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<![CDATA[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<br>of oil from the well during a calendar month period divided by the number of<br>calendar days in that period, and "qualified maximum total production" of a well<br>means that the well must have been maintained at the maximum efficient rate of<br>production as defined and determined by rule adopted by the industrial commission<br>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<br>closing price for a barrel of west Texas intermediate cushing crude oil, as those<br>prices appear in the Wall Street Journal, midwest edition, minus two dollars and fifty<br>cents. When computing the monthly average price, the most recent previous daily<br>closing price must be considered the daily closing price for the days on which the<br>market is closed.3."Horizontal reentry well" means a well that was not initially drilled and completed as<br>a horizontal well, including any well initially plugged and abandoned as a dry hole,<br>which is reentered and recompleted as a horizontal well.4."Horizontal well" means a well with a horizontal displacement of the well bore drilled<br>at an angle of at least eighty degrees within the productive formation of at least three<br>hundred feet [91.44 meters].5."Oil" means petroleum, crude oil, mineral oil, casinghead gasoline, and all liquid<br>hydrocarbons that are recovered from gas on the lease incidental to the production<br>of the gas.6."Property" means the right which arises from a lease or fee interest, as a whole or<br>any designated portion thereof, to produce oil. A producer shall treat as a separate<br>property each separate and distinct producing reservoir subject to the same right to<br>produce crude oil; provided, that such reservoir is recognized by the industrial<br>commission as a producing formation that is separate and distinct from, and not in<br>communication with, any other producing formation.7."Qualifying secondary recovery project" means a project employing water flooding.<br>To be eligible for the tax reduction provided under section 57-51.1-02, a secondary<br>recovery project must be certified as qualifying by the industrial commission and the<br>project operator must have achieved for six consecutive months an average<br>production level of at least twenty-five percent above the level that would have been<br>recovered under normal recovery operations. To be eligible for the tax exemption<br>provided under section 57-51.1-03 and subsequent thereto the rate reduction<br>provided under section 57-51.1-02, a secondary recovery project must be certified<br>as qualifying by the industrial commission and the project operator must have<br>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<br>which meets the requirements of section 4993(c), Internal Revenue Code of 1954,<br>as amended through December 31, 1986, and includes the following methods for<br>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<br>one of the qualifying tertiary recovery techniques described in this subsection, or<br>immiscible natural gas injection. To be eligible for the tax reduction provided under<br>section 57-51.1-02, a tertiary recovery project must be certified as qualifying by the<br>industrial commission, the project operator must continue to operate the unit as a<br>qualifying tertiary recovery project, and the project operator must have achieved for<br>at least one month a production level of at least fifteen percent above the level that<br>would have been recovered under normal recovery operations. To be eligible for the<br>tax exemption provided under section 57-51.1-03 and subsequent thereto the rate<br>reduction provided under section 57-51.1-02, a tertiary recovery project must be<br>certified as qualifying by the industrial commission, the project operator must<br>continue to operate the unit as a qualifying tertiary recovery project, and the project<br>operator must have obtained incremental production as defined in subsection 5 of<br>section 57-51.1-03.9."Royalty owner" means an owner of what is commonly known as the royalty interest<br>and shall not include the owner of any overriding royalty or other payment carved out<br>of the working interest.10."Stripper well property" means a "property" whose average daily production of oil,<br>excluding condensate recovered in nonassociated production, per well did not<br>exceed ten barrels per day for wells of a depth of six thousand feet [1828.80 meters]<br>or less, fifteen barrels per day for wells of a depth of more than six thousand feet<br>[1828.80 meters] but not more than ten thousand feet [3048 meters], and thirty<br>barrels per day for wells of a depth of more than ten thousand feet [3048 meters]<br>during any preceding consecutive twelve-month period. Wells which did not actually<br>yield or produce oil during the qualifying twelve-month period, including disposal<br>wells, dry wells, spent wells, and shut-in wells, are not production wells for the<br>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<br>December thirty-first of each year, the tax commissioner shall compute an indexed<br>trigger price by applying to the current trigger price the rate of change of the<br>producer price index for industrial commodities as calculated and published by the<br>United States department of labor, bureau of labor statistics, for the twelve months<br>ending June thirtieth of that year and the indexed trigger price so determined is the<br>trigger price for the following calendar year.12."Two-year inactive well" means any well certified by the industrial commission that<br>did not produce oil in more than one month in any consecutive twenty-four-month<br>period before being recompleted or otherwise returned to production after July 31,<br>1995. A well that has never produced oil, a dry hole, and a plugged and abandoned<br>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,<br>and every owner, including any royalty owner, of any part of the oil extracted is deemed for the<br>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<br>extracted in the following situations:1.For oil produced from wells drilled and completed after April 27, 1987, commonly<br>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<br>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<br>tertiary recovery project that is certified as qualifying by the industrial commission<br>after June 30, 1991;4.For incremental oil produced from a secondary or tertiary recovery project that is<br>certified as qualifying by the industrial commission after June 30, 1991, and which<br>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<br>section 57-51.1-03 after June 30, 1993, and which production is not otherwise<br>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<br>any consecutive five-month period, then the rate of tax on oil extracted from all taxable wells is<br>six and one-half percent of the gross value at the well of the oil extracted until the average price<br>of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month<br>period, in which case the rate of tax reverts to four percent of the gross value at the well of the oil<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>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<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>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<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagemonthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>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<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.9.The first seventy-five thousand barrels or the first four million five hundred thousand<br>dollars of gross value at the well, whichever is less, of oil produced during the first<br>eighteen months after completion, from a horizontal well drilled and completed after<br>April 30, 2009, is subject to a reduced tax rate of two percent of the gross value at<br>the well of the oil extracted under this chapter. A well eligible for a reduced tax rate<br>under this subsection is eligible for the exemption for horizontal wells under<br>subsection 3, if the exemption under subsection 3 is effective during all or part of the<br>first twenty-four months after completion. The rate reduction under this subsection<br>becomes effective on the first day of the month following a month for which the<br>average price of a barrel of crude oil is less than fifty-five dollars. The rate reduction<br>under this subsection becomes ineffective on the first day of the month following a<br>month in which the average price of a barrel of crude oil exceeds seventy dollars. If<br>the rate reduction under this subsection is effective on the date of completion of a<br>well, the rate reduction applies to production from that well for up to eighteen months<br>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<br>rate reduction under this subsection does not apply to production from that well at<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>project that the cost of the project exceeded sixty-five thousand dollars or production<br>is increased at least fifty percent during the first two months after completion of the<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>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<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>from the last month in the twelve-month period of time.(3)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagePage No. 8monthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>have been produced from the unit if the tertiary recovery project had not<br>been commenced in a manner that conforms to the practice and<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.Page No. 99.The first seventy-five thousand barrels of oil produced during the first eighteen<br>months after completion, from a horizontal well drilled and completed in the Bakken<br>formation after June 30, 2007, and before July 1, 2008, is subject to a reduced tax<br>rate of two percent of the gross value at the well of the oil extracted under this<br>chapter. A well eligible for a reduced tax rate under this subsection is eligible for the<br>exemption for horizontal wells under subsection 3, if the exemption under<br>subsection 3 is effective during all or part of the first twenty-four months after<br>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<br>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<br>stripper well property under subsection 2 of section 57-51.1-03, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>section 57-51.1-03 and a rate reduction on production from a new well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a rate reduction for a work-over well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a tax rate reduction under section 57-51.1-02 on production<br>from a secondary or tertiary project, the industrial commission's certification must be<br>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<br>incremental oil was produced.b.For a tax rate reduction, within eighteen months after the end of the period<br>qualifying the project for the rate reduction.5.To receive, from the first day of eligibility, a tax exemption or the reduction on<br>production for which any other tax exemption or rate reduction may apply, the<br>industrial commission's certification must be submitted to the tax commissioner<br>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<br>section 57-51.1-03 on production from a two-year inactive well, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>eighteen-month period provided in this section, then the exemption or rate reduction does not<br>apply for the production periods in which the certification is not on file with the tax commissioner.<br>When the industrial commission's certification is submitted to the tax commissioner after the<br>eighteen-month period, the tax exemption or rate reduction applies to prospective production<br>periods only and the exemption or rate reduction is effective the first day of the month in which<br>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. Repealed by S.L. 1989, ch. 732, <meta property="og:url" content="https://statutes.laws.com/test/" />
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<h2>State Codes and Statutes</h2>
<a href='https://statutes.laws.com/'>Statutes</a> > <a href='https://statutes.laws.com/north-dakota'>North-dakota</a> > <a href='https://statutes.laws.com/north-dakota/t57'>T57</a> > <a href='https://statutes.laws.com/north-dakota/t57/t57c511'>T57c511</a><br><br><a href="https://law.justia.com/codes/north-dakota/2009/t57/pdf/t57c511.pdf">Download pdf</a><br><div id="embed_document" style="width:625px; height:815px; text-align:center;">Loading PDF...</div><script type="text/javascript"> 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('<embed src="'+pdf_url+'" width="100%" height="100%"></embed>'); } else { embedwindow.html('<iframe style="width:100%; height:100%;" src="https://docs.google.com/gview?url='+window.escape(pdf_url)+'&embedded=true" frameborder="0"></iframe>'); } });</script><br><br><noframes>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<br>of oil from the well during a calendar month period divided by the number of<br>calendar days in that period, and "qualified maximum total production" of a well<br>means that the well must have been maintained at the maximum efficient rate of<br>production as defined and determined by rule adopted by the industrial commission<br>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<br>closing price for a barrel of west Texas intermediate cushing crude oil, as those<br>prices appear in the Wall Street Journal, midwest edition, minus two dollars and fifty<br>cents. When computing the monthly average price, the most recent previous daily<br>closing price must be considered the daily closing price for the days on which the<br>market is closed.3."Horizontal reentry well" means a well that was not initially drilled and completed as<br>a horizontal well, including any well initially plugged and abandoned as a dry hole,<br>which is reentered and recompleted as a horizontal well.4."Horizontal well" means a well with a horizontal displacement of the well bore drilled<br>at an angle of at least eighty degrees within the productive formation of at least three<br>hundred feet [91.44 meters].5."Oil" means petroleum, crude oil, mineral oil, casinghead gasoline, and all liquid<br>hydrocarbons that are recovered from gas on the lease incidental to the production<br>of the gas.6."Property" means the right which arises from a lease or fee interest, as a whole or<br>any designated portion thereof, to produce oil. A producer shall treat as a separate<br>property each separate and distinct producing reservoir subject to the same right to<br>produce crude oil; provided, that such reservoir is recognized by the industrial<br>commission as a producing formation that is separate and distinct from, and not in<br>communication with, any other producing formation.7."Qualifying secondary recovery project" means a project employing water flooding.<br>To be eligible for the tax reduction provided under section 57-51.1-02, a secondary<br>recovery project must be certified as qualifying by the industrial commission and the<br>project operator must have achieved for six consecutive months an average<br>production level of at least twenty-five percent above the level that would have been<br>recovered under normal recovery operations. To be eligible for the tax exemption<br>provided under section 57-51.1-03 and subsequent thereto the rate reduction<br>provided under section 57-51.1-02, a secondary recovery project must be certified<br>as qualifying by the industrial commission and the project operator must have<br>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<br>which meets the requirements of section 4993(c), Internal Revenue Code of 1954,<br>as amended through December 31, 1986, and includes the following methods for<br>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<br>one of the qualifying tertiary recovery techniques described in this subsection, or<br>immiscible natural gas injection. To be eligible for the tax reduction provided under<br>section 57-51.1-02, a tertiary recovery project must be certified as qualifying by the<br>industrial commission, the project operator must continue to operate the unit as a<br>qualifying tertiary recovery project, and the project operator must have achieved for<br>at least one month a production level of at least fifteen percent above the level that<br>would have been recovered under normal recovery operations. To be eligible for the<br>tax exemption provided under section 57-51.1-03 and subsequent thereto the rate<br>reduction provided under section 57-51.1-02, a tertiary recovery project must be<br>certified as qualifying by the industrial commission, the project operator must<br>continue to operate the unit as a qualifying tertiary recovery project, and the project<br>operator must have obtained incremental production as defined in subsection 5 of<br>section 57-51.1-03.9."Royalty owner" means an owner of what is commonly known as the royalty interest<br>and shall not include the owner of any overriding royalty or other payment carved out<br>of the working interest.10."Stripper well property" means a "property" whose average daily production of oil,<br>excluding condensate recovered in nonassociated production, per well did not<br>exceed ten barrels per day for wells of a depth of six thousand feet [1828.80 meters]<br>or less, fifteen barrels per day for wells of a depth of more than six thousand feet<br>[1828.80 meters] but not more than ten thousand feet [3048 meters], and thirty<br>barrels per day for wells of a depth of more than ten thousand feet [3048 meters]<br>during any preceding consecutive twelve-month period. Wells which did not actually<br>yield or produce oil during the qualifying twelve-month period, including disposal<br>wells, dry wells, spent wells, and shut-in wells, are not production wells for the<br>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<br>December thirty-first of each year, the tax commissioner shall compute an indexed<br>trigger price by applying to the current trigger price the rate of change of the<br>producer price index for industrial commodities as calculated and published by the<br>United States department of labor, bureau of labor statistics, for the twelve months<br>ending June thirtieth of that year and the indexed trigger price so determined is the<br>trigger price for the following calendar year.12."Two-year inactive well" means any well certified by the industrial commission that<br>did not produce oil in more than one month in any consecutive twenty-four-month<br>period before being recompleted or otherwise returned to production after July 31,<br>1995. A well that has never produced oil, a dry hole, and a plugged and abandoned<br>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,<br>and every owner, including any royalty owner, of any part of the oil extracted is deemed for the<br>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<br>extracted in the following situations:1.For oil produced from wells drilled and completed after April 27, 1987, commonly<br>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<br>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<br>tertiary recovery project that is certified as qualifying by the industrial commission<br>after June 30, 1991;4.For incremental oil produced from a secondary or tertiary recovery project that is<br>certified as qualifying by the industrial commission after June 30, 1991, and which<br>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<br>section 57-51.1-03 after June 30, 1993, and which production is not otherwise<br>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<br>any consecutive five-month period, then the rate of tax on oil extracted from all taxable wells is<br>six and one-half percent of the gross value at the well of the oil extracted until the average price<br>of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month<br>period, in which case the rate of tax reverts to four percent of the gross value at the well of the oil<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>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<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>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<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagemonthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>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<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.9.The first seventy-five thousand barrels or the first four million five hundred thousand<br>dollars of gross value at the well, whichever is less, of oil produced during the first<br>eighteen months after completion, from a horizontal well drilled and completed after<br>April 30, 2009, is subject to a reduced tax rate of two percent of the gross value at<br>the well of the oil extracted under this chapter. A well eligible for a reduced tax rate<br>under this subsection is eligible for the exemption for horizontal wells under<br>subsection 3, if the exemption under subsection 3 is effective during all or part of the<br>first twenty-four months after completion. The rate reduction under this subsection<br>becomes effective on the first day of the month following a month for which the<br>average price of a barrel of crude oil is less than fifty-five dollars. The rate reduction<br>under this subsection becomes ineffective on the first day of the month following a<br>month in which the average price of a barrel of crude oil exceeds seventy dollars. If<br>the rate reduction under this subsection is effective on the date of completion of a<br>well, the rate reduction applies to production from that well for up to eighteen months<br>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<br>rate reduction under this subsection does not apply to production from that well at<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>project that the cost of the project exceeded sixty-five thousand dollars or production<br>is increased at least fifty percent during the first two months after completion of the<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>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<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>from the last month in the twelve-month period of time.(3)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagePage No. 8monthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>have been produced from the unit if the tertiary recovery project had not<br>been commenced in a manner that conforms to the practice and<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.Page No. 99.The first seventy-five thousand barrels of oil produced during the first eighteen<br>months after completion, from a horizontal well drilled and completed in the Bakken<br>formation after June 30, 2007, and before July 1, 2008, is subject to a reduced tax<br>rate of two percent of the gross value at the well of the oil extracted under this<br>chapter. A well eligible for a reduced tax rate under this subsection is eligible for the<br>exemption for horizontal wells under subsection 3, if the exemption under<br>subsection 3 is effective during all or part of the first twenty-four months after<br>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<br>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<br>stripper well property under subsection 2 of section 57-51.1-03, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>section 57-51.1-03 and a rate reduction on production from a new well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a rate reduction for a work-over well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a tax rate reduction under section 57-51.1-02 on production<br>from a secondary or tertiary project, the industrial commission's certification must be<br>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<br>incremental oil was produced.b.For a tax rate reduction, within eighteen months after the end of the period<br>qualifying the project for the rate reduction.5.To receive, from the first day of eligibility, a tax exemption or the reduction on<br>production for which any other tax exemption or rate reduction may apply, the<br>industrial commission's certification must be submitted to the tax commissioner<br>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<br>section 57-51.1-03 on production from a two-year inactive well, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>eighteen-month period provided in this section, then the exemption or rate reduction does not<br>apply for the production periods in which the certification is not on file with the tax commissioner.<br>When the industrial commission's certification is submitted to the tax commissioner after the<br>eighteen-month period, the tax exemption or rate reduction applies to prospective production<br>periods only and the exemption or rate reduction is effective the first day of the month in which<br>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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<h2>State Codes and Statutes</h2>
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<h2>State Codes and Statutes</h2>
<a href='https://statutes.laws.com/'>Statutes</a> > <a href='https://statutes.laws.com/north-dakota'>North-dakota</a> > <a href='https://statutes.laws.com/north-dakota/t57'>T57</a> > <a href='https://statutes.laws.com/north-dakota/t57/t57c511'>T57c511</a><br><br><a href="https://law.justia.com/codes/north-dakota/2009/t57/pdf/t57c511.pdf">Download pdf</a><br><div id="embed_document" style="width:625px; height:815px; text-align:center;">Loading PDF...</div><script type="text/javascript"> 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('<embed src="'+pdf_url+'" width="100%" height="100%"></embed>'); } else { embedwindow.html('<iframe style="width:100%; height:100%;" src="https://docs.google.com/gview?url='+window.escape(pdf_url)+'&embedded=true" frameborder="0"></iframe>'); } });</script><br><br><noframes>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<br>of oil from the well during a calendar month period divided by the number of<br>calendar days in that period, and "qualified maximum total production" of a well<br>means that the well must have been maintained at the maximum efficient rate of<br>production as defined and determined by rule adopted by the industrial commission<br>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<br>closing price for a barrel of west Texas intermediate cushing crude oil, as those<br>prices appear in the Wall Street Journal, midwest edition, minus two dollars and fifty<br>cents. When computing the monthly average price, the most recent previous daily<br>closing price must be considered the daily closing price for the days on which the<br>market is closed.3."Horizontal reentry well" means a well that was not initially drilled and completed as<br>a horizontal well, including any well initially plugged and abandoned as a dry hole,<br>which is reentered and recompleted as a horizontal well.4."Horizontal well" means a well with a horizontal displacement of the well bore drilled<br>at an angle of at least eighty degrees within the productive formation of at least three<br>hundred feet [91.44 meters].5."Oil" means petroleum, crude oil, mineral oil, casinghead gasoline, and all liquid<br>hydrocarbons that are recovered from gas on the lease incidental to the production<br>of the gas.6."Property" means the right which arises from a lease or fee interest, as a whole or<br>any designated portion thereof, to produce oil. A producer shall treat as a separate<br>property each separate and distinct producing reservoir subject to the same right to<br>produce crude oil; provided, that such reservoir is recognized by the industrial<br>commission as a producing formation that is separate and distinct from, and not in<br>communication with, any other producing formation.7."Qualifying secondary recovery project" means a project employing water flooding.<br>To be eligible for the tax reduction provided under section 57-51.1-02, a secondary<br>recovery project must be certified as qualifying by the industrial commission and the<br>project operator must have achieved for six consecutive months an average<br>production level of at least twenty-five percent above the level that would have been<br>recovered under normal recovery operations. To be eligible for the tax exemption<br>provided under section 57-51.1-03 and subsequent thereto the rate reduction<br>provided under section 57-51.1-02, a secondary recovery project must be certified<br>as qualifying by the industrial commission and the project operator must have<br>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<br>which meets the requirements of section 4993(c), Internal Revenue Code of 1954,<br>as amended through December 31, 1986, and includes the following methods for<br>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<br>one of the qualifying tertiary recovery techniques described in this subsection, or<br>immiscible natural gas injection. To be eligible for the tax reduction provided under<br>section 57-51.1-02, a tertiary recovery project must be certified as qualifying by the<br>industrial commission, the project operator must continue to operate the unit as a<br>qualifying tertiary recovery project, and the project operator must have achieved for<br>at least one month a production level of at least fifteen percent above the level that<br>would have been recovered under normal recovery operations. To be eligible for the<br>tax exemption provided under section 57-51.1-03 and subsequent thereto the rate<br>reduction provided under section 57-51.1-02, a tertiary recovery project must be<br>certified as qualifying by the industrial commission, the project operator must<br>continue to operate the unit as a qualifying tertiary recovery project, and the project<br>operator must have obtained incremental production as defined in subsection 5 of<br>section 57-51.1-03.9."Royalty owner" means an owner of what is commonly known as the royalty interest<br>and shall not include the owner of any overriding royalty or other payment carved out<br>of the working interest.10."Stripper well property" means a "property" whose average daily production of oil,<br>excluding condensate recovered in nonassociated production, per well did not<br>exceed ten barrels per day for wells of a depth of six thousand feet [1828.80 meters]<br>or less, fifteen barrels per day for wells of a depth of more than six thousand feet<br>[1828.80 meters] but not more than ten thousand feet [3048 meters], and thirty<br>barrels per day for wells of a depth of more than ten thousand feet [3048 meters]<br>during any preceding consecutive twelve-month period. Wells which did not actually<br>yield or produce oil during the qualifying twelve-month period, including disposal<br>wells, dry wells, spent wells, and shut-in wells, are not production wells for the<br>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<br>December thirty-first of each year, the tax commissioner shall compute an indexed<br>trigger price by applying to the current trigger price the rate of change of the<br>producer price index for industrial commodities as calculated and published by the<br>United States department of labor, bureau of labor statistics, for the twelve months<br>ending June thirtieth of that year and the indexed trigger price so determined is the<br>trigger price for the following calendar year.12."Two-year inactive well" means any well certified by the industrial commission that<br>did not produce oil in more than one month in any consecutive twenty-four-month<br>period before being recompleted or otherwise returned to production after July 31,<br>1995. A well that has never produced oil, a dry hole, and a plugged and abandoned<br>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,<br>and every owner, including any royalty owner, of any part of the oil extracted is deemed for the<br>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<br>extracted in the following situations:1.For oil produced from wells drilled and completed after April 27, 1987, commonly<br>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<br>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<br>tertiary recovery project that is certified as qualifying by the industrial commission<br>after June 30, 1991;4.For incremental oil produced from a secondary or tertiary recovery project that is<br>certified as qualifying by the industrial commission after June 30, 1991, and which<br>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<br>section 57-51.1-03 after June 30, 1993, and which production is not otherwise<br>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<br>any consecutive five-month period, then the rate of tax on oil extracted from all taxable wells is<br>six and one-half percent of the gross value at the well of the oil extracted until the average price<br>of a barrel of crude oil is less than the trigger price for each month in any consecutive five-month<br>period, in which case the rate of tax reverts to four percent of the gross value at the well of the oil<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>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<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>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<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagemonthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>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<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.9.The first seventy-five thousand barrels or the first four million five hundred thousand<br>dollars of gross value at the well, whichever is less, of oil produced during the first<br>eighteen months after completion, from a horizontal well drilled and completed after<br>April 30, 2009, is subject to a reduced tax rate of two percent of the gross value at<br>the well of the oil extracted under this chapter. A well eligible for a reduced tax rate<br>under this subsection is eligible for the exemption for horizontal wells under<br>subsection 3, if the exemption under subsection 3 is effective during all or part of the<br>first twenty-four months after completion. The rate reduction under this subsection<br>becomes effective on the first day of the month following a month for which the<br>average price of a barrel of crude oil is less than fifty-five dollars. The rate reduction<br>under this subsection becomes ineffective on the first day of the month following a<br>month in which the average price of a barrel of crude oil exceeds seventy dollars. If<br>the rate reduction under this subsection is effective on the date of completion of a<br>well, the rate reduction applies to production from that well for up to eighteen months<br>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<br>rate reduction under this subsection does not apply to production from that well at<br>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<br>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<br>the well is exempt from any taxes imposed under this chapter for a period of fifteen<br>months, except that oil produced from any well drilled and completed as a horizontal<br>well is exempt from any taxes imposed under this chapter for a period of twenty-four<br>months. Oil recovered during testing prior to well completion is exempt from the oil<br>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<br>consecutive five-month period. However, the exemption is reinstated if, after the<br>trigger provision becomes effective, the average price of a barrel of crude oil is less<br>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<br>taxes imposed under this chapter for a period of twelve months, beginning with the<br>first day of the third calendar month after the completion of the work-over project.<br>The exemption provided by this subsection is only effective if the well operator<br>establishes to the satisfaction of the industrial commission upon completion of the<br>project that the cost of the project exceeded sixty-five thousand dollars or production<br>is increased at least fifty percent during the first two months after completion of the<br>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<br>continuous production.A work-over project under this subsection means thecontinuous employment of a work-over rig, including recompletions and reentries.<br>The exemption provided by this subsection becomes ineffective if the average price<br>of a barrel of crude oil exceeds the trigger price for each month in any consecutive<br>five-month period. However, the exemption is reinstated if, after the trigger provision<br>becomes effective, the average price of a barrel of crude oil is less than the trigger<br>price for each month in any consecutive five-month period.5.a.The incremental production from a secondary recovery project which has been<br>certified as a qualified project by the industrial commission after July 1, 1991, is<br>exempt from any taxes imposed under this chapter for a period of five years<br>from the date the incremental production begins.b.The incremental production from a tertiary recovery project that does not use<br>carbon dioxide and which has been certified as a qualified project by the<br>industrial commission is exempt from any taxes imposed under this chapter for<br>a period of ten years from the date the incremental production begins.<br>Incremental production from a tertiary recovery project that uses carbon dioxide<br>and which has been certified as a qualified project by the industrial commission<br>is exempt from any taxes imposed under this chapter from the date the<br>incremental production begins.c.For purposes of this subsection, incremental production is defined in the<br>following manner:(1)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the secondary<br>recovery project and the amount of primary production from the unit. For<br>purposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the secondary recovery<br>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<br>project is certified.(2)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence prior to July 1, 1991, and where the industrial commission<br>cannot establish an accurate production decline curve, incremental<br>production means the difference between the total amount of oil<br>produced from the unit during a new secondary recovery project and the<br>amount of production which would be equivalent to the average monthly<br>production from the unit during the most recent twelve months of normal<br>production reduced by a production decline rate of ten percent for each<br>year. The industrial commission shall determine the average monthly<br>production from the unit during the most recent twelve months of normal<br>production and must upon request or upon its own motion hold a hearing<br>to make this determination.For purposes of this paragraph, whendetermining the most recent twelve months of normal production the<br>industrial commission is not required to use twelve consecutive months.<br>In addition, the production decline rate of ten percent must be applied<br>from the last month in the twelve-month period of time.(3)For purposes of determining the exemption provided for in subdivision a<br>and with respect to a unit where a secondary recovery project was in<br>existence before July 1, 1991, and where the industrial commission can<br>establish an accurate production decline curve, incremental production<br>means the difference between the total amount of oil produced from the<br>unit during the new secondary recovery project and the total amount of<br>oil that would have been produced from the unit if the new secondary<br>recovery project had not been commenced.For purposes of thisparagraph, the total amount of oil that would have been produced from<br>the unit if the new secondary recovery project had not been commenced<br>includes both primary production and production that occurred as a result<br>of the secondary recovery project that was in existence before July 1,<br>1991. The industrial commission shall determine the amount of oil that<br>would have been produced from the unit if the new secondary recovery<br>project had not been commenced in a manner that conforms to the<br>practice and procedure used by the commission at the time the new<br>secondary recovery project is certified.(4)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there has not been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced from the unit during the tertiary recovery<br>project and the amount of primary production from the unit.Forpurposes of this paragraph, primary production means the amount of oil<br>which would have been produced from the unit if the tertiary recovery<br>project had not been commenced.The industrial commission shalldetermine the amount of primary production in a manner which conforms<br>to the practice and procedure used by the commission at the time the<br>project is certified.(5)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project, incremental production means the difference between<br>the total amount of oil produced during the tertiary recovery project and<br>the amount of production which would be equivalent to the average<br>monthly production from the unit during the most recent twelve months of<br>normal production reduced by a production decline rate of ten percent for<br>each year.The industrial commission shall determine the averagePage No. 8monthly production from the unit during the most recent twelve months of<br>normal production and must upon request or upon its own motion hold a<br>hearing to make this determination.For purposes of this paragraph,when determining the most recent twelve months of normal production<br>the industrial commission is not required to use twelve consecutive<br>months. In addition, the production decline rate of ten percent must be<br>applied from the last month in the twelve-month period of time.(6)For purposes of determining the exemption provided for in subdivision b<br>and with respect to a unit where there is or has been a secondary<br>recovery project and where the industrial commission can establish an<br>accurate production decline curve, incremental production means the<br>difference between the total amount of oil produced from the unit during<br>the tertiary recovery project and the total amount of oil that would have<br>been produced from the unit if the tertiary recovery project had not been<br>commenced. For purposes of this paragraph, the total amount of oil that<br>would have been produced from the unit if the tertiary recovery project<br>had not been commenced includes both primary production and<br>production that occurred as a result of any secondary recovery project.<br>The industrial commission shall determine the amount of oil that would<br>have been produced from the unit if the tertiary recovery project had not<br>been commenced in a manner that conforms to the practice and<br>procedure used by the commission at the time the tertiary recovery<br>project is certified.d.The industrial commission shall adopt rules relating to this exemption that must<br>include procedures for determining incremental production as defined in<br>subdivision c.6.The production of oil from a two-year inactive well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of ten years<br>after the date of receipt of the certification. The exemption under this subsection<br>becomes ineffective if the average price of a barrel of crude oil exceeds the trigger<br>price for each month in any consecutive five-month period. However, the exemption<br>is reinstated if, after the trigger provision becomes effective, the average price of a<br>barrel of crude oil is less than the trigger price for each month in any consecutive<br>five-month period.7.The production of oil from a horizontal reentry well, as determined by the industrial<br>commission and certified to the state tax commissioner, for a period of nine months<br>after the date the well is completed as a horizontal well. The exemption under this<br>subsection becomes ineffective if the average price of a barrel of crude oil exceeds<br>the trigger price for each month in any consecutive five-month period. However, the<br>exemption is reinstated if, after the trigger provision becomes effective, the average<br>price of a barrel of crude oil is less than the trigger price for each month in any<br>consecutive five-month period.8.The initial production of oil from a well is exempt from any taxes imposed under this<br>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<br>an Indian tribe or individual Indian; orc.The well is drilled and completed on lands held by an Indian tribe if the interest<br>is in existence on August 1, 1997.Page No. 99.The first seventy-five thousand barrels of oil produced during the first eighteen<br>months after completion, from a horizontal well drilled and completed in the Bakken<br>formation after June 30, 2007, and before July 1, 2008, is subject to a reduced tax<br>rate of two percent of the gross value at the well of the oil extracted under this<br>chapter. A well eligible for a reduced tax rate under this subsection is eligible for the<br>exemption for horizontal wells under subsection 3, if the exemption under<br>subsection 3 is effective during all or part of the first twenty-four months after<br>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<br>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<br>stripper well property under subsection 2 of section 57-51.1-03, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>section 57-51.1-03 and a rate reduction on production from a new well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a rate reduction for a work-over well under section<br>57-51.1-02, the industrial commission's certification must be submitted to the tax<br>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<br>section 57-51.1-03 and a tax rate reduction under section 57-51.1-02 on production<br>from a secondary or tertiary project, the industrial commission's certification must be<br>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<br>incremental oil was produced.b.For a tax rate reduction, within eighteen months after the end of the period<br>qualifying the project for the rate reduction.5.To receive, from the first day of eligibility, a tax exemption or the reduction on<br>production for which any other tax exemption or rate reduction may apply, the<br>industrial commission's certification must be submitted to the tax commissioner<br>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<br>section 57-51.1-03 on production from a two-year inactive well, the industrial<br>commission's certification must be submitted to the tax commissioner within<br>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<br>eighteen-month period provided in this section, then the exemption or rate reduction does not<br>apply for the production periods in which the certification is not on file with the tax commissioner.<br>When the industrial commission's certification is submitted to the tax commissioner after the<br>eighteen-month period, the tax exemption or rate reduction applies to prospective production<br>periods only and the exemption or rate reduction is effective the first day of the month in which<br>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. Repealed by S.L. 1989, ch. 732, <!-- END .shortcode-content -->
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