ComboCurve: Production Taxes

ComboCurve: Production Taxes

ComboCurve: Production Taxes

In this article we will discuss the Production Taxes model in ComboCurve.

Date Triggers

  1. Flat: From As Of Date to Econ Limit
  2. FPD : Begins at the First Production Date
  3. As Of : Begins at the As Of Date applied to the well in the Dates section
  4. Disc Date: Begins at the Discount Date applied to the well in the Dates section
  5. Maj Seg : Begins when main phase of the well starts production
  6. End Hist : Begins when the well switches from actual historical data to forecasted data
  7. Dates : Begins on a scheduled date
  8. Oil, Gas or Water Rate: Begins when production crosses the threshold set for that one product.
    1. Gross Well Head, Gross Sales, Net Sales volumes can trigger the changes
      1. Monotonic or Non-Monotonic, is how variable production is treated with former not allowing rate changes on subsequent threshold crossings.  For instances when production forecasts have production that variably increases and decreases over time:
        1. Monotonic: If production were to increase, no changes will be made to the value
        2. Non-Monotonic: The values look back up the schedule and vary up or down depending on the production rate.

State

A simplistic State Tax regime can be selected as a starting point.  These models have the default full-rate sev/adv taxes for each state but do not include:
  1. Tax holidays
  2. Interoperability of sev/adv deductions
  3. Reversions to lower taxes when the well reaches stripper status
  4. The exception is when PA IF (Pennsylvania Impact Fee) for horizontal or vertical wells is selected, a PUC Schedule will show up with additional options. PA IF is imposed as $/year payment beginning the spud year of horizontal wells for the first 15-years.  Vertical wells are 20% of the horizontal fee for the first 10-years.  The schedule can be adjusted  annually by the PUC according to CPI and depends on the average gas price for the preceding calendar year. For modeling simplicity, monthly gas prices from the pricing inputs (no differentials) are used to determine the fee column.  If populated from the header or schedule, spud date is used to determine the years of service for the fee schedule but FPD can also be selected where appropriate.  For further reading, see: https://www.act13-reporting.puc.pa.gov/Modules/Disbursements/FeeSchedule.aspx 
    1. Deduct Severance Tax, Shrinkage Condition and Calculation are irrelevant for PA IF.  By statute, the leaseholder pays the landowner's portion (WI).
    2. Start Date (Note that a default hierarchy is followed: if you select "from headers" and it does not exist (null), CC will then use FPD as a backup.
      1. SPUD Date from headers - The Spud Date from the headers for this well will be used.
      2. SPUD Date from schedule - The Spud Date from the schedule module if that schedule is selected for this well in the Scenario.  WARNING!  CC schedules populate Spud ONLY when a spudder rig is used so it will be null otherwise.  A "Drill Start" will be added soon.
      3. FPD - First production Date from the hierarchy in the "Dates" tab.
    3. After selecting Pennsylvania vertical or horizontal impact fees from the state dropdown, you'll have additional options for the calendar year's (2021 or 2022) fee schedules. Below this selection, you can also select a corresponding escalation to apply to the schedule if applicable.


Severance Tax

Severance Taxes are state taxes on production.  Some apply the tax as a % of revenue, some as a price per unit of production , some both.  A price per month is also available.  Detailed schedules of severance tax holidays can be modeled as well as reversions to lower rates once the well reaches stripper status.
  1. Calculation - Specify which interest to which the taxes below apply:
    1. NRI: All parties receiving production pay their own share
    2. WI: (uncommon) The lessor (landowner) share is paid by the lessee

Ad Valorem Tax 

Ad Valorem Taxes are state or usually county/local tax assessed on the value of the production and/or equipment.  They can be modeled as a % of revenue, price per boe (at the conversion set for the project) or as price per month.
  1. Deduct Severance Tax - Default is “No”.  Some taxing authorities allow Severance Tax deductions from Ad Valorem Tax calculation.
  2. Calculation - Specify which interest to which the taxes below apply:
  3. NRI: All parties receiving production pay their own share
  4. WI: (uncommon) The lessor (landowner) share is paid by the lessee



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