T 500.3 J748 2004 c.l
THOMAS E. KEMP, JR., Chairman
JERRV JOHNSON, Vice-Chairman
CONNIE IRBV, Secretary-Member
OKLAHOMA TAX COMMISSION
§TATE OF OKLAHOMA
2501 NORTH LINCOLN BLVD.
OKLAHOMA CITY, OK 73194-0001
October 1, 2004
Honorable Brad Henry, Governor
Office of the Governor
212 State Capitol Building
Oklahoma City, OK 73105
Dear Governor Henry:
Pursuant to the provisions of Senate Concurrent Resolution No. 82 (2004), the Oklahoma Tax
Commission and the Oklahoma Corporation Commission hereby submit the enclosed report of a
joint study conducted on elimination of duplication in oil and gas industry reporting.
The Tax Commission and Corporation Commission held several meetings with the oil and gas
industry to discuss the pros and cons of a central reporting system. The report is a product of those
meetings, containing findings and recommendations, and is hereby submitted to the Governor,
Speaker of the House of Representatives, President Pro Tempore of the Senate, and the Minority
Leaders of the House and Senate.
Cordially, Cordially,
OKLAHOMA TAX COMMISSION OKLAHOMA CORPORATION COMMISSION
CC; Honorable Larry Adair
Speaker of the House of Representatives
Honorable Cal Hobson
President Pro Tempore of the Senate
Honorable Todd Hiett
Minority Leader of the House
Honorable James Williamson
Minority Leader of the Senate
RECEIVED
OCT 0 1 2004
A
OFFICE OF THE
GOVERNOR
JOINT STUDY
ON THE CREATION OF A
CENTRAL OIL AND GAS
REPORTING SYSTEM
S.C.R. 82 (2004)
CONDUCTED BY THE:
OKLAHOMA TAX COMMISSION
and the
OKLAHOMA CORPORATION COMMISSION
SUBMITTED OCTOBER 1, 2004
Pursuant to the provisions of Senate Concurrent Resolution 82 (2004),
the Oklahoma Tax Commission and the Oklahoma Corporation Commission
conducted a joint study on elimination of duplication in oil and gas industry
reporting and development of a joint, central system for gathering
information necessary for the needs of both agencies.
In preparation of this report, the Tax Commission and Corporation
Commission created a Steering Committee to oversee and give direction to
the study. Each agency appointed two agency representatives and two
industry representatives. The Steering Committee members were as follows:
Tax Commission Appointees:
Tom Kemp, Chairman
Larry Shropshire, Administrator
John McDougal, Enogex, Inc.
Bob Wilkinson, IBM Business Consulting
Corporation Commission Appointees:
Jeff Cloud, Commissioner
Tim Baker, Acting Director of the Oil and Gas Conservation Division
Greg Small, Chesapeake Energy
Patrick Cobb, Toklan Oil & Gas
The Steering Committee conducted several meetings which both agencies
and the oil and gas industry attended and participated in discussions on the
pros and cons of a central reporting system.
The following report is a product of those meetings, containing findings
and recommendations, and is hereby submitted to the Governor, Speaker of
the House of Representatives, President Pro Tempore of the Senate, and the
Minority Leaders of the House and Senate.
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CURRENT SYSTEM AND REPORTING REQUIREMENTS
Reports to the Tax Commission
The Tax Commission is responsible for collection of gross production
taxes from the sale of oil and gas produced in this state. In fulfilling that
responsibility, the Tax Commission registers tax remitters and provides
returns for the taxpayer to report and remit these taxes. The following
returns were reviewed in the study:
Gross Production Monthly Tax Report (Form 300-R)
Form 300-R is used to report and remit the gross production tax due. The
report is filed on a monthly basis and the tax remitter reports the tax due by
lease. The report is required to be filed by the first purchaser of the oil or
gas; however the operator may file the report instead. The tax remitter must
also break down the production volume reported by county.
Form 300-B
Form 300 B is a county summary form that is filed by each remitter of
gross production tax. The summary form is a component of the gross
production tax report that summarizes the volume, value and gross
production tax remitted for oil and/or gas produced and purchased in each
county.
Form 320-A
Form 320-A is a report filed by the operator of a newly completed well
wherein the first sale of oil and/or gas is imminent. The information
provided on the 320-A includes well name, API number, lease legal
description, producing formation, well classification and purchaser
information. The key function of the 320-A form is the assignment of the
aTC production unit number (PUN), which is the lease identifier, used in
the reporting of gross production tax.
Form 320-C
Form 320-C is a report filed by the operator of an existing lease notifying
the aTC that a change has occurred in the lease status, such as a change of
operator, formation, legal description, plugging, or a change more specific to
the remittance of gross production tax, such as a change of purchaser.
Form 320-U
Form 320-U is a report filed by operators of unitized properties who
incorporate secondary and tertiary methods of recovery.
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Reports to the Corporation Commission
The Corporation Commission is responsible for the regulation of
activities associated with the exploration and production of oil and gas. In
fulfilling that responsibility, the Commission requires the registration of oil
and gas wells and the reporting of volumes produced. The following reports
and forms were reviewed in the study:
Form 1004/1005
These two forms are used by the Commission to receive reports on the
production of oil and gas. Form 1004 is filed by persons responsible for
operating the required gas meter for each well showing the amount of gas
that passed through the meter. Form 1005 is filed by purchasers and/or
transporters of oil showing the taking of oil from leases.
Form 1002A
Operators file a complete well record on Form 1002A after completion of
operations to drill, recomplete, or re-enter a well, or to convert a well to
injection or disposal.
Form 1003
Form 1003 is to be completed by the owner or operator of a well that is
plugged. The form is to be submitted to the Corporation Commission within
30 days of plugging the well.
Form 1073
Form 1073 is filed by new operators to notify the Corporation
Commission of change of operator of any oil, gas, injection or disposal well.
Duplicate Reporting by the Oil and Gas Industry
A review of the reports listed above identified areas wherein the oil and
gas industry reports the same information to the Tax Commission and the
Corporation Commission. A review of the duplicated elements reported is
provided below and on the following pages:
OCC Form 1002A and OTC Form 320A share the following elements:
Entity Name
Product Class
Date of First Production
Lease Name
Spacing
Increased Density Order Number
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Formations
County Name
Spacing Order Number
OTC Production Unit Number
API Number
OCC Form 1073 and OTC Form 320C share the following elements:
Current Operator Name
Current Operator OCC Number
Current Well Name
New Operator Address
New Operator Fax Number
New Operator Name
New Operator OCC Number
New Operator Phone Number
Oil Purchaser
Original Well Name
OTC Production Unit Number
Production Formations
OCC Form 1003 and OTC Form 320C share the following elements:
Operator Name
Operator Address
OTC Production Unit Number
Plugging Date
Well Name
Lease Legal Description
Reason for Plugging
Current Computer Operating Systems Used by the Agencies
A study into the creation of a joint, centralized system of reporting by the
oil and gas industry to the Tax Commission and the Corporation
Commission required a review of the current computer operating system
used by each agency and a determination of compatibility of the two
systems.
A review of the computer operating systems revealed that the Tax
Commission gross production tax system is based on "vsam" files using
CICS online and batch processing. The system was first put online in 1981
and much of that same system is still in place. The system also uses
magnetic tapes recording production history records as reported to the Tax
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Commission. The Tax Commission reporting system is based on the lease
and its corresponding production unit number (PUN). .
The Corporation Commission has a Cobol-based system using "vsam"
data files. The information is loaded into the primary system, which is an
Oracle-based system. The Corporation Commission reporting system is
based on the individual well and its corresponding American Petroleum
Institute (API) number.
To accomplish any sharing of data or combined reporting between the
two agencies requires a system that would correlate the API number with the
PUN. Currently, the two systems have no way to interact because of this
lack of correlation.
COMMENTS FROM THE OIL AND GAS INDUSTRY
The Steering Committee requested and received oil and gas industry
comments regarding what changes, if any, are desired with respect to
requirements to report to the two agencies and its concerns for a central
reporting system. Excerpts from these comments are included herein:
• Representatives of the Oklahoma Independent Petroleum Association
expressed the following concerns:
• They are opposed to any proposal that would put an
administrative burden on operators of oil and gas wells that are
currently not reporting any information to the Tax Commission
or the Corporation Commission;
• The OTC and OCC should internally resolve system
communications issues and that resolution should be
transparent to the oil and gas industry; and
• Redundant reports and forms should be reduced and other
forms should be eliminated where possible by the
implementation of a new system that allows communication
and interaction between the agencies.
• Representatives of the Mid-Continent Oil and Gas Association
expressed the following concerns:
• Any change in the present reporting system would require a
change in the systems employed by the oil and gas industry.
Even if the change were to combine reports filed with the two
agencies, the change would cost the industry to change their
systems accordingly.
• That the Tax Commission should eliminate the requirement for
a filing of a Form 320C when there is a change in purchaser,
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and that the Tax Commission should eliminate the requirement
that those tax remitters who are listed as purchasers by the
operator must file zero returns on leases for time periods when
the purchaser did not purchase any oil or gas.
• A system should be developed to give the oil and gas industry
easier access to information available by statute to the public.
ANALYSIS OF CREATION OF A CENTRAL REPORTING SYSTEM
To eliminate any duplication of reporting by the oil and gas industry, the
Corporation Commission and the Tax Commission must be able to share
information. As stated above, the Tax Commission reporting system is based
on the lease and the production unit number (PUN) while the Corporation
Commission reporting is based on the individual well and the American
Petroleum Institute (API) number. To get the two systems to interact, there
must be a table or program created to correlate the API number with the
PUN number. An attempt by the two agencies to accomplish this task for
tens of thousands of wells would take an enormous amount of personnel
hours.
To accomplish this task, it will be necessary to create a database that
allows the Tax Commission and the Corporation Commission to trace an
API number to the corresponding PUN. It may be possible to complete the
database by obtaining information from companies that specialize in storing
oil and gas industry data. The information must include the API number and
the PUN. The oil and gas industry could be asked to help verify the data or
ensure that the database is complete. Once completed, the system would
allow the two agencies to assign wells to leases.
The following advantages for the industry and the agencies were
identified:
• Even though there would not be a "central database" for reporting, there
could be combined reporting once the two systems could interact.
Currently, both agencies require registration for new wells (OCC Form
1002A and OTC Form 320A), reporting of a change of operator (OCC
Form 1073 and OTC Form 320C), and reporting of a plugging of a well
(OCC Form 1003 and OTC Form 320C). These forms could be combined
to one form that the industry could file in a web-based electronic filing
that would be transmitted to both agencies.
• Further, the ability to share information may allow each agency to
eliminate some reporting requirements.
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• The new database system could also streamline the filing of incentive
rebates with the Tax Commission. Currently, operators must carve out
qualifying wells from each lease. Under the new system, the operator
would simply report the API number to the Tax Commission, which then
could trace it back to the corresponding lease.
RECOMMENDATIONS
THEREFORE, IT IS THE RECOMMENDATION OF THE
OKLAHOMA CORPORATION COMMISSION AND THE
OKLAHOMA TAX COMMISSION THAT:
1. The Tax Commission develop a program to correlate the American
Petroleum Institute (API) numbers assigned to individual wells by
the Corporation Commission with the Production Unit Numbers
(PUN) assigned to individual leases by the Tax Commission;
2. The Corporation Commission provide to the Tax Commission a
database of API numbers assigned to individual wells;
3. The Tax Commission contact companies that specialize in the storing
of oil and gas industry information to evaluate the feasibility of
obtaining or purchasing the necessary data to trace the API number
to the corresponding PUN;
4. The oil and gas industry cooperate with the Tax Commission and the
Corporation Commission to verify the information in the completed
database and ensure that the information is complete. The Tax
Commission and the Corporation Commission will pursue all
reasonable avenues to minimize any burden on the oil and gas
industry;
5. The Tax Commission and the Corporation Commission cooperate to
explore means to combine oil and gas industry reports filed with the
two agencies, so as to eliminate unnecessary duplicate filing of
information, and thereafter maintain that system;
6. The Tax Commission and the Corporation Commission continue
their efforts to provide alternative means to file reports or returns
electronically, including the use of web-based applications; and
7. The Tax Commission and the Corporation Commission endeavor to
make information from the database available to the oil and gas
industry and the general public through the Internet.
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