand dollars or productionPage No. 3is increased at least fifty percent during the first two months after completion of the project.A qualifying well under this subsection is a well with an average dailyproduction of no more than fifty barrels of oil during the latest six calendar months of continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries. The exemption provided by this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been certified as a qualified project by the industrial commission after July 1, 1991, is exempt from any taxes imposed under this chapter for a period of five years from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use carbon dioxide and which has been certified as a qualified project by the industrial commission is exempt from any taxes imposed under this chapter for a period of ten years from the date the incremental production begins. Incremental production from a tertiary recovery project that uses carbon dioxide and which has been certified as a qualified project by the industrial commission is exempt from any taxes imposed under this chapter from the date the incremental production begins.c.For purposes of this subsection, incremental production is defined in the following manner:(1)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where there has not been a secondary recovery project, incremental production means the difference between the total amount of oil produced from the unit during the secondary recovery project and the amount of primary production from the unit. For purposes of this paragraph, primary production means the amount of oil which would have been produced from the unit if the secondary recovery project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms to the practice and procedure used by the commission at the time the project is certified.(2)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where a secondary recovery project was in existence prior to July 1, 1991, and where the industrial commission cannot establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during a new secondary recovery project and the amount of production which would be equivalent to the average monthly production from the unit during the most recent twelve months of normal production reduced by a production decline rate of ten percent for each year. The industrial commission shall determine the average monthly production from the unit during the most recent twelve months of normal production and must upon request or upon its own motion hold a hearing to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the industrial commission is not required to use twelve consecutive months. In addition, the production decline rate of ten percent must be applied from the last month in the twelve-month period of time.Page No. 4(3)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where a secondary recovery project was in existence before July 1, 1991, and where the industrial commission can establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during the new secondary recovery project and the total amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced includes both primary production and production that occurred as a result of the secondary recovery project that was in existence before July 1, 1991. The industrial commission shall determine the amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced in a manner that conforms to the practice and procedure used by the commission at the time the new secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there has not been a secondary recovery project, incremental production means the difference between the total amount of oil produced from the unit during the tertiary recovery project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil which would have been produced from the unit if the tertiary recovery project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms to the practice and procedure used by the commission at the time the project is certified.(5)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there is or has been a secondary recovery project, incremental production means the difference between the total amount of oil produced during the tertiary recovery project and the amount of production which would be equivalent to the average monthly production from the unit during the most recent twelve months of normal production reduced by a production decline rate of ten percent for each year.The industrial commission shall determine the averagemonthly production from the unit during the most recent twelve months of normal production and must upon request or upon its own motion hold a hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production the industrial commission is not required to use twelve consecutive months. In addition, the production decline rate of ten percent must be applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there is or has been a secondary recovery project and where the industrial commission can establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during the tertiary recovery project and the total amount of oil that would have been produced from the unit if the tertiary recovery project had not been commenced. For purposes of this paragraph, the total amount of oil that would have been produced from the unit if the tertiary recovery project had not been commenced includes both primary production and production that occurred as a result of any secondary recovery project. The industrial commission shall determine the amount of oil that would have been produced from the unit if the tertiary recovery project had notPage No. 5been commenced in a manner that conforms to the practice and procedure used by the commission at the time the tertiary recovery project is certified.d.The industrial commission shall adopt rules relating to this exemption that must include procedures for determining incremental production as defined in subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial commission and certified to the state tax commissioner, for a period of ten years after the date of receipt of the certification. The exemption under this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial commission and certified to the state tax commissioner, for a period of nine months after the date the well is completed as a horizontal well. The exemption under this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this chapter for a period of sixty months if:a.The well is located within the boundaries of an Indian reservation;b.The well is drilled and completed on lands held in trust by the United States for an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest is in existence on August 1, 1997.9.The first seventy-five thousand barrels or the first four million five hundred thousand dollars of gross value at the well, whichever is less, of oil produced during the first eighteen months after completion, from a horizontal well drilled and completed after April 30, 2009, is subject to a reduced tax rate of two percent of the gross value at the well of the oil extracted under this chapter. A well eligible for a reduced tax rate under this subsection is eligible for the exemption for horizontal wells under subsection 3, if the exemption under subsection 3 is effective during all or part of the first twenty-four months after completion. The rate reduction under this subsection becomes effective on the first day of the month following a month for which the average price of a barrel of crude oil is less than fifty-five dollars. The rate reduction under this subsection becomes ineffective on the first day of the month following a month in which the average price of a barrel of crude oil exceeds seventy dollars. If the rate reduction under this subsection is effective on the date of completion of a well, the rate reduction applies to production from that well for up to eighteen months after completion, subject to the other limitations of this subsection.If the ratereduction under this subsection is ineffective on the date of completion of a well, the rate reduction under this subsection does not apply to production from that well at any time.(Effective after June 30, 2012) Exemptions from oil extraction tax. The followingactivities are specifically exempted from the oil extraction tax:Page No. 61.The activity of extracting from the earth any oil that is exempt from the gross production tax imposed by chapter 57-51.2.The activity of extracting from the earth any oil from a stripper well property.3.For a well drilled and completed as a vertical well, the initial production of oil from the well is exempt from any taxes imposed under this chapter for a period of fifteen months, except that oil produced from any well drilled and completed as a horizontal well is exempt from any taxes imposed under this chapter for a period of twenty-four months. Oil recovered during testing prior to well completion is exempt from the oil extraction tax.The exemption under this subsection becomes ineffective if theaverage price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.4.The production of oil from a qualifying well that was worked over is exempt from any taxes imposed under this chapter for a period of twelve months, beginning with the first day of the third calendar month after the completion of the work-over project. The exemption provided by this subsection is only effective if the well operator establishes to the satisfaction of the industrial commission upon completion of the project that the cost of the project exceeded sixty-five thousand dollars or production is increased at least fifty percent during the first two months after completion of the project.A qualifying well under this subsection is a well with an average dailyproduction of no more than fifty barrels of oil during the latest six calendar months of continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries. The exemption provided by this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been certified as a qualified project by the industrial commission after July 1, 1991, is exempt from any taxes imposed under this chapter for a period of five years from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use carbon dioxide and which has been certified as a qualified project by the industrial commission is exempt from any taxes imposed under this chapter for a period of ten years from the date the incremental production begins. Incremental production from a tertiary recovery project that uses carbon dioxide and which has been certified as a qualified project by the industrial commission is exempt from any taxes imposed under this chapter from the date the incremental production begins.c.For purposes of this subsection, incremental production is defined in the following manner:(1)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where there has not been a secondary recovery project, incremental production means the difference between the total amount of oil produced from the unit during the secondary recovery project and the amount of primary production from the unit. For purposes of this paragraph, primary production means the amount of oil which would have been produced from the unit if the secondary recovery project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conformsPage No. 7to the practice and procedure used by the commission at the time the project is certified.(2)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where a secondary recovery project was in existence prior to July 1, 1991, and where the industrial commission cannot establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during a new secondary recovery project and the amount of production which would be equivalent to the average monthly production from the unit during the most recent twelve months of normal production reduced by a production decline rate of ten percent for each year. The industrial commission shall determine the average monthly production from the unit during the most recent twelve months of normal production and must upon request or upon its own motion hold a hearing to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the industrial commission is not required to use twelve consecutive months. In addition, the production decline rate of ten percent must be applied from the last month in the twelve-month period of time.(3)For purposes of determining the exemption provided for in subdivision a and with respect to a unit where a secondary recovery project was in existence before July 1, 1991, and where the industrial commission can establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during the new secondary recovery project and the total amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced includes both primary production and production that occurred as a result of the secondary recovery project that was in existence before July 1, 1991. The industrial commission shall determine the amount of oil that would have been produced from the unit if the new secondary recovery project had not been commenced in a manner that conforms to the practice and procedure used by the commission at the time the new secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there has not been a secondary recovery project, incremental production means the difference between the total amount of oil produced from the unit during the tertiary recovery project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil which would have been produced from the unit if the tertiary recovery project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms to the practice and procedure used by the commission at the time the project is certified.(5)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there is or has been a secondary recovery project, incremental production means the difference between the total amount of oil produced during the tertiary recovery project and the amount of production which would be equivalent to the average monthly production from the unit during the most recent twelve months of normal production reduced by a production decline rate of ten percent for each year.The industrial commission shall determine the averagePage No. 8monthly production from the unit during the most recent twelve months of normal production and must upon request or upon its own motion hold a hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production the industrial commission is not required to use twelve consecutive months. In addition, the production decline rate of ten percent must be applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b and with respect to a unit where there is or has been a secondary recovery project and where the industrial commission can establish an accurate production decline curve, incremental production means the difference between the total amount of oil produced from the unit during the tertiary recovery project and the total amount of oil that would have been produced from the unit if the tertiary recovery project had not been commenced. For purposes of this paragraph, the total amount of oil that would have been produced from the unit if the tertiary recovery project had not been commenced includes both primary production and production that occurred as a result of any secondary recovery project. The industrial commission shall determine the amount of oil that would have been produced from the unit if the tertiary recovery project had not been commenced in a manner that conforms to the practice and procedure used by the commission at the time the tertiary recovery project is certified.d.The industrial commission shall adopt rules relating to this exemption that must include procedures for determining incremental production as defined in subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial commission and certified to the state tax commissioner, for a period of ten years after the date of receipt of the certification. The exemption under this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial commission and certified to the state tax commissioner, for a period of nine months after the date the well is completed as a horizontal well. The exemption under this subsection becomes ineffective if the average price of a barrel of crude oil exceeds the trigger price for each month in any consecutive five-month period. However, the exemption is reinstated if, after the trigger provision becomes effective, the average price of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this chapter for a period of sixty months if:a.The well is located within the boundaries of an Indian reservation;b.The well is drilled and completed on lands held in trust by the United States for an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest is in existence on August 1, 1997.Page No. 99.The first seventy-five thousand barrels of oil produced during the first eighteen months after completion, from a horizontal well drilled and completed in the Bakken formation after June 30, 2007, and before July 1, 2008, is subject to a reduced tax rate of two percent of the gross value at the well of the oil extracted under this chapter. A well eligible for a reduced tax rate under this subsection is eligible for the exemption for horizontal wells under subsection 3, if the exemption under subsection 3 is effective during all or part of the first twenty-four months after completion.57-51.1-03.1. Stripper well, new well, work-over, and secondary or tertiary projectcertification for tax exemption or rate reduction - Filing requirement.To receive thebenefits of a tax exemption or tax rate reduction, a certification of qualifying well status prepared by the industrial commission must be submitted to the tax commissioner as follows:1.To receive, from the first day of eligibility, a tax exemption on production from a stripper well property under subsection 2 of section 57-51.1-03, the industrial commission's certification must be submitted to the tax commissioner within eighteen months after the end of the stripper well property's qualification period.2.To receive, from the first day of eligibility, a tax exemption under subsection 3 of section 57-51.1-03 and a rate reduction on production from a new well under section 57-51.1-02, the industrial commission's certification must be submitted to the tax commissioner within eighteen months after a new well is completed.3.To receive, from the first day of eligibility, a tax exemption under subsection 4 of section 57-51.1-03 and a rate reduction for a work-over well under section 57-51.1-02, the industrial commission's certification must be submitted to the tax commissioner within eighteen months after the work-over project is completed.4.To receive, from the first day of eligibility, a tax exemption under subsection 5 of section 57-51.1-03 and a tax rate reduction under section 57-51.1-02 on production from a secondary or tertiary project, the industrial commission's certification must be submitted to the tax commissioner within the following time periods:a.For a tax exemption, within eighteen months after the month in which the first incremental oil was produced.b.For a tax rate reduction, within eighteen months after the end of the period qualifying the project for the rate reduction.5.To receive, from the first day of eligibility, a tax exemption or the reduction on production for which any other tax exemption or rate reduction may apply, the industrial commission's certification must be submitted to the tax commissioner within eighteen months of the completion, recompletion, or other qualifying date.6.To receive, from the first day of eligibility, a tax exemption under subsection 6 of section 57-51.1-03 on production from a two-year inactive well, the industrial commission's certification must be submitted to the tax commissioner within eighteen months after the end of the two-year inactive well's qualification period.If the industrial commission's certification is not submitted to the tax commissioner within the eighteen-month period provided in this section, then the exemption or rate reduction does not apply for the production periods in which the certification is not on file with the tax commissioner. When the industrial commission's certification is submitted to the tax commissioner after the eighteen-month period, the tax exemption or rate reduction applies to prospective production periods only and the exemption or rate reduction is effective the first day of the month in which the certification is received by the tax commissioner.Page No. 1057-51.1-04. Authority of tax commissioner to accept production reports computedon a property basis. 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Education\"}]}]\n37:[\"$\",\"li\",\"860536\",{\"children\":[\"$\",\"$Le\",null,{\"href\":\"/north-dakota/t-161/\",\"children\":\"Chapter 16.1 Elections\"}]}]\n38:[\"$\",\"li\",\"860710\",{\"children\":[\"$\",\"$Le\",null,{\"href\":\"/north-dakota/t-201/\",\"children\":\"Chapter 20.1 Game, Fish, Predators, and Boating\"}]}]\n39:[\"$\",\"li\",\"861060\",{\"children\":[\"$\",\"$Le\",null,{\"href\":\"/north-dakota/t-261/\",\"children\":\"Chapter 26.1 Insurance\"}]}]\n3a:[\"$\",\"li\",\"861578\",{\"children\":[\"$\",\"$Le\",null,{\"href\":\"/north-dakota/t-301/\",\"children\":\"Chapter 30.1 Uniform Probate Code\"}]}]\n3b:[\"$\",\"li\",\"863897\",{\"children\":[\"$\",\"$Le\",null,{\"href\":\"/north-dakota/t-621/\",\"children\":\"Chapter 62.1 Weapons\"}]}]\n3e:T9662,"])</script><script>self.__next_f.push([1,"\u003ca href=\"https://law.justia.com/codes/north-dakota/2009/t57/pdf/t57c511.pdf\"\u003eDownload pdf\u003c/a\u003e\u003cbr\u003e\u003cdiv id=\"embed_document\" style=\"width:625px; height:815px; text-align:center;\"\u003eLoading PDF...\u003c/div\u003e\u003cscript type=\"text/javascript\"\u003e var pdf_url = 'https://law.justia.com/codes/north-dakota/2009/t57/pdf/t57c511.pdf'; $(document).ready(function() { var embedwindow = $(\"#embed_document\"); if ($.browser.msie){ embedwindow.html('\u003cembed src=\"'+pdf_url+'\" width=\"100%\" height=\"100%\"\u003e\u003c/embed\u003e'); } else { embedwindow.html('\u003ciframe style=\"width:100%; height:100%;\" src=\"https://docs.google.com/gview?url='+window.escape(pdf_url)+'\u0026embedded=true\" frameborder=\"0\"\u003e\u003c/iframe\u003e'); } });\u003c/script\u003e\u003cbr\u003e\u003cbr\u003e\u003cnoframes\u003eCHAPTER 57-51.1OIL EXTRACTION TAX57-51.1-01. Definitions for oil extraction tax. For the purposes of the oil extraction taxlaw, the following words and terms shall have the meaning ascribed to them in this section:1.\u0026quot;Average daily production\u0026quot; of a well means the qualified maximum total production\u003cbr\u003eof oil from the well during a calendar month period divided by the number of\u003cbr\u003ecalendar days in that period, and \u0026quot;qualified maximum total production\u0026quot; of a well\u003cbr\u003emeans that the well must have been maintained at the maximum efficient rate of\u003cbr\u003eproduction as defined and determined by rule adopted by the industrial commission\u003cbr\u003ein furtherance of its authority under chapter 38-08.2.\u0026quot;Average price\u0026quot; of a barrel of crude oil means the monthly average of the daily\u003cbr\u003eclosing price for a barrel of west Texas intermediate cushing crude oil, as those\u003cbr\u003eprices appear in the Wall Street Journal, midwest edition, minus two dollars and fifty\u003cbr\u003ecents. When computing the monthly average price, the most recent previous daily\u003cbr\u003eclosing price must be considered the daily closing price for the days on which the\u003cbr\u003emarket is closed.3.\u0026quot;Horizontal reentry well\u0026quot; means a well that was not initially drilled and completed as\u003cbr\u003ea horizontal well, including any well initially plugged and abandoned as a dry hole,\u003cbr\u003ewhich is reentered and recompleted as a horizontal well.4.\u0026quot;Horizontal well\u0026quot; means a well with a horizontal displacement of the well bore drilled\u003cbr\u003eat an angle of at least eighty degrees within the productive formation of at least three\u003cbr\u003ehundred feet [91.44 meters].5.\u0026quot;Oil\u0026quot; means petroleum, crude oil, mineral oil, casinghead gasoline, and all liquid\u003cbr\u003ehydrocarbons that are recovered from gas on the lease incidental to the production\u003cbr\u003eof the gas.6.\u0026quot;Property\u0026quot; means the right which arises from a lease or fee interest, as a whole or\u003cbr\u003eany designated portion thereof, to produce oil. A producer shall treat as a separate\u003cbr\u003eproperty each separate and distinct producing reservoir subject to the same right to\u003cbr\u003eproduce crude oil; provided, that such reservoir is recognized by the industrial\u003cbr\u003ecommission as a producing formation that is separate and distinct from, and not in\u003cbr\u003ecommunication with, any other producing formation.7.\u0026quot;Qualifying secondary recovery project\u0026quot; means a project employing water flooding.\u003cbr\u003eTo be eligible for the tax reduction provided under section 57-51.1-02, a secondary\u003cbr\u003erecovery project must be certified as qualifying by the industrial commission and the\u003cbr\u003eproject operator must have achieved for six consecutive months an average\u003cbr\u003eproduction level of at least twenty-five percent above the level that would have been\u003cbr\u003erecovered under normal recovery operations. To be eligible for the tax exemption\u003cbr\u003eprovided under section 57-51.1-03 and subsequent thereto the rate reduction\u003cbr\u003eprovided under section 57-51.1-02, a secondary recovery project must be certified\u003cbr\u003eas qualifying by the industrial commission and the project operator must have\u003cbr\u003eobtained incremental production as defined in subsection 5 of section 57-51.1-03.8.\u0026quot;Qualifying tertiary recovery project\u0026quot; means a project for enhancing recovery of oil\u003cbr\u003ewhich meets the requirements of section 4993(c), Internal Revenue Code of 1954,\u003cbr\u003eas amended through December 31, 1986, and includes the following methods for\u003cbr\u003erecovery:a.Miscible fluid displacement.b.Steam drive injection.Page No. 1c.Microemulsion.d.In situ combustion.e.Polymer augmented water flooding.f.Cyclic steam injection.g.Alkaline flooding.h.Carbonated water flooding.i.Immiscible carbon dioxide displacement.j.New tertiary recovery methods certified by the industrial commission.It does not include water flooding, unless the water flooding is used as an element of\u003cbr\u003eone of the qualifying tertiary recovery techniques described in this subsection, or\u003cbr\u003eimmiscible natural gas injection. To be eligible for the tax reduction provided under\u003cbr\u003esection 57-51.1-02, a tertiary recovery project must be certified as qualifying by the\u003cbr\u003eindustrial commission, the project operator must continue to operate the unit as a\u003cbr\u003equalifying tertiary recovery project, and the project operator must have achieved for\u003cbr\u003eat least one month a production level of at least fifteen percent above the level that\u003cbr\u003ewould have been recovered under normal recovery operations. To be eligible for the\u003cbr\u003etax exemption provided under section 57-51.1-03 and subsequent thereto the rate\u003cbr\u003ereduction provided under section 57-51.1-02, a tertiary recovery project must be\u003cbr\u003ecertified as qualifying by the industrial commission, the project operator must\u003cbr\u003econtinue to operate the unit as a qualifying tertiary recovery project, and the project\u003cbr\u003eoperator must have obtained incremental production as defined in subsection 5 of\u003cbr\u003esection 57-51.1-03.9.\u0026quot;Royalty owner\u0026quot; means an owner of what is commonly known as the royalty interest\u003cbr\u003eand shall not include the owner of any overriding royalty or other payment carved out\u003cbr\u003eof the working interest.10.\u0026quot;Stripper well property\u0026quot; means a \u0026quot;property\u0026quot; whose average daily production of oil,\u003cbr\u003eexcluding condensate recovered in nonassociated production, per well did not\u003cbr\u003eexceed ten barrels per day for wells of a depth of six thousand feet [1828.80 meters]\u003cbr\u003eor less, fifteen barrels per day for wells of a depth of more than six thousand feet\u003cbr\u003e[1828.80 meters] but not more than ten thousand feet [3048 meters], and thirty\u003cbr\u003ebarrels per day for wells of a depth of more than ten thousand feet [3048 meters]\u003cbr\u003eduring any preceding consecutive twelve-month period. Wells which did not actually\u003cbr\u003eyield or produce oil during the qualifying twelve-month period, including disposal\u003cbr\u003ewells, dry wells, spent wells, and shut-in wells, are not production wells for the\u003cbr\u003epurpose of determining whether the stripper well property exemption applies.11.\u0026quot;Trigger price\u0026quot; means thirty-five dollars and fifty cents, as indexed for inflation. By\u003cbr\u003eDecember thirty-first of each year, the tax commissioner shall compute an indexed\u003cbr\u003etrigger price by applying to the current trigger price the rate of change of the\u003cbr\u003eproducer price index for industrial commodities as calculated and published by the\u003cbr\u003eUnited States department of labor, bureau of labor statistics, for the twelve months\u003cbr\u003eending June thirtieth of that year and the indexed trigger price so determined is the\u003cbr\u003etrigger price for the following calendar year.12.\u0026quot;Two-year inactive well\u0026quot; means any well certified by the industrial commission that\u003cbr\u003edid not produce oil in more than one month in any consecutive twenty-four-month\u003cbr\u003eperiod before being recompleted or otherwise returned to production after July 31,\u003cbr\u003e1995. A well that has never produced oil, a dry hole, and a plugged and abandoned\u003cbr\u003ewell are eligible for status as a two-year inactive well.Page No. 257-51.1-02. Imposition of oil extraction tax. There is hereby imposed an excise tax, tobe known as the \u0026quot;oil extraction tax\u0026quot;, upon the activity in this state of extracting oil from the earth,\u003cbr\u003eand every owner, including any royalty owner, of any part of the oil extracted is deemed for the\u003cbr\u003epurposes of this chapter to be engaged in the activity of extracting that oil.The rate of tax is six and one-half percent of the gross value at the well of the oilextracted, except that the rate of tax is four percent of the gross value at the well of the oil\u003cbr\u003eextracted in the following situations:1.For oil produced from wells drilled and completed after April 27, 1987, commonly\u003cbr\u003ereferred to as new wells, and not otherwise exempt under section 57-51.1-03;2.For oil produced from a secondary or tertiary recovery project that was certified as\u003cbr\u003equalifying by the industrial commission before July 1, 1991;3.For oil that does not qualify as incremental oil but is produced from a secondary or\u003cbr\u003etertiary recovery project that is certified as qualifying by the industrial commission\u003cbr\u003eafter June 30, 1991;4.For incremental oil produced from a secondary or tertiary recovery project that is\u003cbr\u003ecertified as qualifying by the industrial commission after June 30, 1991, and which\u003cbr\u003eproduction is not otherwise exempt under section 57-51.1-03; or5.For oil produced from a well that receives an exemption pursuant to subsection 4 of\u003cbr\u003esection 57-51.1-03 after June 30, 1993, and which production is not otherwise\u003cbr\u003eexempt under section 57-51.1-03.However, if the average price of a barrel of crude oil exceeds the trigger price for each month in\u003cbr\u003eany consecutive five-month period, then the rate of tax on oil extracted from all taxable wells is\u003cbr\u003esix and one-half percent of the gross value at the well of the oil extracted until the average price\u003cbr\u003eof a barrel of crude oil is less than the trigger price for each month in any consecutive five-month\u003cbr\u003eperiod, in which case the rate of tax reverts to four percent of the gross value at the well of the oil\u003cbr\u003eextracted for any wells subject to a reduced rate under subsections 1 through 5.57-51.1-03. (Effective through June 30, 2012) Exemptions from oil extraction tax.The following activities are specifically exempted from the oil extraction tax:1.The activity of extracting from the earth any oil that is exempt from the gross\u003cbr\u003eproduction tax imposed by chapter 57-51.2.The activity of extracting from the earth any oil from a stripper well property.3.For a well drilled and completed as a vertical well, the initial production of oil from\u003cbr\u003ethe well is exempt from any taxes imposed under this chapter for a period of fifteen\u003cbr\u003emonths, except that oil produced from any well drilled and completed as a horizontal\u003cbr\u003ewell is exempt from any taxes imposed under this chapter for a period of twenty-four\u003cbr\u003emonths. Oil recovered during testing prior to well completion is exempt from the oil\u003cbr\u003eextraction tax.The exemption under this subsection becomes ineffective if theaverage price of a barrel of crude oil exceeds the trigger price for each month in any\u003cbr\u003econsecutive five-month period. However, the exemption is reinstated if, after the\u003cbr\u003etrigger provision becomes effective, the average price of a barrel of crude oil is less\u003cbr\u003ethan the trigger price for each month in any consecutive five-month period.4.The production of oil from a qualifying well that was worked over is exempt from any\u003cbr\u003etaxes imposed under this chapter for a period of twelve months, beginning with the\u003cbr\u003efirst day of the third calendar month after the completion of the work-over project.\u003cbr\u003eThe exemption provided by this subsection is only effective if the well operator\u003cbr\u003eestablishes to the satisfaction of the industrial commission upon completion of the\u003cbr\u003eproject that the cost of the project exceeded sixty-five thousand dollars or productionPage No. 3is increased at least fifty percent during the first two months after completion of the\u003cbr\u003eproject.A qualifying well under this subsection is a well with an average dailyproduction of no more than fifty barrels of oil during the latest six calendar months of\u003cbr\u003econtinuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.\u003cbr\u003eThe exemption provided by this subsection becomes ineffective if the average price\u003cbr\u003eof a barrel of crude oil exceeds the trigger price for each month in any consecutive\u003cbr\u003efive-month period. However, the exemption is reinstated if, after the trigger provision\u003cbr\u003ebecomes effective, the average price of a barrel of crude oil is less than the trigger\u003cbr\u003eprice for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been\u003cbr\u003ecertified as a qualified project by the industrial commission after July 1, 1991, is\u003cbr\u003eexempt from any taxes imposed under this chapter for a period of five years\u003cbr\u003efrom the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use\u003cbr\u003ecarbon dioxide and which has been certified as a qualified project by the\u003cbr\u003eindustrial commission is exempt from any taxes imposed under this chapter for\u003cbr\u003ea period of ten years from the date the incremental production begins.\u003cbr\u003eIncremental production from a tertiary recovery project that uses carbon dioxide\u003cbr\u003eand which has been certified as a qualified project by the industrial commission\u003cbr\u003eis exempt from any taxes imposed under this chapter from the date the\u003cbr\u003eincremental production begins.c.For purposes of this subsection, incremental production is defined in the\u003cbr\u003efollowing manner:(1)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where there has not been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced from the unit during the secondary\u003cbr\u003erecovery project and the amount of primary production from the unit. For\u003cbr\u003epurposes of this paragraph, primary production means the amount of oil\u003cbr\u003ewhich would have been produced from the unit if the secondary recovery\u003cbr\u003eproject had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms\u003cbr\u003eto the practice and procedure used by the commission at the time the\u003cbr\u003eproject is certified.(2)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where a secondary recovery project was in\u003cbr\u003eexistence prior to July 1, 1991, and where the industrial commission\u003cbr\u003ecannot establish an accurate production decline curve, incremental\u003cbr\u003eproduction means the difference between the total amount of oil\u003cbr\u003eproduced from the unit during a new secondary recovery project and the\u003cbr\u003eamount of production which would be equivalent to the average monthly\u003cbr\u003eproduction from the unit during the most recent twelve months of normal\u003cbr\u003eproduction reduced by a production decline rate of ten percent for each\u003cbr\u003eyear. The industrial commission shall determine the average monthly\u003cbr\u003eproduction from the unit during the most recent twelve months of normal\u003cbr\u003eproduction and must upon request or upon its own motion hold a hearing\u003cbr\u003eto make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the\u003cbr\u003eindustrial commission is not required to use twelve consecutive months.\u003cbr\u003eIn addition, the production decline rate of ten percent must be applied\u003cbr\u003efrom the last month in the twelve-month period of time.Page No. 4(3)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where a secondary recovery project was in\u003cbr\u003eexistence before July 1, 1991, and where the industrial commission can\u003cbr\u003eestablish an accurate production decline curve, incremental production\u003cbr\u003emeans the difference between the total amount of oil produced from the\u003cbr\u003eunit during the new secondary recovery project and the total amount of\u003cbr\u003eoil that would have been produced from the unit if the new secondary\u003cbr\u003erecovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from\u003cbr\u003ethe unit if the new secondary recovery project had not been commenced\u003cbr\u003eincludes both primary production and production that occurred as a result\u003cbr\u003eof the secondary recovery project that was in existence before July 1,\u003cbr\u003e1991. The industrial commission shall determine the amount of oil that\u003cbr\u003ewould have been produced from the unit if the new secondary recovery\u003cbr\u003eproject had not been commenced in a manner that conforms to the\u003cbr\u003epractice and procedure used by the commission at the time the new\u003cbr\u003esecondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there has not been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced from the unit during the tertiary recovery\u003cbr\u003eproject and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil\u003cbr\u003ewhich would have been produced from the unit if the tertiary recovery\u003cbr\u003eproject had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms\u003cbr\u003eto the practice and procedure used by the commission at the time the\u003cbr\u003eproject is certified.(5)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there is or has been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced during the tertiary recovery project and\u003cbr\u003ethe amount of production which would be equivalent to the average\u003cbr\u003emonthly production from the unit during the most recent twelve months of\u003cbr\u003enormal production reduced by a production decline rate of ten percent for\u003cbr\u003eeach year.The industrial commission shall determine the averagemonthly production from the unit during the most recent twelve months of\u003cbr\u003enormal production and must upon request or upon its own motion hold a\u003cbr\u003ehearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production\u003cbr\u003ethe industrial commission is not required to use twelve consecutive\u003cbr\u003emonths. In addition, the production decline rate of ten percent must be\u003cbr\u003eapplied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there is or has been a secondary\u003cbr\u003erecovery project and where the industrial commission can establish an\u003cbr\u003eaccurate production decline curve, incremental production means the\u003cbr\u003edifference between the total amount of oil produced from the unit during\u003cbr\u003ethe tertiary recovery project and the total amount of oil that would have\u003cbr\u003ebeen produced from the unit if the tertiary recovery project had not been\u003cbr\u003ecommenced. For purposes of this paragraph, the total amount of oil that\u003cbr\u003ewould have been produced from the unit if the tertiary recovery project\u003cbr\u003ehad not been commenced includes both primary production and\u003cbr\u003eproduction that occurred as a result of any secondary recovery project.\u003cbr\u003eThe industrial commission shall determine the amount of oil that would\u003cbr\u003ehave been produced from the unit if the tertiary recovery project had notPage No. 5been commenced in a manner that conforms to the practice and\u003cbr\u003eprocedure used by the commission at the time the tertiary recovery\u003cbr\u003eproject is certified.d.The industrial commission shall adopt rules relating to this exemption that must\u003cbr\u003einclude procedures for determining incremental production as defined in\u003cbr\u003esubdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial\u003cbr\u003ecommission and certified to the state tax commissioner, for a period of ten years\u003cbr\u003eafter the date of receipt of the certification. The exemption under this subsection\u003cbr\u003ebecomes ineffective if the average price of a barrel of crude oil exceeds the trigger\u003cbr\u003eprice for each month in any consecutive five-month period. However, the exemption\u003cbr\u003eis reinstated if, after the trigger provision becomes effective, the average price of a\u003cbr\u003ebarrel of crude oil is less than the trigger price for each month in any consecutive\u003cbr\u003efive-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial\u003cbr\u003ecommission and certified to the state tax commissioner, for a period of nine months\u003cbr\u003eafter the date the well is completed as a horizontal well. The exemption under this\u003cbr\u003esubsection becomes ineffective if the average price of a barrel of crude oil exceeds\u003cbr\u003ethe trigger price for each month in any consecutive five-month period. However, the\u003cbr\u003eexemption is reinstated if, after the trigger provision becomes effective, the average\u003cbr\u003eprice of a barrel of crude oil is less than the trigger price for each month in any\u003cbr\u003econsecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this\u003cbr\u003echapter for a period of sixty months if:a.The well is located within the boundaries of an Indian reservation;b.The well is drilled and completed on lands held in trust by the United States for\u003cbr\u003ean Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest\u003cbr\u003eis in existence on August 1, 1997.9.The first seventy-five thousand barrels or the first four million five hundred thousand\u003cbr\u003edollars of gross value at the well, whichever is less, of oil produced during the first\u003cbr\u003eeighteen months after completion, from a horizontal well drilled and completed after\u003cbr\u003eApril 30, 2009, is subject to a reduced tax rate of two percent of the gross value at\u003cbr\u003ethe well of the oil extracted under this chapter. A well eligible for a reduced tax rate\u003cbr\u003eunder this subsection is eligible for the exemption for horizontal wells under\u003cbr\u003esubsection 3, if the exemption under subsection 3 is effective during all or part of the\u003cbr\u003efirst twenty-four months after completion. The rate reduction under this subsection\u003cbr\u003ebecomes effective on the first day of the month following a month for which the\u003cbr\u003eaverage price of a barrel of crude oil is less than fifty-five dollars. The rate reduction\u003cbr\u003eunder this subsection becomes ineffective on the first day of the month following a\u003cbr\u003emonth in which the average price of a barrel of crude oil exceeds seventy dollars. If\u003cbr\u003ethe rate reduction under this subsection is effective on the date of completion of a\u003cbr\u003ewell, the rate reduction applies to production from that well for up to eighteen months\u003cbr\u003eafter completion, subject to the other limitations of this subsection.If the ratereduction under this subsection is ineffective on the date of completion of a well, the\u003cbr\u003erate reduction under this subsection does not apply to production from that well at\u003cbr\u003eany time.(Effective after June 30, 2012) Exemptions from oil extraction tax. The followingactivities are specifically exempted from the oil extraction tax:Page No. 61.The activity of extracting from the earth any oil that is exempt from the gross\u003cbr\u003eproduction tax imposed by chapter 57-51.2.The activity of extracting from the earth any oil from a stripper well property.3.For a well drilled and completed as a vertical well, the initial production of oil from\u003cbr\u003ethe well is exempt from any taxes imposed under this chapter for a period of fifteen\u003cbr\u003emonths, except that oil produced from any well drilled and completed as a horizontal\u003cbr\u003ewell is exempt from any taxes imposed under this chapter for a period of twenty-four\u003cbr\u003emonths. Oil recovered during testing prior to well completion is exempt from the oil\u003cbr\u003eextraction tax.The exemption under this subsection becomes ineffective if theaverage price of a barrel of crude oil exceeds the trigger price for each month in any\u003cbr\u003econsecutive five-month period. However, the exemption is reinstated if, after the\u003cbr\u003etrigger provision becomes effective, the average price of a barrel of crude oil is less\u003cbr\u003ethan the trigger price for each month in any consecutive five-month period.4.The production of oil from a qualifying well that was worked over is exempt from any\u003cbr\u003etaxes imposed under this chapter for a period of twelve months, beginning with the\u003cbr\u003efirst day of the third calendar month after the completion of the work-over project.\u003cbr\u003eThe exemption provided by this subsection is only effective if the well operator\u003cbr\u003eestablishes to the satisfaction of the industrial commission upon completion of the\u003cbr\u003eproject that the cost of the project exceeded sixty-five thousand dollars or production\u003cbr\u003eis increased at least fifty percent during the first two months after completion of the\u003cbr\u003eproject.A qualifying well under this subsection is a well with an average dailyproduction of no more than fifty barrels of oil during the latest six calendar months of\u003cbr\u003econtinuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.\u003cbr\u003eThe exemption provided by this subsection becomes ineffective if the average price\u003cbr\u003eof a barrel of crude oil exceeds the trigger price for each month in any consecutive\u003cbr\u003efive-month period. However, the exemption is reinstated if, after the trigger provision\u003cbr\u003ebecomes effective, the average price of a barrel of crude oil is less than the trigger\u003cbr\u003eprice for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been\u003cbr\u003ecertified as a qualified project by the industrial commission after July 1, 1991, is\u003cbr\u003eexempt from any taxes imposed under this chapter for a period of five years\u003cbr\u003efrom the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use\u003cbr\u003ecarbon dioxide and which has been certified as a qualified project by the\u003cbr\u003eindustrial commission is exempt from any taxes imposed under this chapter for\u003cbr\u003ea period of ten years from the date the incremental production begins.\u003cbr\u003eIncremental production from a tertiary recovery project that uses carbon dioxide\u003cbr\u003eand which has been certified as a qualified project by the industrial commission\u003cbr\u003eis exempt from any taxes imposed under this chapter from the date the\u003cbr\u003eincremental production begins.c.For purposes of this subsection, incremental production is defined in the\u003cbr\u003efollowing manner:(1)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where there has not been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced from the unit during the secondary\u003cbr\u003erecovery project and the amount of primary production from the unit. For\u003cbr\u003epurposes of this paragraph, primary production means the amount of oil\u003cbr\u003ewhich would have been produced from the unit if the secondary recovery\u003cbr\u003eproject had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conformsPage No. 7to the practice and procedure used by the commission at the time the\u003cbr\u003eproject is certified.(2)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where a secondary recovery project was in\u003cbr\u003eexistence prior to July 1, 1991, and where the industrial commission\u003cbr\u003ecannot establish an accurate production decline curve, incremental\u003cbr\u003eproduction means the difference between the total amount of oil\u003cbr\u003eproduced from the unit during a new secondary recovery project and the\u003cbr\u003eamount of production which would be equivalent to the average monthly\u003cbr\u003eproduction from the unit during the most recent twelve months of normal\u003cbr\u003eproduction reduced by a production decline rate of ten percent for each\u003cbr\u003eyear. The industrial commission shall determine the average monthly\u003cbr\u003eproduction from the unit during the most recent twelve months of normal\u003cbr\u003eproduction and must upon request or upon its own motion hold a hearing\u003cbr\u003eto make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the\u003cbr\u003eindustrial commission is not required to use twelve consecutive months.\u003cbr\u003eIn addition, the production decline rate of ten percent must be applied\u003cbr\u003efrom the last month in the twelve-month period of time.(3)For purposes of determining the exemption provided for in subdivision a\u003cbr\u003eand with respect to a unit where a secondary recovery project was in\u003cbr\u003eexistence before July 1, 1991, and where the industrial commission can\u003cbr\u003eestablish an accurate production decline curve, incremental production\u003cbr\u003emeans the difference between the total amount of oil produced from the\u003cbr\u003eunit during the new secondary recovery project and the total amount of\u003cbr\u003eoil that would have been produced from the unit if the new secondary\u003cbr\u003erecovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from\u003cbr\u003ethe unit if the new secondary recovery project had not been commenced\u003cbr\u003eincludes both primary production and production that occurred as a result\u003cbr\u003eof the secondary recovery project that was in existence before July 1,\u003cbr\u003e1991. The industrial commission shall determine the amount of oil that\u003cbr\u003ewould have been produced from the unit if the new secondary recovery\u003cbr\u003eproject had not been commenced in a manner that conforms to the\u003cbr\u003epractice and procedure used by the commission at the time the new\u003cbr\u003esecondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there has not been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced from the unit during the tertiary recovery\u003cbr\u003eproject and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil\u003cbr\u003ewhich would have been produced from the unit if the tertiary recovery\u003cbr\u003eproject had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms\u003cbr\u003eto the practice and procedure used by the commission at the time the\u003cbr\u003eproject is certified.(5)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there is or has been a secondary\u003cbr\u003erecovery project, incremental production means the difference between\u003cbr\u003ethe total amount of oil produced during the tertiary recovery project and\u003cbr\u003ethe amount of production which would be equivalent to the average\u003cbr\u003emonthly production from the unit during the most recent twelve months of\u003cbr\u003enormal production reduced by a production decline rate of ten percent for\u003cbr\u003eeach year.The industrial commission shall determine the averagePage No. 8monthly production from the unit during the most recent twelve months of\u003cbr\u003enormal production and must upon request or upon its own motion hold a\u003cbr\u003ehearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production\u003cbr\u003ethe industrial commission is not required to use twelve consecutive\u003cbr\u003emonths. In addition, the production decline rate of ten percent must be\u003cbr\u003eapplied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b\u003cbr\u003eand with respect to a unit where there is or has been a secondary\u003cbr\u003erecovery project and where the industrial commission can establish an\u003cbr\u003eaccurate production decline curve, incremental production means the\u003cbr\u003edifference between the total amount of oil produced from the unit during\u003cbr\u003ethe tertiary recovery project and the total amount of oil that would have\u003cbr\u003ebeen produced from the unit if the tertiary recovery project had not been\u003cbr\u003ecommenced. For purposes of this paragraph, the total amount of oil that\u003cbr\u003ewould have been produced from the unit if the tertiary recovery project\u003cbr\u003ehad not been commenced includes both primary production and\u003cbr\u003eproduction that occurred as a result of any secondary recovery project.\u003cbr\u003eThe industrial commission shall determine the amount of oil that would\u003cbr\u003ehave been produced from the unit if the tertiary recovery project had not\u003cbr\u003ebeen commenced in a manner that conforms to the practice and\u003cbr\u003eprocedure used by the commission at the time the tertiary recovery\u003cbr\u003eproject is certified.d.The industrial commission shall adopt rules relating to this exemption that must\u003cbr\u003einclude procedures for determining incremental production as defined in\u003cbr\u003esubdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial\u003cbr\u003ecommission and certified to the state tax commissioner, for a period of ten years\u003cbr\u003eafter the date of receipt of the certification. The exemption under this subsection\u003cbr\u003ebecomes ineffective if the average price of a barrel of crude oil exceeds the trigger\u003cbr\u003eprice for each month in any consecutive five-month period. However, the exemption\u003cbr\u003eis reinstated if, after the trigger provision becomes effective, the average price of a\u003cbr\u003ebarrel of crude oil is less than the trigger price for each month in any consecutive\u003cbr\u003efive-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial\u003cbr\u003ecommission and certified to the state tax commissioner, for a period of nine months\u003cbr\u003eafter the date the well is completed as a horizontal well. The exemption under this\u003cbr\u003esubsection becomes ineffective if the average price of a barrel of crude oil exceeds\u003cbr\u003ethe trigger price for each month in any consecutive five-month period. However, the\u003cbr\u003eexemption is reinstated if, after the trigger provision becomes effective, the average\u003cbr\u003eprice of a barrel of crude oil is less than the trigger price for each month in any\u003cbr\u003econsecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this\u003cbr\u003echapter for a period of sixty months if:a.The well is located within the boundaries of an Indian reservation;b.The well is drilled and completed on lands held in trust by the United States for\u003cbr\u003ean Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest\u003cbr\u003eis in existence on August 1, 1997.Page No. 99.The first seventy-five thousand barrels of oil produced during the first eighteen\u003cbr\u003emonths after completion, from a horizontal well drilled and completed in the Bakken\u003cbr\u003eformation after June 30, 2007, and before July 1, 2008, is subject to a reduced tax\u003cbr\u003erate of two percent of the gross value at the well of the oil extracted under this\u003cbr\u003echapter. A well eligible for a reduced tax rate under this subsection is eligible for the\u003cbr\u003eexemption for horizontal wells under subsection 3, if the exemption under\u003cbr\u003esubsection 3 is effective during all or part of the first twenty-four months after\u003cbr\u003ecompletion.57-51.1-03.1. Stripper well, new well, work-over, and secondary or tertiary projectcertification for tax exemption or rate reduction - Filing requirement.To receive thebenefits of a tax exemption or tax rate reduction, a certification of qualifying well status prepared\u003cbr\u003eby the industrial commission must be submitted to the tax commissioner as follows:1.To receive, from the first day of eligibility, a tax exemption on production from a\u003cbr\u003estripper well property under subsection 2 of section 57-51.1-03, the industrial\u003cbr\u003ecommission's certification must be submitted to the tax commissioner within\u003cbr\u003eeighteen months after the end of the stripper well property's qualification period.2.To receive, from the first day of eligibility, a tax exemption under subsection 3 of\u003cbr\u003esection 57-51.1-03 and a rate reduction on production from a new well under section\u003cbr\u003e57-51.1-02, the industrial commission's certification must be submitted to the tax\u003cbr\u003ecommissioner within eighteen months after a new well is completed.3.To receive, from the first day of eligibility, a tax exemption under subsection 4 of\u003cbr\u003esection 57-51.1-03 and a rate reduction for a work-over well under section\u003cbr\u003e57-51.1-02, the industrial commission's certification must be submitted to the tax\u003cbr\u003ecommissioner within eighteen months after the work-over project is completed.4.To receive, from the first day of eligibility, a tax exemption under subsection 5 of\u003cbr\u003esection 57-51.1-03 and a tax rate reduction under section 57-51.1-02 on production\u003cbr\u003efrom a secondary or tertiary project, the industrial commission's certification must be\u003cbr\u003esubmitted to the tax commissioner within the following time periods:a.For a tax exemption, within eighteen months after the month in which the first\u003cbr\u003eincremental oil was produced.b.For a tax rate reduction, within eighteen months after the end of the period\u003cbr\u003equalifying the project for the rate reduction.5.To receive, from the first day of eligibility, a tax exemption or the reduction on\u003cbr\u003eproduction for which any other tax exemption or rate reduction may apply, the\u003cbr\u003eindustrial commission's certification must be submitted to the tax commissioner\u003cbr\u003ewithin eighteen months of the completion, recompletion, or other qualifying date.6.To receive, from the first day of eligibility, a tax exemption under subsection 6 of\u003cbr\u003esection 57-51.1-03 on production from a two-year inactive well, the industrial\u003cbr\u003ecommission's certification must be submitted to the tax commissioner within\u003cbr\u003eeighteen months after the end of the two-year inactive well's qualification period.If the industrial commission's certification is not submitted to the tax commissioner within the\u003cbr\u003eeighteen-month period provided in this section, then the exemption or rate reduction does not\u003cbr\u003eapply for the production periods in which the certification is not on file with the tax commissioner.\u003cbr\u003eWhen the industrial commission's certification is submitted to the tax commissioner after the\u003cbr\u003eeighteen-month period, the tax exemption or rate reduction applies to prospective production\u003cbr\u003eperiods only and the exemption or rate reduction is effective the first day of the month in which\u003cbr\u003ethe certification is received by the tax commissioner.Page No. 1057-51.1-04. Authority of tax commissioner to accept production reports computedon a property basis. 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