Revenue Administrative Bulletin 1992-6
Approved: March 31, 1992
SEVERANCE TAXATION OF
GAS USED IN GAS INJECTION OPERATIONS
RAB-92-6. This bulletin explains the taxation of
natural gas severed from a Michigan oil well (casing head gas) or
from a Michigan gas well which is subsequently reinjected into
the same or another reservoir to enhance oil production.
Natural gas and oil are subject to the severance tax based on
its gross cash market value at the time and place of production.
[MCL 205.303(l); MSA 7.353(l)] In addition, a fee is imposed upon
the production of natural gas and oil to cover the costs incurred
by the Supervisor of Wells in overseeing the development, use and
exploitation of oil and gas within this state. The fee, not to
exceed 1% of gross cash market value, is determined annually.
[MCL 319.22; MSA 13.139(22)]
In a gas injection operation, severed gas is reinjected into a
reservoir to increase the pressure within the reservoir, thereby
enhancing oil production. Reinjected gas will be commingled with
unsevered, and therefore untaxed, gas.
For administrative convenience, severed gas used in a gas
injection operation is not subject to the tax or fee, provided
such gas does not enter the market between severance and
reinjection. In other words, such gas must not be sold, bartered,
or in any way traded for value before it is used in an injection
operation. Gas which is sold, bartered, or traded for value is
subject to the tax and fee, even if it is subsequently used in an
injection operation. (See Revenue Administrative Bulletin 1989-13
for the severance taxation of previously severed, taxed, and
reinjected gas upon subsequent withdrawal from the reservoir.)
It is irrelevant whether the severed gas is injected into the
reservoir containing the well from which it came, injected into
another well on the same lease, or injected into a well within a
pooled or unitized group of leases. It is not subject to the tax
or fee unless sold, bartered, or traded for value for such
purposes.
Untaxed, injected gas will be subject to the tax or fee if, or
when, it is severed again and sold or consumed in a taxable
manner.
