N.M. Admin. Code § 19.15.6.8

Current through Register Vol. 35, No. 23, December 10, 2024

Section 19.15.6.8 - ENHANCED OIL RECOVERY PROJECT TAX INCENTIVE

A. The division shall accept applications for qualification of EOR projects or expansions of EOR projects for the recovered oil tax rate pursuant to the New Mexico Enhanced Oil Recovery Act, NMSA 1978, Sections 7-29A-1 through 7-29A-5.

B.19.15.6.8 NMAC applies to:

(1) EOR projects;

(2) expansions of existing EOR projects;

(3) the expanded use of enhanced oil recovery technology in existing EOR projects; and

(4) the change from a secondary recovery project to a tertiary recovery project.

C. To be eligible for the tax rate the operator shall apply for and receive division approval. No project or expansion the division approved prior to March 6, 1992 qualifies.

D. Application.

(1) The operator shall file applications with the division's Santa Fe office. The operator shall also file one copy of the application and attachments with the appropriate division district office.

(2) The operator or its authorized representative having knowledge of the facts in the application shall execute and certify an application, which shall contain:

(a) the operator's name and address;

(b) the project area's description including:

(i) a plat outlining the project area;

(ii) a description of the project area by section, township and range; total acres; and

(iii) the name of the subject pool and formation;

(c) the status of operations in the project area:

(i) if unitized, the unit name and the date and number of the division order approving the unit plan of operation;

(ii) if an application for approval of a unit plan has been made, the date the application was filed with the division; and

(iii) if not unitized, identification of each lease in the project area by lessor, lessee and legal description;

(d) the method of recovery to be used:

(i) identification of the fluids to be injected;

(ii) if the division has approved the project, the date and number of the division order; and

(iii) if the division has not approved the project, the date the application for approval was filed with the division on form C-108;

(e) the project description:

(i) a list of producing wells;

(ii) a list of injection wells;

(iii) the capital costs of additional facilities;

(iv) the total project cost;

(v) the estimated total value of the additional production that will be recovered as a result of the project;

(vi) the anticipated date for commencement of injection;

(vii) the type of fluid to be injected and the anticipated volumes; and if the application is made for an expansion of an existing project, an explanation of what changes in technology the operator will use or what additional geographic area the operator will add to the project area; and

(f) production data including graphs, charts and other supporting data showing the production history and production forecast of oil, gas, casinghead gas and water from the project area.

E. Approval and certification.

(1) Project approval. The division shall approve an EOR project and designate the project area for the recovered oil tax rate when the operator proves that:

(a) the application of the proposed enhanced recovery techniques to the reservoir should result in an increase in the amount of oil that may be ultimately recovered;

(b) the project area has been so depleted that it is prudent to apply enhanced recovery techniques to maximize the ultimate recovery of oil; and

(c) the application is economically and technically reasonable and has not been prematurely filed.

(2) Positive production response certification.

(a) For the recovered oil tax rate to apply to oil produced from an approved qualified EOR project, the operator shall demonstrate a positive production response to the division and file an application for certification of a positive production response with the division's Santa Fe office, which shall include:

(i) a copy of the division's approval of the EOR project or expansion;

(ii) a plat of the affected area showing all injection and producing wells with completion dates; and

(iii) production graphs and supporting data demonstrating a positive production response and showing the volumes of water or other substances that have been injected on the lease or unit since initiation of the EOR project.

(b) The director may administratively approve an application and certify a positive production response or, at the director's discretion or at the applicant's request, may set the application for hearing.

(c) The division shall certify that a positive production response occurred and notify the secretary of taxation and revenue; this certification and notice shall set forth the date the certification was made and the date the positive production response occurred provided however:

(i) for a secondary recovery project, the application for certification of a positive production response shall occur not later than five years from the date the division issued the certification of approval for the EOR project or expansion; and

(ii) for a tertiary recovery project, the application for certification of a positive production response must occur not later than seven years from the date the division issues the certification of approval for the EOR project or expansion.

F. Reporting requirements.

(1) The operator of an approved EOR project shall report annually on the project's status and confirm that the project is still a viable EOR project as approved. The operator shall file the report for the year ending May 31 with the division's Santa Fe office. The report shall contain:

(a) the date and number of the division's certification order for the project;

(b) production graphs showing oil, gas and water production;

(c) a graph showing the volumes of fluid injected and the average injection pressures; and

(d) additional data the director deems necessary for continued approval.

(2) The director may set for hearing the continued approval of an EOR project.

G. Termination. When the operator terminates active operation of an EOR project or expansion, the operator shall notify the division and the secretary of taxation and revenue in writing not later than the 30th day after the EOR project's termination or expansion.

N.M. Admin. Code § 19.15.6.8

19.15.6.8 NMAC - Rp, 19.15.1.30 NMAC, 12/1/08