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Texas Severance Tax Incentives

The  reduction or elimination of state severance taxes provides an economic  incentive to operators to undertake activities that produce oil and gas  resources that otherwise might remain unrecovered.  Texas recognized back in the late 1980’s that incentives to  increase the state’s oil and gas production were extremely valuable.  Economic studies have shown that for each  dollar invested in the oil and gas industry and for each dollar of production,  there is a positive effect on the state’s economy. 

The incentive programs are targeted to help strengthen the  economy by encouraging investment in exploration and production and to maximize responsible  development and efficient recovery of the state’s valuable natural resources. 

By providing exemptions from or reductions of the severance tax on oil and gas production, these incentive programs in effect lower the cost of  production.  For marginal operations, in  particular, these incentives might mean the difference between shutting in a  well, keeping a well in production, or bringing a well back into  production.  For others, the incentives  are factored into decisions of drilling or not drilling a well, initiating an  enhanced recovery project, or servicing a well to increase its production. 

The baseline Texas severance tax on oil and gas  is:

  • Gas severance tax = 7.5% of  market value of gas produced and saved
  • Oil severance tax = 4.6% of  market value of oil produced
  • Condensate tax = 4.6% of  market value

Present Incentive Programs

Form ST-1, Application for Texas Severance Tax Incentive Certification

Oil and gas operators can now file Form ST-1, Application for Texas Severance Tax Incentive Certification, with the Railroad Commission of Texas (RRC) online using the RRC Online System.