        TEEA~TORNEY               GENERAL
                      OFTEXAS




Honorable George,-H.Sheppard
Comptroller of Public Aacounts
Austln, Texas
Dear Sir:                                                ..,
                          Opinion No. O-4100
                          Re: Uhether gas on which tax has
                               been paid and Injected into-the
                               earth for lifting oil is tax-
                               able on being "re-produced."
       In your letter of October 8th you submit the following
questions:
       "Righ pressure gas is produced an?iprocessed
    for its gasoline content by 'A' who sells the resi-
    due to 'Bl for jetting (lifting oil). 'A' pays the
    tax on the value of 2596of the gasbllne~content
    plus the gross receipts from the sale of residue
    to 'Br.                                      .,,    i
       "'B' saves the low-pressure gas after it has
    llfted the oil and sells It back to 'Al for 25% of
    the new gasoline contentplus 505 of the mones're-
    ceived by 'A' from the sale of the residue to a car-
    bon plant.
       "'B' is 'Re-producing' this gas. Itseems pro-
    per that he should pay a tax on the 1lquUi content
    as the gas he puts into the ground haa already been
    stripped, but will a production tax be due on the
    value of the residue going to the carbon plant, as-
    suming that the volume of gaspso~ldfrom 'A' to 'B'
    is the same as the volume re-produced by 'Br and sold
    back to 'A'?"
       We are aiivisedthat every producing well produces some
casinghead gas along with the oil, and that when 'drygas isin-
j&ted Into an oil well for lifting purposes, some casinghead
gas will be mixed wfth the Injected dry gas when It emerges
from the well in the productfon process. It seems inevitable,
in the-'situationdescribed, that all of~the liquid hydrocarbons
which are extracted from the gas which comes from "B's" oil
well must have been produced for the ffrst tfme-from "B's''-well,
since only dry gas was injected Into it. A tax, therefore,
Honorable George H, Sheppard, page 2         O-4100

                                .

based upon a percentage of the gasoline extracted from the gas
taken from "B's" well would be a tax only on that part of'the
gas actually produced from "B's"'well~as~dlstlnguished from
the gas which was Injected and is-being %e-proaucea." If
the operation'were'lOO$ efficient, the 'volume of"gas-emerg-
ing from the well would be greater than the volume-'ofgas in-
jected into the well~by the amount of the cas~ingheadgasp
which Is being produced: If afterthe ga'semerging from "
"B's" well Is processed, there Is a volume of residue greater
thanthat injectedinto the well, this~~excesswould represent
gas actually produced from "B1s" well and his proceeds from
the sale of such excess would be properly made the basis of
Eomputing the value~of the casinghead gas produded by him in
addition to his proceeds from the gasoline extracted there-
from.
       Under the facts submitted, the volume of gas ln'jectea
into the well is assumed to be the same as the volume~emergiiig
from the well. If there is any method whereby you can accurate-
lv determine what proportion of the volume of gas emerging
from "B's' well is-casinghead gas produced from'that well as
dlstinquished from injected gas being "re-produced" then under
"Rulee4" of our Opinion No. o-3516, you may taxes
                                                "B"~based upon
that same proportion of his receipts from the sale of'the res-
idue gas to the carbon black plant, In addition to his gross
receipts from the gasoline extracted.
       The residue gas Injected into~the.well is deriv& from
gas upon which a production tax~.hasalready been paid, and a '
second tax is of course not'payable upon It being "re-proiluced?"
after injection. The tax~is payable by "B' only on the gas
which emerges from the ground for the first time from his well,
                               Yours very truly
                             ATTORNEY GENERAL OF TEXAS
                               By s/Walter R. Koch
                                    Walter-'R.Koch
                                    Assistant

APPROVED DEC 3, 1941
s/Grover Sellers
FIRST ASSISTANT
ATTORNEY GENERAL
Approved Opinion Committee By BWB Chairman
