96832-1:n:02/05/2008:EBO-CSM/ebo-pa

To amend Sections 9-17-1, 9-17-25, 9-17-26, 9-17-31, 40-20-1, 40-20-2, 40-20-4, 40-20-8, 40-20-14, and 40-20-50 of the Code of Alabama 1975, to establish an adjustable base tax rate for offshore natural gas severance taxes, to be applied to the volume of thousands of cubic feet (MCF) of natural gas produced for sale, storage, profit or use, from offshore production.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

§9-17-1.

Unless the context otherwise requires, the following terms shall have the following meanings:

(1) BOARD. The State Oil and Gas Board created by this article.

(2) DEVELOPED AREA or DEVELOPED UNIT. A drainage unit having a well completed thereon which is capable of producing oil or gas in paying quantities; however, in the event it is shown and the board finds that a part of any unit is nonproductive, then the developed part of the unit shall include only that part found to be productive.

(3) DRAINAGE UNIT. The area in a pool which may be drained efficiently and economically by one well.

(4) FIELD. The general area which is underlain or appears to be underlain by at least one pool, and such term shall include the underground reservoir or reservoirs containing crude oil or natural gas or both. The words "field" and "pool" have the same meaning when only one underground reservoir is involved; however, the word "field," unlike "pool," may relate to two or more pools.

(5) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in subdivision (9) of this section.

(6) ILLEGAL GAS. Gas which has been produced within the State of Alabama from any well or wells in excess of the amount allowed by any rule, regulation, or order of the board, as distinguished from gas produced within the State of Alabama not in excess of the amount so allowed, which is "legal gas."

(7) ILLEGAL OIL. Oil which has been produced within the State of Alabama from any well or wells in excess of the amount allowed by any rule, regulation, or order of the board, as distinguished from oil produced within the State of Alabama not in excess of the amount so allowed, which is "legal oil."

(8) ILLEGAL PRODUCT. Any product of oil or gas, any part of which was processed or derived in whole or in part from illegal oil or illegal gas or from any product thereof, as distinguished from "legal product," which is a product processed or derived to no extent from illegal oil or illegal gas.

(9) OIL. Crude petroleum oil and other hydrocarbons, regardless of gravity, which are produced at the well in liquid form by ordinary production methods and which are not the result of a condensation of gas after it leaves the pool.

(10) OPERATOR. The person who is authorized by the board to operate an oil, gas, or Class II injection well, or production facility, or processing facility, or engages in the transportation of hydrocarbons by pipeline, including the handling and disposal of wastes that may be generated during operation of a well, or production facility, or processing facility.

(11) OWNER. The person who has the right to drill into and to produce from any pool and to appropriate the production either for himself or herself or for himself or herself and another or others.

(12) PERSONS. Any natural person, firm, corporation, association, partnership, joint venture, receiver, trustee, guardian, executor, administrator, fiduciary, representative of any kind or any other group acting as a unit.

(13) POOL. An underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both and each zone of a general structure which is completely separated from any other zone in the structure.

(14) PRODUCER. The owner of a well or wells capable of producing oil or gas or both; provided, however, that the word "producer" as used in Section 9-17-25 shall also include any person receiving money or other valuable consideration as royalty or rental for oil or gas produced or because of oil or gas produced, whether produced by him or her or by some other person on his or her behalf, either by lease, contract or otherwise, and whether the royalty consists of a portion of the oil or gas produced being run to his or her account or a payment in money or other valuable consideration.

(15) PRODUCT. Any commodity made from oil or gas and shall include refined crude oil, crude tops, topped crude, processed crude petroleum, residue from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil, residuum, gas oil, casinghead gasoline, natural gas gasoline, naphtha, distillate, gasoline, kerosene, benzine, wash oil, waste oil, blended gasoline, lubricating oil, blends or mixtures of oil with one or more liquid products or byproducts derived from oil or gas and blends or mixtures of two or more liquid products or byproducts derived from oil or gas, whether hereinabove enumerated or not.

(16) REASONABLE MARKET DEMAND. As to oil, the amount of oil reasonably needed for current consumption and use, together with a reasonable amount of oil for storage and working stock and, as to gas, the amount of gas of any type reasonably needed to supply the current consumption and use of such type of gas.

(17) TENDER. A permit or certificate of clearance, approved and issued or registered under the authority of the board, for the transportation of oil, gas, or products.

(18) WASTE. In addition to its ordinary meaning, such term shall mean "physical waste" as that term is generally understood in the oil and gas industry. It shall include any of the following:

a. The inefficient, excessive or improper use or dissipation of reservoir energy and the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner which results or tends to result in reducing the quantity of oil or gas ultimately to be recovered from any pool in this state.

b. The inefficient storing of oil and the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas.

c. Abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to nonuniform, disproportionate and unratable withdrawals causing undue drainage between tracts of land.

d. Producing oil or gas in such manner as to cause unnecessary water channeling or coning.

e. The operation of any oil well or wells with an inefficient gas-oil ratio.

f. The drowning with water of any stratum or part thereof capable of producing oil or gas.

g. Underground waste however caused and whether or not defined.

h. The creation of unnecessary fire hazards.

i. The escape into the open air, from a well producing both oil and gas, of gas in excess of the amount which is necessary in the efficient drilling or operation of the well.

j. The use of gas, except sour gas, for the manufacture of carbon black.

k. The escape of gas into the open air, from a well producing gas, in excess of the amount which is necessary for safety reasons or for the efficient drilling, testing, and operation of the well.

l. Production of oil and gas in excess of reasonable market demand.

(19) MCF. The volume of gas, measured in units of one thousand cubic feet, at a pressure of 14.65 pounds per square inch, and at a temperature of 60 degrees Fahrenheit.

(20) OFFSHORE LIQUIDS. Gas produced by offshore production, which existed in the gaseous state under normal reservoir conditions, but which was liquefied either through condensation or through changes in temperature or pressure. Offshore liquids are considered to be produced and subject to the tax herein provided after such liquids have been removed from the gas stream and are ready for sale, transport, storage or use.

§9-17-25.

(a) For the purpose of defraying the expenses connected with the administration and enforcement of this article, including the expense of the inspections, tests, analyses and all other expenses connected with the supervision and protection of crude petroleum oil and natural gas in the State of Alabama, there is hereby levied on the producer a tax equal in amount to two percent of the gross value, at the point of production, of the crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use from any well or wells in the State of Alabama, except as provided in subsequent subsections of this section. Provided, however, that natural gas lawfully injected into oil or gas pools or reservoirs in the soil or beneath the soil or waters of the State of Alabama is exempt from this tax. Provided, further, that natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama is exempt from this tax. However, if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas is exempt from the tax. The tax shall be paid to the Department of Revenue directly by the purchaser when authorized in writing by the producer, and, when so paid, the producer or person in charge of production shall be relieved of any further liability.

(b) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1996, and before July 1, 2002, except a replacement well for a well for which the initial permit was issued by the Oil and Gas Board is dated before July 1, 1996, the applicable rate of tax levied against the value of produced oil and gas pursuant to subsection (a) shall be one percentand the applicable rate of tax levied against the volume of offshore gas shall be reduced by 50 percent for a period of five years commencing with commercial production, after which subsection (a) shall apply.

(c) Except for offshore liquids, gas produced by offshore production, as defined in Section 40-20-1(11), shall be taxed based on the volume in mcf of such gas at the point of production, after the removal of condensate and other offshore liquids if such are removed prior to sale, and after the volume of offshore gas available for sale, transport, storage or use is measured. The rate of tax, for this section shall be $0.448, for each mcf of such offshore gas produced prior to January 1, 2009. Each mcf of such offshore gas produced after December 31, 2008 shall be subject to tax at an adjusted base tax rate to be calculated by the Department of Revenue, in the same manner as provided in Section 40-20-2(f).

§9-17-26.

(a) It shall be the duty of every person producing or in charge of production of crude petroleum or natural gas from any well or wells in the State of Alabama for sale, transport, storage, profit or for use to keep and preserve such records of the amount of all such crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use as may be necessary to determine the amount of the tax for which he is liable under the provisions of Section 9-17-25.

(b) It shall be the further duty of every such person to file with the Department of Revenue, not later than the fifteenth day of the second calendar month following the month of production, a return, subscribed by the person who completes such return, which must contain a printed declaration that it is made under the penalty of perjury, showing the amount of crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use during the second preceding month, to compute on the return the amount of tax charged against him in accordance with the provisions of Section 9-17-25 and to transmit to the Department of Revenue with such return a remittance covering the tax chargeable against him. The return shall contain such other information and shall be in such form as the Department of Revenue shall designate.

(c) The Department of Revenue is authorized to determine the gross value at the point of production, and the volume of offshore gas, subject to the tax herein provided, in accordance with customary practice.

(d) The Department of Revenue is hereby authorized to promulgate reasonable rules and regulations relating to the administration and enforcement of this article provided, however, that no rule or regulation adopted or promulgated by the department shall alter, limit, extend or be out of harmony with any of the provisions of this article.

§9-17-31.

All funds collected pursuant to the two percent tax levied on the producer of crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use, from any well or wells in the State of Alabama, as is provided in Section 9-17-25, shall be deposited in the State Treasury to the credit of the General Fund and shall be expended only in the manner provided by appropriation by the Legislature.

§40-20-1.

For the purpose of this article, the following terms shall have the respective meanings ascribed by this section:

(1) DEPARTMENT. The state Department of Revenue.

(2) ANNUAL. The calendar year or the taxpayer's fiscal year, when permission is obtained from the department to use a fiscal year as a tax period in lieu of a calendar year.

(3) VALUE. The sale price or market value at the mouth of the well. If the oil or gas is exchanged for something other than cash, if there is no sale at the time of severance or if the relation between the buyer and the seller is such that the consideration paid, if any, is not indicative of the true value or market price, then the department shall determine the value of the oil or gas subject to the tax hereinafter provided for, considering the sale price for cash of oil or gas of like quality.

(4) OIL. Crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the well.

(5) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in subdivision (4) above.

(6) SEVERED. The extraction or withdrawing from the soil or water or from below the surface of the soil or water of any oil or gas, whether such extraction or withdrawal shall be by natural flow, mechanically enforced flow, pumping, or any other means employed to get the oil or gas from the soil or water or from below the surface of the soil or water.

(7) PERSON. Any natural person, firm, copartnership, joint venture, association, corporation, estate, trust, and any other group or combination acting as a unit, and the plural as well as the singular number.

(8) PRODUCER. Any person engaging or continuing in the business of oil or gas production, which, for the purpose of this article, includes the owning, controlling, managing, or leasing of any oil or gas property or oil or gas well, and producing in any manner any oil or gas by taking it from the soil or waters, or from beneath the soil or waters, of the State of Alabama, and further includes receiving money or other valuable consideration as royalty or rental for oil or gas produced or because of oil or gas produced, whether produced by him or by some other person on his behalf, either by lease, contract or otherwise, and whether the royalty consists of a portion of the oil or gas produced being run to his account or a payment in money or other valuable consideration.

(9) SUBMERGED LANDS. All lands within the territorial jurisdiction of the State of Alabama that are continuously or intermittently covered by marine or marine influenced waters and are below the mean high tide mark on all islands and land adjacent to the Mississippi Sound, Mobile Bay, Bon Secour Bay, Wolf Bay, Arnica Bay, Bay La Launch, and Perdido Bay; and excludes all areas upstream of the confluence of the Mississippi Sound, Mobile Bay, Wolf Bay and Perdido Bay with their natural tributaries.

(10) OFFSHORE DRILLING OR PRODUCTION FACILITIES. Barges, platforms or other drilling or production facilities located on submerged lands to drill or to produce oil or gas.

(11) OFFSHORE PRODUCTION. Gas or oil produced from offshore drilling or production facilities from wells located on submerged lands within the territorial jurisdiction of the State of Alabama.

(12) DISCOVERY WELL. Any well capable of producing oil and/or gas from a single pool in which a well has not been previously completed as a well capable of producing.

(13) DEVELOPMENT WELLS. All oil and/or gas producing wells other than discovery wells and replacement wells.

(14) ONSHORE WELL. Any oil or gas well that is drilled in an area other than submerged lands as defined herein.

(15) REPLACEMENT WELLS. A well drilled on a drilling and/or production unit to replace another well which is drilled in the same unit and completed in the same pool.

(16) COMMENCED. A well shall be deemed to have commenced when the well is spudded.

(17) COMPLETION. A well shall be deemed to be completed for purposes of this article when drilling and logging operations have ceased.

(18) POOL. As used herein, pool shall mean a single underground reservoir containing a common accumulation of oil or gas or both. Each zone of a general structure which is completely separated from any other zone in the structure is a single pool as that term is used herein.

(19) ENHANCED RECOVERY PROJECT. An oil or gas recovery project which is approved by the State Oil and Gas Board of Alabama employing one or more of the following methods:

a. Recycling, injecting or flooding a pool, or pools, or portion thereof, with air, gas, water, hydrocarbons, carbon dioxide (CO2), or any other substance, or any combination or combinations thereof; or

b. The use of polymers, steam flooding or fire flooding.

(20) SUPPLEMENTAL ENHANCED RECOVERY PROJECT. An enhanced recovery project in which injection of substances into a unitized area was initiated prior to January 1, 1985, and thereafter is improved by expanding or otherwise changing the unit operations associated with the project as approved by the State Oil and Gas Board of Alabama for the purpose of increasing the ultimate recovery of hydrocarbons.

(21) INCREMENTAL OIL OR GAS PRODUCTION. The amount of oil or gas which will be produced as a result of a qualified enhanced recovery project and which is in excess of the amount of oil or gas which could have been produced economically and efficiently from a pool or pools or portion thereof by production methods being utilized prior to said qualified enhanced recovery project being approved by the State Oil and Gas Board of Alabama.

(22) QUALIFIED ENHANCED RECOVERY PROJECT. A qualified enhanced recovery project shall mean an enhanced recovery project or supplemental enhanced recovery project that meets all of the following criteria:

a. That the area where the enhanced recovery project or supplemental enhanced recovery project is employed has been unitized in accordance with the provisions of Article 3, Chapter 17 of Title 9, as amended.

b. That injection of substances associated with the enhanced recovery project or supplemental enhanced recovery project has been or will be implemented as an integral part of the operations of the unitized area.

c. That the enhanced recovery project or supplemental enhanced recovery project be certified by the State Oil and Gas Board of Alabama as capable of incremental oil or gas production.

d. That the enhanced recovery project or supplemental enhanced recovery project be implemented on or after January 1, 1985.

(23) BASE TAX RATE. The tax rate applicable to volumes of offshore gas under Section 40-20-2(a)(1), as adjusted from time to time, in accordance with the provisions of this chapter.

(24) MCF. The volume of gas, measured in units of one thousand cubic feet, at a pressure of 14.65 pounds per square inch, and at a temperature of 60 degrees Fahrenheit.

(25) OFFSHORE LIQUIDS. Gas produced by offshore production, which existed in the gaseous state under normal reservoir conditions, but which was liquefied either through condensation or through changes in temperature or pressure. Offshore liquids are considered to be produced and subject to the tax herein provided after such liquids have been removed from the gas stream and are ready for sale, transport, storage or use.

§40-20-2.

(a)(1) There is hereby levied, to be collected hereafter, as herein provided, annual privilege taxes upon every person engaging or continuing to engage within the State of Alabama in the business of producing or severing oil or gas, as defined herein, from the soil or the waters, or from beneath the soil or the waters, of the state for sale, transport, storage, profit or for use. Except for gas from offshore production, as defined herein, tThe amount of such tax shall be determined by measured at the rate of eight percent of the gross value of said oil or gas at the point of production. Likewise, the amount of such tax for offshore liquids shall be determined by the gross value of said offshore liquids at their point of production. The measure of the tax determined by the gross value at the point of production, shall be eight percent of said gross value, except as provided in subsequent subdivisions of this subsection. The amount of such tax for gas from offshore production shall be determined by the volume in mcf of such offshore gas at the point of production, after the removal of any offshore liquids, if such are removed prior to sale, and after the volume of such offshore gas available for sale, transport, storage or use is measured. Except as provided in subsequent subdivisions of this subsection, each mcf of such offshore gas produced prior to January 1, 2009 shall be subject to tax at the base rate for offshore gas of $0.436. Each mcf of such gas produced after December 31, 2008 shall be subject to tax at an adjusted base tax rate to be calculated by the department, as specified later in this section.

(2) Effective May 1, 1985, and thereafter, except for gas from offshore production, the incremental oil or gas production produced during a given year resulting from a qualified enhanced recovery project shall be taxed at the rate of four percent of gross value at the point of production of said incremental oil or gas production. Each MCF of incremental gas from offshore production during a given year shall be taxed at fifty percent (50%) of the base volume tax rate applicable under subdivision (1) of this subsection, as adjusted, for the volume of said incremental gas production. The State Oil and Gas Board of Alabama shall approve the qualified enhanced recovery project and the determination of the projected annual oil or gas production that could have otherwise been produced without the benefit of the initiation of said qualified enhanced recovery project at a hearing held pursuant to Section 9-17-7, as amended, and shall notify the Alabama Department of Revenue thereof.

(3) Except for gas from offshore production, Aall oil or gas produced from oil wells producing 25 barrels or less of oil per day produced from gas wells or producing 200,000 cubic feet or less of gas per day shall be taxed at the rate of four percent of the gross value of said oil or gas at the point of production. For offshore gas production, each MCF of gas produced from oil wells producing 25 barrels or less of oil per day and from gas wells producing 200,000 cubic feet or less of gas per day shall be taxed at fifty percent (50%) of the base volume tax rate for offshore gas applicable under subdivision (1) of this subsection, as adjusted. For the purpose of taxation, the classification of a well as an oil well or a gas well shall be determined by the State Oil and Gas Board of Alabama.

(4) All oil and gas produced from onshore discovery wells, all oil and gas produced from onshore development wells on which drilling commenced within four years of the completion date of the discovery well and producing from a depth of 6,000 feet or greater, and all oil and gas produced from onshore development wells on which drilling commenced within two years of the completion date of the discovery well and producing from a depth less than 6,000 feet shall be taxed at a rate of six percent of the gross value of said oil and gas at the point of production for a period of five years from the date production begins from said discovery and development wells, provided, that all production to receive a six percent tax rate, which is produced from discovery wells, must be from discovery wells permitted by the State Oil and Gas Board of Alabama after July 1, 1984, and that all production to receive a six percent tax rate from development wells on which drilling commenced within the required time of completion of a discovery well, which was permitted after July 1, 1984, and said development well must also have been permitted after July 1, 1984; provided however, that the six percent tax rate applicable to a discovery well or development well shall be applicable to any replacement well drilled to replace the discovery well or the development well during the six percent five-year, tax rate period for only the remainder of the said tax rate period.[Superseded by Acts 1988, No. 88-601, p. 936, as codified in subdivision (7), below.]

(5) All oil or gasother liquids produced by offshore production, as defined herein, at depths greater than 18,000 feet below mean sea level, shall be taxed at the rate of six percent of the gross value of said oil or gasother liquids production at the point of production. Each MCF of gas produced by offshore production, at depths greater than 18,000 feet below mean sea level, shall be taxed at seventy-five percent (75%) of the base tax rate applicable under subdivision (1) of this subsection, as adjusted.

(6) [Expired by Acts 1984, No. 84-672, p. 5, §2. See Code Commissioner's Notes]

(7) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1988, except a replacement well for a well for which the initial permit issued by the Oil and Gas Board is dated before July 1, 1988, except for gas from offshore production, the value tax rates provided in subdivisions (1) and (5) of this subsection shall be reduced by 2 percentage points. The volume tax rate for each MCF of gas from offshore production, except for wells producing from depths greater than 18,000 feet below mean sea level, shall be seventy-five percent (75%) of the base volume tax rate for offshore gas, as adjusted. The volume tax rates for each MCF of gas from offshore production, for the wells producing from depths greater than 18,000 feet below mean sea level, shall be fifty percent (50%) of the base volume tax rate for offshore gas, as adjusted.

(8) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1996, and before July 1, 2002, except a replacement well for a well for which the initial permit issued by the Oil and Gas Board is dated before July 1, 1996, the applicable value or volume tax rate shall be reduced by 50 percent for a period of five years commencing with commercial production after which subdivision (7) shall apply.

(b) The tax is hereby levied upon the basis of the entire production in this state, including what is known as the royalty interest, on which production the amount of such tax shall be a lien, regardless of the place of sale or to whom sold, or by whom used, or the fact that the delivery may be made to points outside the state; and the tax shall accrue at the time such oil or gas is severed from the soil or the waters, or from beneath the soil or the waters, and in its natural, unrefined or unmanufactured condition. Provided, however, that natural gas lawfully injected into oil or gas pools or reservoirs in the soil or beneath the soil or waters of the State of Alabama is exempt from this tax. Provided, further, that natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama is exempt from this tax. However, if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas is exempt from this tax.

(c) A county, city, town or municipality of the State of Alabama shall not establish, levy, impose or collect, as a condition of doing business or otherwise, any tax, fee, license or charge whatsoever, directly or indirectly, on or with respect to the production, treating, processing, ownership, sale, storage, purchase, marketing or transportation on any oil or gas produced in the State of Alabama and on which severance taxes have been paid to the State of Alabama, or upon the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas, or upon the ownership, operation or maintenance of plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of such oil or gas; provided, that nothing herein shall be construed to prohibit, limit or restrict a county, city, town or municipality from imposing and collecting ad valorem taxes on any property, real or personal, not otherwise now exempted by law; further, the limitation herein imposed upon counties, cities, towns and municipalities shall not apply to any county, city, town or municipality which does not receive a share of the severance tax levied upon production other than offshore production as defined in Section 40-20-1 under the provisions of this article. Said limitation herein imposed upon counties, cities, towns and municipalities shall remain in full force and effect in regard to offshore production as defined in Section 40-20-1.

(d) Nothing contained herein shall be deemed to limit or to enlarge the authority of a county, city, town or municipality to levy taxes or licenses on oil refining facilities located therein or on the suppliers of services or goods not including oil or gas to those persons engaging in the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas. Provided, however, no such taxes or licenses shall be levied on offshore drilling or production facilities as defined in Section 40-20-1.

(e) In all cases of production of oil from unit operations as authorized and approved by the State Oil and Gas Board of Alabama, for purposes of computing the per well production aforesaid, the aggregate production of oil from the entire unit shall be divided by the number of wells within the unit, including injection, disposal and other wells utilized in unit operations, and the quotient thereof shall be deemed and declared to be the number of barrels of oil produced from each well in such unit regardless of the actual amount of oil per day produced from the well, if any.

(f) The base volume tax rate for gas from offshore production, under subdivision (1) of subsection (a) of this section shall be adjusted annually for gas production to occur during the months of each upcoming calendar year, no later than December 15th of the preceding calendar year. The first annual adjustment shall be done no later than December 15, 2008, and shall be applicable for gas to be produced during calendar year 2009. The department shall calculate and publish the applicable adjusted base tax rate, to reflect changes in the published prices of gas. The new base tax rate for each upcoming year will be calculated by multiplying the adjusted base tax rate for the then current year by the annual rate adjustment factor. The rate adjustment factor for a given year shall be a fraction, the numerator of which shall be the sum of all the specified monthly published prices for the sixty (60) months ending with July of the then current year, and the denominator of which shall be the sum of all the specified monthly published prices for the sixty (60) months ending with July of the preceding year. For the calculation of the annual gas rate adjustment factors, the monthly U.S. Natural Gas Wellhead Prices, as published by the Energy Information Administration of the U.S. Department of Energy, shall be used. Should this published price cease to be available, the department shall adopt a substitute published price, by rule, to ensure results which are reasonably consistent with the results which would have been obtained using the specified prices.

§40-20-4.

(a) The department is hereby authorized and directed to administer and enforce the provisions of this article and to collect all of the taxes levied under the provisions hereof. Every person producing or in charge of production of oil and gas shall file a return with the department by the 15th day of the second calendar month following the month of production, on forms the department prescribes which must contain a printed declaration that the information being reported is made under the penalty of perjury, and which must be subscribed by the person who completes such forms, showing the location of each producing property operated or controlled by such producer during the reporting period; the number and kind of wells thereon; the kind of oil or gas produced; the gross quantity thereof produced; the actual cash value thereof at the time and place of production; including any and all premiums received from the sale thereof; the amount of tax due on the total gross production; the portion of gross production payable as royalty and such other information as the department may require.

(b) All persons engaged in the business of severing oil or gas are hereby required to keep full and complete records showing the nature, character, and volume of all such oil or gas severed, the value of such oil or gas at the point of production, the manner in which such oil or gas was disposed of, the prices or the consideration received for the sale thereof, and the quantity or volume of such oil or gas stored anywhere within or without the State of Alabama, except that; persons engaged in the business of severing gas from offshore production are required to keep records showing the value of the offshore liquids, but not the offshore gas.and The requiredsuch records shall at all reasonable times be open for inspection by representatives or agents of the department.

(c) The department or its duly authorized representative or agent shall have the power and authority to inspect all records required to be kept under the provisions of this article, to conduct hearings and to compel the attendance of witnesses for the purpose of determining the amount of taxes due under the terms and provisions of this article.

(d) The Department of Revenue is hereby authorized to promulgate reasonable rules and regulations relating to the administration and enforcement of this chapter, provided, however, that no rule or regulation adopted or promulgated by the department shall alter, limit, extend or be out of harmony with any of the provisions of this chapter.

§40-20-8.

(a) Ninety percent of the net amount of all taxes herein levied and collected by the department on oil or gas produced from submerged lands as herein defined shall be deposited to the State General Fund. The remaining 10 percent on such net amount shall be allocated and distributed by the Comptroller to the county in which the oil or gas was produced for county purposes or to be expended at the discretion of the county governing body.

(b) Twenty-five percent of the net amount of all taxes herein levied and collected by the department except as provided herein in subsection (a) shall be deposited by the department to the General Fund of the state.

(c) Sixty-six and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department, after the same has been certified into the State Treasury, shall be allocated and distributed by the Comptroller to the credit of the General Fund of the state and to the county in which the oil or gas was produced and to the municipalities therein in the proportion set out in the following schedule:

(1) Twenty-five percent of all taxes herein levied and collected on oil and gas produced from oil or gas wells located within any county, shall be allocated and distributed to each such county for county purposes or to be expended at the discretion of the county governing body. In all counties having a population of not less than 34,875 nor more than 36,000, according to the 1970 Federal Decennial Census, such funds shall be allocated and distributed by the counties to the boards of education of the public schools in such counties on a pro rata basis as established by the number of children in net enrollment in the public schools during the prior school attendance year. In all counties having a population of not less than 16,000 nor more than 16,250, according to the 1970 Federal Decennial Census, such funds shall be allocated and distributed by the counties as follows: Each year the first $150,000 shall be paid to the custodian of the county school funds, and after the payment of said $150,000 each year, the balance of said funds shall be divided and paid one-third to the custodian of the county school funds and two-thirds to the county general funds.

(2) Ten percent of all taxes herein levied and collected on oil and gas produced from oil or gas wells located within the corporate limits or the police jurisdiction of any municipality shall be allocated and distributed to each such municipality; except that all wells within the corporate limits orf police jurisdiction of any municipality where taxes are levied and collected at a rate of four percent, or offshore gas taxes are levied and collected at fifty percent (50%) of the base offshore gas tax rate, pursuant to Sections 40-20-2(a)(2), 40-20-2(a)(3), or 40-20-2(a)(7), 10 percent of all said four percent taxes, and said fifty percent (50%) of the base rate offshore gas taxes, shall be distributed to each such municipality.

(3) Fifty percent of the first $150,000 remaining, or any part thereof, collected per year under the provisions of this article, shall be allocated and distributed to the state, 42 1/2 percent to the county and seven and one-half percent to municipalities therein on a population basis.

(4) Eighty-four percent of all remaining sums collected per year under the provisions of this article shall be allocated and distributed to the state, 14 percent to the county and two percent to municipalities therein on a population basis.

(d) Sixteen and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department shall be certified into the State Treasury to the credit of the State General Fund.

(e) Sixteen and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department on oil and gas produced from oil or gas wells located within any county shall be allocated and distributed to each such county for county purposes, to be expended at the discretion of the county governing body.

(f) For the purposes of this section, when part of the property within the drilling or production unit or within the unit area for any producing well(s) consists of submerged lands and part consists of lands other than submerged lands (herein called onshore lands), the following shall apply:

(1) Only that portion of production (oil or gas or both) from said well(s) allocated (under or pursuant to an order of the State Oil and Gas Board) to the submerged lands shall be deemed to have been produced from submerged lands, regardless of where the actual well(s) from which said production was obtained is (are) located;

(2) The portion of said production allocated (under or pursuant to an order of the State Oil and Gas Board) to the onshore lands shall be deemed to have been produced from a well located on the onshore lands to which such production is allocated, and the portion of said production allocated (under or pursuant to such an order) to any onshore lands located within the police jurisdiction or the corporate limits of any municipality shall be deemed to have been produced from a well located within said corporate limits or police jurisdiction;

(3) If, because of common ownership or otherwise, no specific portion of the production from said well(s) has been separately allocated (under or pursuant to an order of the State Oil and Gas Board) to any or all of the onshore lands located within said drilling or production unit or within a designated tract in said unit area, then, for the purposes of this section, a portion of said production shall be deemed to have been allocated (under or pursuant to such an order) to the onshore lands in question, such portion to be in the proportion that the acreage of said onshore land to which no specific portion of the production has been separately allocated bears to the total acreage included within the unit or designated tract (whichever is applicable); and

(4) Any production not allocated to or deemed to have been allocated to the onshore lands shall be deemed to have been allocated (under or pursuant to an order of the State Oil and Gas Board) to the submerged lands.

(g) Anything herein to the contrary notwithstanding, onshore lands shall mean all lands that are not submerged lands (as elsewhere herein defined); provided, however, if any submerged lands are located within the police jurisdiction or corporate limits of any municipality, those submerged lands shall, for the purposes of this section, be defined as, and deemed to be, onshore lands and not submerged lands.

(h) The provisions of this section shall apply only to the allocation and distribution of taxes and shall not apply to the levy and collection of taxes; and nothing contained in this section shall be construed to affect in any way the provisions of Section 40-20-2.

(i) A final determination establishing the allocation base shall be made within 90 days of April 23, 1990.

§40-20-14.

(a) Findings. The Legislature finds and declares as follows:

(1) Certain industries ought to be encouraged to consume gas produced in the state by permitting producers of gas to obtain a credit against severance tax to the extent that the value of such credit results in the reduction of the cost of the gas to such industries.

(2) The granting of such a credit will encourage certain industries that are major consumers of gas to purchase gas from producers or intermediate suppliers that extract or purchase gas from wells in Alabama subject to the severance tax.

(3) Due to the fungible nature of gas and the commingling of gas from various sources that typically occurs in the transportation of gas through a network of shared pipelines, a DRI manufacturer should not be required to trace gas from its source in order to benefit from a cost reduction based on the credit, provided that it can be shown that at least the amount of gas with respect to which the credit is granted has been produced by the taxpayer, at least the amount of gas with respect to which the credit is granted is supplied to the DRI manufacturer, and in the case of an intermediate supplier, that the intermediate supplier has purchased at least the amount of gas with respect to which the credit is granted from the taxpayer and the intermediate supplier has sold at least the amount of gas with respect to which the credit is granted to the DRI manufacturer.

(4) 7.4% of the deemed taxable value of the92.5% of the base tax rate for gas is a reasonable approximation of the severance tax that is levied, collected and distributed to the General Fund of the state, being the severance tax levied by Section 9-17-25 plus the severance tax levied by this article on gas produced from wells on submerged lands.

(b) Definitions. The following terms, as used in this section, are defined as stated below:

(1) BASE TAX RATE FOR GAS. The gas tax rate levied under Section 40-20-2, as adjusted annually by the department.

(12) CAPITAL COST. The cost for federal income tax purposes of the DRI plant determined upon plant completion, as certified by the DRI manufacturer to the department, determined without regard to depreciation or amortization of any kind.

(2) DEEMED TAXABLE VALUE. The gas amounts, as shown on the monthly tax forms O&G Production-2 or O&G Offshore-2, in the column labeled “PRODUCER'S NET TAXABLE VALUE” divided by the gas amounts in the column labeled “PRODUCER'S LIABILITY-VOLUME.”

(3) DRI. Direct reduced iron, being iron produced from iron ore by chemical reaction with gas.

(4) DRI MANUFACTURER. A manufacturer of DRI at a DRI plant in a process utilizing gas, provided that:

a. As of the date of plant completion, the manufacturing process takes place on a site owned by the Alabama State Docks Department;

b. As of the date of plant completion, the DRI manufacturer has engaged the Alabama State Docks Department to provide cargo handling services with respect to iron ore that provides the raw material for the production of the DRI; and

c. The production of DRI in the state by the DRI plant commenced no earlier than October 1, 1997.

(5) DRI PLANT. The land, buildings, facilities, equipment, leasehold improvements, and other tangible property, real or personal, owned or leased by the DRI manufacturer for the purpose of producing DRI.

(6) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in Section 40-20-1(4).

(7) GAS CONSUMPTION VOLUME. For any reporting period, an amount, stated in mcf, equal to the lesser of the following:

a. The amount of gas consumed by the DRI manufacturer at the DRI plant, as certified by the DRI manufacturer to the taxpayer, or

b. Either

1. If gas is supplied by the taxpayer to the DRI manufacturer, the amount of gas supplied by the taxpayer to the DRI manufacturer, or

2. If gas is supplied by an intermediate supplier to the DRI manufacturer, the lesser of

(i) the amount of gas sold by the taxpayer to the intermediate supplier, or

(ii) the amount of gas supplied by the intermediate supplier to the DRI manufacturer.

(8) INTERMEDIATE SUPPLIER. Any person that a. purchases gas from a taxpayer or from another intermediate supplier that in turn purchased from a taxpayer and b. supplies gas to a DRI manufacturer.

(9) MCF. The volume of gas, measured in units of one thousand cubic feet, using the same temperature, pressure, and heating value as the gas reported on the producer's monthly severance tax returns.

(10) NET PRESENT VALUE. Discounted present value, determined as of plant completion, at an interest rate of 6% per annum, of reductions in the cost of gas as described in subdivision (8) of subsection (e) realized by a DRI manufacturer with respect to a DRI plant.

(11) PERSON IN CHARGE OF PRODUCTION OPERATIONS. The person in charge of the production operations, as such term is used in Section 40-20-3.

(12) PLANT COMPLETION. The date, as certified to the department by the DRI manufacturer, that a DRI plant is completed.

(13) REPORTING PERIOD. The period of time with respect to which severance taxes are calculated, returns are filed, and severance taxes are periodically paid, being each calendar month under current law.

(14) SEVERANCE TAX. The annual privilege tax levied by Section 40-20-2 on the production or severance of gas and the tax levied by Section 9-17-25 on natural gas produced for sale, transport, storage, profit or for use from any well or wells in the state.

(15) SEVERANCE TAX CREDIT. For any reporting period, 92.5% of the base tax rate for gas7.4% of the deemed taxable value multiplied by the gas consumption volume.

(16) TAXPAYER. Any producer or person in charge of production operations or any other person that is otherwise required to deduct, withhold, pay, or account for severance tax on gas produced and sold to an intermediate supplier or a DRI manufacturer, provided that with respect to any reporting period, such taxpayer:

a. Is obligated to pay severance tax, or would be so obligated but for the provisions of this section; and

b. Has entered into an agreement with a DRI manufacturer and/or an intermediate supplier, if applicable, to reduce the cost of gas sold by the taxpayer to the DRI manufacturer or, if applicable, the intermediate supplier by an amount equal to the severance tax credit for such reporting period.

(c) Credits. With respect to any DRI plant owned by a DRI manufacturer, a taxpayer shall be allowed a credit against severance tax otherwise owed with respect to the applicable reporting period equal to the severance tax credit. With respect to any DRI plant, this credit shall commence on the later of (1) June 1, 1998, or (2) plant completion, and shall continue until the net present value of the cost reductions of gas to the DRI manufacturer described in subdivision (8) of subsection (e) shall equal the lesser of (1) 4% of the capital cost of the DRI plant or (2) four million seven hundred thousand dollars ($4,700,000).

(d) Certificate. Upon request by a DRI manufacturer, the department shall provide the DRI manufacturer with a certificate, which shall be numbered and shall state (1) the lesser of a. 4% of the capital cost of the DRI plant or b. four million seven hundred thousand dollars ($4,700,000), as appropriate, as certified to the department by the DRI manufacturer, and (2) the completion date of the DRI plant certified by the DRI manufacturer to the department.

(e) Returns. Any taxpayer claiming the severance tax credit for a reporting period shall file a schedule with its severance tax returns for such reporting period stating the following:

(1) The number assigned by the department to the DRI plant.

(2) The name of the DRI manufacturer.

(3) The name of the intermediate supplier, if any.

(4) The amount of gas, measured in mcf, supplied by the taxpayer to the DRI manufacturer or the intermediate supplier, as applicable.

(5) The gas consumption volume certified to the taxpayer by the DRI manufacturer.

(6) The deemed taxable value of the gas.

(76) The amount of the severance tax credit.

(87) A certification that the cost of the gas sold to the DRI manufacturer or intermediate supplier, as applicable, has been reduced by an amount equal to the severance tax credit.

(9) A certification that the severance taxes calculated by the taxpayer have been determined on the deemed taxable value of the gas consumption volume without regard to the reduction in cost described in subdivision (8) of subsection (e), all in accordance with subsection (h).

(108) A certification signed by an officer of the DRI manufacturer under oath, stating:

a. The lesser of 1. the amount of gas consumed by the DRI manufacturer in the DRI plant and 2. the amount of gas supplied to the DRI manufacturer by the taxpayer or intermediate supplier, as applicable as certified by the DRI manufacturer to the taxpayer;

b. The dates and amounts of the cost reduction in gas otherwise subject to Alabama severance tax liability realized by the DRI manufacturer with respect to the DRI plant by virtue of the severance tax credit from plant completion through the end of the severance tax period in question;

c. The net present value of the deemed taxable value reductions to the end of the severance tax period in question;

d. A certification that a cost reduction in an amount equal to the severance tax credit has been or has been agreed to be given over to the DRI manufacturer or to the intermediate supplier and from the intermediate supplier to the DRI manufacturer, if applicable; and

e. The name of the intermediate supplier.

(119) The tax credit will be reported by the taxpayer as a one line reduction of the total severance taxes payable on the Department of Revenue, Sales, Use & Business Tax Division, Oil and Gas Offshore Producer's Tax Return forms, designated “O&G Offshore-1” and “O&G Production-1.” The taxpayer will not be required to report the tax credit on any other Department of Revenue Sales, Use & Business Tax Division forms, schedules, supplements, or worksheets.

(1210) No additional forms will be required to be filed by the taxpayer with the Department of Revenue Sales, Use & Business Tax Division other than the schedule provided for in this subsection.

(f) Multiple taxpayers or intermediate suppliers. Should a DRI manufacturer or intermediate supplier acquire gas from more than one producer or person in charge of production that is otherwise subject to severance taxes, the DRI manufacturer may designate one or more than one such producer or person in charge of production as the taxpayer and may allocate gas consumption volume certified to the taxpayer by the DRI manufacturer among all such designated persons on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any taxpayer in the applicable reporting period shall not exceed the lesser of (1) the amount of gas subject to severance tax supplied by the taxpayer during the reporting period to the DRI manufacturer or intermediate supplier, or (2) the amount of gas which the intermediate supplier has received from the taxpayer and which is otherwise subject to Alabama severance tax liability during the reporting period. Should a DRI manufacturer acquire gas from more than one intermediate supplier, the DRI manufacturer may allocate gas consumption volume among all such intermediate suppliers on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any intermediate supplier in any reporting period shall not exceed (1) the lesser of the amount of gas supplied by the intermediate supplier to the DRI manufacturer during the reporting period or (2) the amount of gas the intermediate supplier received from the taxpayer, which amount is otherwise subject to the severance tax.

(g) Effect on allocation and distribution. The amount of the severance tax credit shall be charged against the net amount of tax revenues payable to the State General Fund under Sections 9-17-31 and 40-20-8 and shall not reduce the amount of severance tax revenues allocated and distributed to any county, municipality, school board, or custodian of school funds.

(h) No effect on severance tax base. In determining the amount of severance tax liability for any reporting period, no taxpayer shall reduce the taxable volumevalue of gas by the amount of the severance tax credit or because of the cost reduction to the DRI manufacturer or intermediate supplier, as applicable, resulting from the severance tax credit, but rather, the severance tax credit shall be allowed and calculated only after determination of the amount of the severance tax otherwise payable for the reporting period and before any cost reduction under this section.

(i) The provisions of this section shall expire as to DRI plants having a completion date after September 30, 2008, unless the provisions of this section shall be extended by further act of the Legislature.

(j) This section shall be construed liberally in favor of the DRI manufacturer, for the purpose of assuring that any qualifying DRI manufacturer receives the benefit of the cost reduction described in this section.

§40-20-50.

Any laws or parts of laws to the contrary notwithstanding, any annual privilege tax levied upon persons engaging in the business of producing or severing oil or gas or other hydrocarbons from the soil or waters of this state measured by the gross value of such oil or gas or other hydrocarbons and which tax is applicable only in a particular county and under which collections were being made on January 1, 1987, or which shall hereafter be levied pursuant to legislative act, shall be continued and collected only as herein prescribed:

(1) All revenues collected from such local severance taxes shall, beginning the first day of the month following August 3, 1987, be paid into the general fund of the county exclusively for transfer and deposit into a trust fund hereby established until the total sum of $15,000,000 in severance tax revenues of the type described in this section, excluding any interest income on amounts deposited therein from such total sum, has been deposited into such trust fund. Upon the deposit into said trust fund of a county of a total of $15,000,000 in such severance tax revenues, any local law authorizing or levying such tax, including, without limitation, Act No. 2120, H. 2450, Regular Session 1971 (Acts 1971, Vol. V, p. 3399), shall stand repealed and no further taxes shall be levied thereunder. Any such local oil and gas severance tax revenues in excess of such $15,000,000 amount collected in any county after the time the total of such tax proceeds paid into such trust fund established hereby for such county shall reach $15,000,000, shall be refunded as promptly as shall be reasonably practicable to the payers thereof. The county governing body shall not be authorized to make any expenditure from any monies composing the corpus of said trust fund so long as it shall remain in existence. Said trust fund shall be designated in each county as the "county oil and gas severance tax trust fund," and is hereinafter referred to as the "trust fund."

(2) Commencing with the first year in which any trust fund provided for in this section shall receive deposits as required hereunder, and in each year thereafter, the county governing body shall take steps to ensure that the trust fund shall retain the total severance tax revenues paid therein plus ten percent of any net income or interest generated by the investment of such severance tax revenues, which sum shall be and become a part of the corpus of the trust fund. A sum, not to exceed 90 percent of the net income or interest thereby generated from said investments, shall be distributed quarterly, semiannually or annually, as designated by the trustees of the trust, to the general fund of the county for which a trust fund is established pursuant to this section.

(3) The county governing body shall constitute the trustees of the trust, provided, however, that the said governing body may in its discretion appoint one or more trustees or escrow agents for the trust, which trustees or escrow agents shall be trust companies or national or state banks having powers of a trust company within or without the State of Alabama. The trustees shall invest the corpus of the trust only in direct general obligations of, or obligations the payment of the principal of an interest on which are unconditionally and irrevocably guaranteed by, the United States of America. Provided, however, that notwithstanding any legal limitation that might otherwise be applicable, the trustees shall further have the authority in their discretion to invest such trust fund in certificates of deposit of any savings and loan associations or banks, whether federally or state chartered, whose principal office is located in this state, provided that such funds so invested are fully secured by pledges of securities of the type described in the immediately preceding sentence hereof.

(4) Upon the deposit into a trust fund established pursuant to this section of the total sum of $15,000,000 in severance tax revenues of the type described in this section, excluding any interest as income in such total sum, and the consequent repeal of the local law authorizing or levying such tax, the county governing body of a county for which a trust fund established hereunder shall be in existence shall be thereafter prohibited from levying or collecting, directly or indirectly, any local county severance tax of the type described in this section that was in existence prior to January 1, 1987, or that may be established hereafter, and any act authorizing such county oil and gas severance tax shall thereafter stand repealed.

Section 2. The provisions of this act are severable. If any part of this act is declared invalid or unconstitutional, that declaration shall not affect the part, which remains.

Section 3. All laws or parts of laws, which conflict with this act, are hereby repealed.

Section 4. This act shall become effective on the 1st day of the second month, following its passage and approval by the Governor, or upon its otherwise becoming law, and shall apply to oil and gas produced on or after that date. All oil or gas produced prior to the effective date of this act, shall be subject to the laws in effect prior to that date.