The promise of incremental oil production offered by successful MEOR projects continues to fire the imagination and excite the curiosity of major and independent oil producers a like.   In order to be successful, an MEOR project should properly screen and thoroughly evaluate the candidate wells and reservoirs to identify the production problem or problems, and then devise the proper MEOR approach to address them. The ultimate success of your MEOR program depends upon how carefully it is structured and implemented. A lease management approach will look to optimize your MEOR program for total oil & gas production while taking full advantage of existing tax law.

In past years tax incentives and advantages for Enhanced Recovery Projects (EOR) were not overlooked. Qualified enhanced oil recovery projects have been afforded special tax consideration at the local, state and Federal levels for many years. Savvy oil producers incorporated EOR / MEOR strategies into their overall lease management program to take full advantage of the then existing tax law and thereby maximize profitability.

This may soon change!  The President agreed at the G-20 Summit in Pittsburgh to phase out subsidies for fossil fuels so that the United States can transition to a 21st century energy economy. The credit, like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the credit encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources. Moreover, the credit must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.

It remains to be seen if the existing standard for Qualification at the State Level will be maintained. This standard in the form of a Federal Mandate, required Governors in each oil producing state to designate an appropriate State agency to process and rule on applications involving requests for EOR / Tertiary Recovery project status. Understandably, the various state jurisdictional agencies have followed the Federal guidelines for defining and qualifying such projects. MEOR, which once was a 'black hole' in most oil producing states, has recently emerged to be recognized as a proven tertiary recovery process.

The qualification process varies from state to state. Typically, a formal filing and request for tertiary qualification is made with the State Corporation Commission, or in Texas, the Railroad Commission. The oil producer must show that the project is designed to improve oil recovery, its designated area boundary, and that it is a new project. The services of a petroleum engineer can be most helpful in the qualification process. Once qualified, a tertiary project is often afforded tax considerations at the State, and often County level.

These may include;

Federal EOR Tax Credit

Federal Tertiary Injectant Expense

State Severance Taxes (BO/D Allowable per Well)

State Excise Taxes

County Ad Valorem Taxes

In Kansas from in 1991-1992, for example, the savings on State Severance Taxes alone amounted to $1,500 to $1,700 per well per year!

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Fiscal Year 2011 Revenue Proposals
Disincentives & Disadvantages	Additional Information Adobe Reader Files
Fiscal Year 2011 Revenue Proposals See pages 75-80	FY 2011 Revenue Proposal
Former MEOR Tax Incentives & Advantages
Incentives & Advantages	Additional Information Adobe Reader Files
2005 - Marginal Well Report	2005 - Marginal Well Report
2005 - State Incentives to Maximize Oil & Gas Recovery	State Incentives to Maximize Oil & Gas Recovery
2005 - State Severance Tax Comparison	State Severance Tax Comparison
Qualified EOR Projects	Qualified EOR Projects Title 26 - Internal Revenue Code
Tertiary Injectant Expenses U.S. & Canada	Tertiary Injectant Expenses Title 26 - Internal Revenue Code
Canadian EOR Announcement	Candian EOR Announcement
Canadian EOR Tax Incentives	Canadian EOR Tax Incentives
EOR Tax Report (1992)	EOR Tax Report (1992)

All tax information is provided for informational purposes only. It is not to be considered legal advice. Please consult a tax attorney and appropriate local, state, and Federal regulatory agencies for current applicable tax laws, rules and regulations.