                      December    23,   1952


Hon. Robert S. Calvert
Comptroller   of Public Accouka
Austin, Texas                       Opinion

                                     Re:   Reconsideration   of Att’y
                                           Gen. Op. V-1353   (1951)
                                           and all related prior
Dear   Sir:                                opinions.

            You have requested a reconsideration      of Attorney
General Opinion V-1~353 (1951) and.of all related prior Attorney
General Opinions.    Opinion V-1353    passed upon the taxability
under Article  7060a, V.C.S.,  of certain well servicing    operations.
Subsection (b) of Section 1 of Article   7060a, was amended by Sec-
tion XIV of House Bill 285, Acts 52nd Leg., R.S. 1951, ch. 402,
p. 695, reads as follows:

             “(b) Every person in this State engaged in the
       business of furnishing any service or performing
       any duty for others for a consideration       or compensa-
       tion, with the use of any devices,    tools, instruments
       or equipment, electrical,    mechanical,     or otherwise,
       or by means of any chemical,      electrical   or mechani-
       cal process when such service is performed          in con-
       nection with the cementing of the casing seat of any
       oil or gas well or the shooting or acidizing the forma-
       tion of such wells or the surveying or testing of the
       sands or other formations     of the earth in any such oil
       or gas wells, shall report on the 20th day of each month
       and pay to the Comptroller,     at his office in Austin, Texas,
       anoccupation    tax equal to 2.42% of the gross amount re-
       ceived fr&m.said    service furnished or duty performed,
       during the calendar month ne?rt preceding.         The said re-
       port shall be,executed    under oath on a form prescribed
       and furnished by the Comptroller      .”

            In connection with your request, there has been submit-
ted a report, compiled by various; members      of the oil industry, de-
fining terms’, explaining various operations   involved in drilling,
testing and surveying wells, an d giving reasons why each of said
operations   is ,or is not embraced by the provisions   of Subsection
kon.   Robert    S. Calvert,   page 2 (V-1567)




(b) of Section 1 of Article 706Oa above~,quoted. Likewise,  a legal
brief has been furnished us). This brief discusses   the submitted
report in the light of court decisions and prior opfnions of this
office.

           We wit1 firat consider operations which might or
might not be taxable as a service ,performed  “in connection with
the cementing of the casing seat of any oil or gas well 0 $ *”

             The bottom of the producing or oil string of casing,
the last column of casing placed in a well, is commonly referred
to as the *casing aeat.”    Placing cement between the oil string
and the sides of the well bore is, of course, the exact operation
named in the statute and is a taxable service,    Cementing ‘liners’
(strings of casing whose tops are situated below the surface) is
also a taxable service if the linere are used a6 extensions    of the
oil string as distinguished   from liners used to repair defective
strings of casing.    Various other cementing services   ape explained
and classified  in the report as nontaxable.  We quote the following
therefrom.

                “Cementing    conductor, surface,   intermediate   or
                   protective   casisg striags

             “In oilfield terminology,     the casing seat of an oil
       or gas well is the bottom of the producing strfng of
       casing in the well.     In the course’ of drilling, it may
       be found desfrable     to run a string or s,everal strings
       of casings jdor to the running of the producing’string.
       These casing string6 are commonly           referred  to as
       conductor,    surface,   intermediate   OP protective   strings.

              -A conductor string is a rhort string of casing
        extending from tha surface to a comparatively     shallow
        depth used to support loosely consolidated   surface
        formations,  to keep the top of the well bore open, and
        to provide a means of conveyfng fluid used in drilling
        from the well bore.

              “A surface string is a string run to greater
        depth than a conductor string and fulfills the same,
        requirements    outlined above for a conductor  6tring.
        In addition, it excludes waters, and may provide sup-
        port for strings of casing subsequently   rus in the well.

              “Intermediate  and protective strings,  when em-
        ployed, are run to facilitatedrilling  operations for
        various reasons:    (1) to exclude water; (2) to reduce
Hon. Robert    S. Calvert,    page 3 (V-1567)




      the cost of ,drilling fluid by keeping contaminants
      such as salt from entering the yell bore;       (3) to
      eliminate, the loss of drilling fluids in ‘thiefing’
      formatioti.9; (4) as a precautiondry    measure to pro-
      vide a means of, controlling    pressure  in the event
      excessive    pressures   are encountered;  and (5) to
      prevent caving.

            “Conductor,   surfa&,  intermediate  and pro-
     tective strings of casing, When used, are used to
     facilita,t+ drilling operations.   Cementing of these
     strings .cannot be considered     bs Fementing the cas-
     in Geat in an oil or g&s well, and therefore     is not
     Tzkixz

              *Cementing     to control wells
               Eementmg      for lost circulation

           “On bccasion,   it may be found necessary   to
     pump cement into a well for the urpose of: (1)
     bringing the well undei control; P2) shutting, off
     undesirable   flows of fluids; or (3) sealing off
     intervalS in the hole where drilling fluid is being
     lost.  These operaticins are under,taken to facili-
     tate drilling and are not, the”operdtion of cement-
     ing of the ca,sing seat, ixi an.oWor~ gas~well.

              “Plug back opdrations

           “A plug back operation is one in which the
     bottom section of the well bore is cement&d off
     to prevent the ,inflow ,of fluid from that,portion
     of’the hole.’ Mariy. types of @lugs are used. This
     operation is ‘not the c&rienting of the casing seat
     in &n oil,or gas well.

              “Ccmentin(i    for abanddnment

            “Before abandoning a well; cement plugs are
      placed in the hole to prevent escape of fluids from
      one formation to another and to protect fresh water
      sands.   The dperation of placing a cement plug in a
      well is ndt the cementing of the casing seat in an oil
      or gas well.

              ‘Squeeze   cementing    bperations

            ” ‘Squeeqe cementing’  is an opera&n    in which
      a fluid cement, after being placed in the desired
Hon. Robert    S. Calvert,    page 4 (V-1567)




      position in a well, is subjected to high pump
      pressure   to force some of the cement into the
      surrounding formations.     This operation is not
      the cementing of the casing seat in an oil or gas
      well.

              “Cementing   to repair defective     casing
               Cementing liners for remedial        or repair
                  operations

            “Casing that is defective when run in the
      hole or becomes     defective after being in the hole
      (becomes    corroded,   etc.) may permit unwanted
      fluids to enter the well or allow well fluids to ex-
      cape from the well,     When such defects cannot
      be repaired by cementing alone, then a liner may
      be cemented through tha defective section. Such
      operations are not cementing of the casing seat in
      an oil or gas well.

              “Cementing     for whipstock   operations

            “In the course of drilling operations,     it fre-
      quently becomes     desirable  to deflect or change
      the direction of the hole for one of several reasons:
      (1) to complete drilling in a predetermined        target
      area; (2) to correct a ‘crooked hole’ condition that
      has developed during the course of drilling; or (3)
      to drill around an obstacle (lost tools, pipe, etc..)
      that cannot be removed from the hole, A deflect-
      ing tool which permits directing the course of a
      well, is known as a whipstock.      It is a long, slender,
      tapered steel wedge which is supported in the well
      in such a position that the drilling tools are deflected
      from their previous course and in the desired direc-
      tion. Whipstocks     are sometimes     cemented in place,
      Cementing of a whipstock is not the cementing of -the
      casing seat in an oil or gas well,”

             We agree with the foregoing        classifications    for the
reasons   stated in the report.

            In Attorney General      Opinion    O-3627    (1941)   the follow-
ing questions were considered:

           “1. A party takes a contract from the operator
      to cement a well for a stipulated price (perhaps he
      uses 500 sacks ,of cement).   Will he be permitted to
Hon. Robert     S. Calvert,   page,5   (V-1567)




         deduct the cost of cement     before     computing
         the tax?

                “2. There is a tool known as a ‘cement
         packer’ which is used in cementing liners in
         wells.    This tool is leased or rented to the
         owner of the well or contractor {for a fee of
         $12 per day operators      time, plus car mileage
         to location and operator’s     expenses,  Would the
         party who receives     rent for the ‘packer’ be sub-
         ject to the tax on the rental received or rental
         plus expenses    of the operator?   )I

              The first question on its face seems to imply that all
cementing operations       are taxable: however,  the Opinion’s answer
thereto limits its scope to “a party who cements a casing seat
of an oil or gas well u e aR The cost of the cement w-held           to
be deductible from the gross receipts before computing the tax
on this service.     The Opinion also held that the furnishing of the
“cement packer” was. the furnishing of a material and that “if
the furnishing and installing of the ‘cement packer’ in questi=
is one of the four taxable operations named in th,e statute [or is
performed      in connection with one of said operations] , the charge
for furnishing the ‘cement packer’ should not be included in the
receipts on which the tax is computed and the charge for furnish-
ing the operator should’be included,”       The previously   quoted
classification    of the various  cementing services   is consistent
with the results reached in Opinion O-3627.,

           This office has also specifically   ruled that a temperature
survey  made to locate the top of the cement behind the casing for
the purpose of determining   the success of the cementing is a taxable
service since it is performed   in connection with the cementing of
the casing seat.  Att’y Gen, Op.. V-1353   (1951).

             We will next consider whether certain operations    are
taxable as services    performed  “in connection with      the shoot-
ing D . . the formation of such wells j i     We quote the following
discussion   from the submitted report.,

               “Open hole shooting with explosives,   pro-
                   jectiles, shaped charges,  or jets

               “Shooting of the formation is done in order
         to commence    or increase the flow of flui,ds into
         the well bore.   It is done by detonating an explosive
         charge in an open hole below the casing seat.      This
         operation can be performed     with the use of explosives,
Hon. Robert         S. Calvert,       page 6 (V-1567)




      projectiles, shaped charges,   or jets, The opera-
      tion may be performed    any time during the life
      of the well when the operator believes   he can com-
      mence or increase   the flow of oil or gas into the
      well bore.

            “This process is ‘shooting the formation’ in
      the language and meaning of the act, Article   7060-a;
      hence, is taxable,
               II
                    . . .

               “Perforating           pipe to provide   opening   in pipe

            “In oil field terminology,   shooting for the pur-
      pose of perforating    pipe is the creation of openings
      or holes in the pipe by explosive     means.   There are
      several methods:

                         1)   The use of projectiles, and
                       t 2)   The use of shaped charges or jets.

            “The operation is performed     any time during
      the life of a well when it is believed production may
      be commenced      or increased by providing means of
      fluid flow from a formation    into the casing.

               “The operation           is performed    as follows:

             “A device called a gun which contains a number
      of explosive   charges is lowered on an insulated cable
      to a, predetermined    depth in a well,   Electric   current
      sets off the charges.    In the case of a perforating     gun,
       openings or holes are created by detonation of the
       charges causing projectiles    to pierce the pipe, In the
       case of shaped charges or jets, openings or holes are
       created by detonation of explosives     which generate
      jets of high temperature,    high velocity gases.     These
      gases disintegrate    the metal of the pipe, This opera-
       tion is not the shooting of the formation     in an oil or
       gas well, and therefore is not taxable.

               *Shooting        off pipe or casing
                Shooting

               “These         terms    mean,   generally,   salvage   opera-
      tions,
Hon. Robert    S. Calvert,   page 7 (V-1567)




           “Salvage operations       may be necessitated
      by several. occurrences,       notably:

             (1) In a dry hole where casing has been in-
      s,talled and cemented in the well bore and it is
      desirable    to recover as much of the casing as
      possible for use elsewhere;

           (2)   When drill pipe has been stuck in the
      well due    to the slaughing of the formation into
      the well   bore, and it is desirable  to recover as
      much of    the string of pipe as possible;

            (3) When a well has produced its ultimate
      recovery   and can no longer be produced economi-
      cally, and it is desirable to recover as much of
      the casing as possible for use elsewhere.

            In all of these cases,  the casing or pipe is
      cut with an explosive    charge lowered on a wire
      line. The form,of the explosive      charge may
      vary widely, consisting    of dynamite, solid or
      liquid nitroglycerin,   or specially designed shaped
      charges known as jet’ casing cutters.

            ‘Since these operations  concern salvage of
      materials   rather than action on productive forma-
      tions, they are non-taxable.

              “Shooting to recover    or remove   fish in fish-
                  ing operations

            ” ‘Fish’ are any obstructions  in a well bore
      which are not natural.   These may include drill
      bits or parts of them which have’been broken off
      or otherwise disconnected    from the drill pipe.
      The fish may be any number of sections of pipe
      and drill collars which have twisted off in the
      threads or broken in two along their length.    The
      fish may be hand tools or other metal objects
      which have fallen into the well bore from the sur-
      face.

            *Shooting to recover or remove fish is done
      for the purpose of breaking these obstructions
      into small pieces with an explosive charge.    The
      smaller   pieces are picked up more readily by
      magnets or special baskets.
Hon.   Robert    S. Calvert,   page 8 (V-1567)




             “The disintegration     can be accomplished
       by an ordinary nitroglycerin      charge lowered
       on a wire line and exploded on contact with the
       fish.   This usually causes sloughing of the forma-
       tion. The preferred      method is to use the shaped
       charge, similar     to that used in casing perforations.
       In this case, it is pointed directly downward and
       the jet effect is concentrated    directly on the ob-
       struction which is under attack.

             “The procedure of using an explosive    charge
       to clean out obstructions is not concerned with
       any formation fracturing  and is not taxable.

                “String shot shooting   to open screen     or per-
                    forations

             u ‘String Shot’, ‘Cord Shot’, or ‘Primacord
       Shot’ are similar    terms used to describe  a light
       explosive   charge lowered into the well to clean
                         ‘.
       the plugged openings of the screen or perforations.

                ” ‘Cord’ is an abbreviation      of ‘Primacord’.

             u ‘Primacord    is the trade name for an im-’
       pregnated fuse cord which has explosive     power.
       Normally    used as a booster explosion for detonat-
       ing dynamite, it has enough power of its own to do
       cleanout jobs without rupturing screens    or casing,

                ” ‘String Shot’ is a colloquialism     which des-
       cribes     the cord.

             “When the string shot is detonated, fluid is
       forced through the openings in the screen or the
       perforations,  removing the solid matter from the
       exterior surfaces   so that flow of oil will resume.

             “This is a cleaning out or restoring   of fluid
       flow through the screen slots and not an action of
       shooting the formation,   and, therefore,  is a non-
       taxable service.”

             The above quoted conclusions    as to the taxability of the
described, operations are ins accord with prior rulings of this of-
fice,  In Attorney General Opinion O-3627      (1941) it was held that
perforating   the casing with a cutting tool called a *‘perforator”  did
not constitute “shooting”   in the sense attributer! to that word by the
Hon. Robert S. Calvert,     page 9’(V- 1,567)



oil and gas industry.    It is suggested in the brief that was furnished
us that Opinion G-3627 holds that shooting for the purpose of clean-
ing out an oil well is subject to tax even though it was not shown
that a formation of the earth was shattered.        We do not so interpret
Opinion O-3627    since we think such interpretation       would be incon-
sistent with the discussion     of “sho4ting” given at ppe 7-9 of the
Opinion.   Shooting for the purpose of cleaning out a well is subject
to tax only if the shooting operation is done in connection with one
of the named taxable operations.       Attorney General Opinion O-3784
(1941) held that the use of a gun perforator      in an open hole to fire
bullets into the formations     of the edrth served the purpose of ‘shoot-
ing” even though the use of a mechanical        perforator   or a gun perfo-
in its ordinary maxmer and note in connection with a named taxable
operation was not d taxable’ service.       Attorney General Opinions
04261    (1942) and V-1353     (1951) also recognize    that perforating  is
nontaxable unless performed in connection with a taxable service.
             L
                . . * acidis-   the formation of such wells e e .*, as
well.   of course, as services     performed    ‘in connection with” acid-
laing formationa. la a taxable service.         The submitted report
classifies   as aontaxable the following services:         acidizing to re-
cwer duck fkh OP stack drill pipe or casing; acidiaing to clean
screens;    acidlmimg to dissolve mud sheaths; and acidizing soluble
metals.     With this we agree since no formations         of the earth are
acidiced.    It ho been suggested that Opinipn O-3627 holds that
acidimiag to clean out a well is taxable without any showing that
a formation of the earth was acidized.          We do not think that the
OpMoncan       be so interpreted    in view of the definition of acidiz-
fng, quoted at page 9, as a “process        of intro,ducing acid into the
pore space of an acid-soluble        producing formation      D D .n; how-
ever, that there m%y be no doubt on this point, we expressly             hold
that acidizing which does not have for its purpose the dissolution
of a formation     is.not a taxable service    unless it is performed      in
connection with a taxable service,

            The report has classified    as taxable as services      *per-
formed in cdn&ecti4n with . . 0 the surveying      . . e of the sands or
other formations    of the earth in any . . 0 of1 or gas wells” the fol-
lowing operations:     electric logging to record geological     forma-
tions, radioactive   logging, magnetic logging and dip recording.
Radioactive   logging is separated~into   gamma ray logging and
neutron  lo&ng.     Magnetic logging is still in the experimental
stage. In Attorney General Opinion O-3698 (1941)) it was held
that a dip surrey was h taxable serrica.~ A!1 of the other above
enumerated msrvices are clearly ‘surveys”     4f the formations
of ths earth and are taxable. See Petroleum    Production Prac-
tice by F. EA. Pbmme r, Part I, Sec. 24, (1939) 0
Hon. Robert S. Calvert,   page 10 (V-1567)



           Deflection or deviation surveys are explained in
the submitted report an follows:

            “A aurveyy made in a well while drilling which
      utiline~ an inetrument on a wire line, or on pipe to
      record an angle of thedrill hole from vertical,   The
      purpose of tbie rurvey i.s to determine the course of
      the drill bole in order to reach the desired objective
      and not to survey formations.”

            Consistently with aome of the conclusions reached in
opinion O-3698, thin seryike would be considered taxable; how-
ever, we are of the opinion that the above described operation is
in fact a survey of the drjll hole rather than a survey of the’forma-
tions of the earth and is not a taxable service under Article 7060a.

           “Depth measurement’ is described in the report, as
“a suryey for the purpose of determining the depth of a point in
a well bz the use of a weighted wire and a calibrated measur~inS
device.   Opinion O-3698 said of -depth determination”:

           ‘This   operation consirrts of locating the depth
      in the well  of certaimobjects  or pa&    of the well
      equipment. and it clearly come6 within the defini-
      tion of a survey.”

            We agree that the operation is a “survey* but think
it properly should be treated as a survey of a portion of the well
bore. Since it is not a survey “of the aantla or other formations
of the earth,* it is not a taxable aerviceg and Opinion O-3698 is
overruled on this point.

           Surveys  to locate the free point of stuck pipe ar’e ex-
plained in the report as follows:,

            ‘A hrvey of this type involved the use of in:
      strument8 to measure the’&retch of the pipe so that
      the pomt of seimtre can be determined. An inatru-
      ment is lower,ed into the pipe and measures the
      rtretch of the pipe. This operation is ,repeated at
      variow depth8 until no further .&retch i.s indicated.
      Thiaiirdikates the point of seisure.”

           we do not consider Wt      thbopeiation   constitutes a
survey “of the sands or other formations of the earth” and there-
fore hold that it ,is not taxable under Article 7060a. For the same
reason, we hold that the following operationa, as explained~in the
report, are not subject to: tax.
Hon. Robert       S. Calvert,       page 11 (V-1567)




              “Caliper       logs

              ‘This BUrViy (sometimes    called section Sage)
      involves the use of instruments     with mechanical
      feelers    or arms run in an uncased hole on a wire
      line or insulated electric cable to determine the
      siae or diameter of the hole which has been drilled.
      The recording      can be made at the surface simul-
      taneous with the running, or it can be made by means
      of mechanical     stylus contained within the instrument
      itself.    This survey is for theprimary    purpose of as-
      sisting drilling operations by knowing the diameter
      of the hole being drilled.

              *Collar       location

            “A survey run in the well to locate the depth
     of the collars in the producing casing string.     It is
     performed     by means of mechanical   feelers  run on
     a wire line. This type survey is often run in con-
     junction with radioactive   logs for the purpose of
      substantiating  or measuring   the depth of the col-
     lars.

           “Electric          log to locate   junk or fish in the hole

            “This survey involves the use of electric log
      or ‘Schlumberger’     to determine by means of surface
      recording of depth and electrical    resistivity    the point
      antwhich pipe,‘tools,   or other objects have been lost
      and embedded in the wall of the bore hole.         The elec-
      tric log in this case iS a useful tool to the drilling
      operator as a substitute for mechanical       feelers.

              *Corrosion           surveys

            %urveys    run inside pipe of an oil or gas well
      to determine   the extent of corrosion   of the metal.
      These surveys     involve the use of an instrument with
      mechanical   feelers   run on a wire line with record-
      ings at the surface or within the instrument-itself.
              ”
                  .. 0 .

              *Fluid       level    surveys

            “Fluid level surveys are made after a well has
      ceased to flow naturally and is being produced by
Hon. Robert   S. Calvert,    page   12 (V-1567)




       artificial  means.   The level of the fluid is usually
       obtained by a sonic device which measures         the
       period of time for a sound wave to travel from the
       surface to the fluid level and back to the surface.
       By knowing the speed of the sound wave and the
       time for the reflected wave to return, it is possible
       to calculate the height of the fluid in the well.     The
       data obtained are of value in determining      if a de-
       crease in production is due to the pump or gas lift
       valves being set too high or if the equipment is not
       functtoning properly.    If the fluid level is near or
       at the depth where the pump or gas lift valve is set,
       the equipment is Bet too high. On the other hand,
       if the fluid level is found relatively   higher than where
       the pump or gas lift valve is set, the decreased       pro-
       ductton may be due to the equipment not operating
       properly.”

            We are urged to reconsider   and overrule    the holdings
of Opinbm   Q-3698  and V-1353  on the taxability of “temperature
surveys”.   The following question was considered     in Opinion
O-3698.

             “4. There:is   performed   in drilling for oil and
       gas a service known as ‘temperature        determination.’
       By lowering into the well an electrical      resistance
       thermometer     and recording at the surface in the
       form of a graph all its readings,    the temperature
       of the entire length of the well is available.      By de-
       duction from the known cooling effects of flowing
       gas, the less COO1ing effects of flowing oil, the heat
       generative   effects of hardening cement, the follow-
       ing results are made possible:

            “a.   Location of oil and gas bearing forma-
                  tions and differentiation between the two.

            “b.   Location   of cement    top behind the Casing.

            “c.   Determination  of the base of the gas to
                  permit the casing to be set at the proper
                  depth.

            “Please tell me whether       or not this service   would
       be subject to this tax?”

            The following    reply was made       to the above quoted query.
Hon. Robert   S. Calvert,   page 13 (k-1567)




            “Ascertaining   the temperature    in the various
      parts of the well is clearly a form of survey, ac-
      cording to the definitions    of weil survey.   See ‘Pe-
      trOieUm Production     Practic,e,’ Part I, su ra. In a
      booklet entitled ‘Schlumberge~r Auxiliary--%- ervices,’
      recently published by Schlumberger        Well Surveying
      Corporation,    on page 2, iS a diSCuSSiOn Of ‘tempera-
      ture determination     in wells, and, the diSCUSSiOn is
      headed ‘Temperature      Surveys’ and reads in part as
      fOllOW9:

                 * ‘It has ,long been realized that the
           study of temperature      in a drill hole could
           be of, great value if it could be accurately
           and practically    ‘meas,ured e 0 e

                 ” ‘In the last few years an electrical-
           resistance    thermometer     has been evolved
           which responds to temperature        variations
           rapidly and records ,them within 0.2 degr,ees
           Fahrenheit     of accuracy.   This thermometer
           is lowered into the well at the end of the in-
           sulated cable used for electr,ical logging and
           all temperature      readings are recorded at the
           surface,   in the form of a continuous graph.

                 ” ‘The most profitable    purpose served by
           this type of temperature    survey is the location
           of oil and gas bearing formations     in limestone.
           In West Texas and Kansas this has been ac-
           complished   in several’hundred    temperature
           surveys which, in conjunction with electrical
           logging, located the pay and differentiated
           between oil and gas.’ (Underscoring       ours)

            “Our answer to your fourth question is that, the
      service  of ,‘temperature   determination’  in the manner
      you describe    in a survey within, the meaning of the
      statute and is therefore   a taxable service.’

            In so far as this answer goes, we believe it is correct;
but we do not think it covered the entire question.    The quoted
authority was dealing with a type tempeiature     survey which re-
sulted in locating and defining various formations    of the earth.
It thus accomplished   a survey of the sands or other formations
of the earth, just as electric  logging does, and is, in our opinion,
a taxable service.   However,,we    do agree with the proposition
submitted in the brief and report that not all temperature     surveys
Hon. Robert   S. Calvert,   page 14 (V-1567)




are surveys of the formations      of the earth.   Temperature     surveys
made in the course of producing operations         to check the mechanical
condition of equipment in the hole are not surveys of the formations
of the earth and are not taxable.      A temperature     survey made to
check the success of a nontaxable cementing job is not taxable for
the same reason.      To the extent that Opinion O-3698 holds to the
contrary,   it is hereby overruled.     However, as we have previously
stated, we think that a temperature       survey made for the purpose
of determining    the BUCC@BB of the cementing of the casing seat is a
taxable service    since it is a service rendered in connection with one
of the enumerated     taxable services.     This, as we interpret it, is the
holding of Opinion V-1353;      and it is hereby affirmed.     We believe a
general   test of the taxability of temperature     surveys can be stated
in these terms:     Temperature    surveys    are taxable only if made for
the purpose of surveying the sands or other formations          of the earth
or if they are made in connection with one of the named taxable
services.

           In Opinion O-3698  it was held that a “water-flow       survey”
was a taxable service.  As stated in the submitted report:

             “Fluid ingress surveys are obtained whenever
     ’ it 19 suspected fluid 19 entering a well at a point
       where such flow is not. desired or when it is sus-
       pected certain sections. of a horizon are taking a
       disproportionate   volume of the injected fluid.  Exit
       surveys are run whenever it is thought fluid is
       leaving a well at a point where such flow is not
       wanted or when it is thought certain strata of a
       horizon are producing a disproportionate     volume,
       principally water, of the produced fluid.   This
       may be determined     in various ways but probably
       the moat common. method is by use of a mechanical
       device lowered in the hole to measure the relative
       volume of fluid flowing at any given point. One of
       the principal methods used is called a ‘spinner
       3urvey’.n

            We think that a determination   of the relative volume      of
fluid flowing at a given point or in a given formation    constitutes    a
survey of that formation within the meaning of the statute, and
Opinion O-3698 is affirmed on this point.

            The last .enumerated   taxable service is ‘testing of the
sand: or other formations    of the earth in any D 0 . oil or gas wells
. . .  The submitted report has defined “sands” and “formations”
as not including the “fluids” - liquid and gaseous materials      - which
Hon. Robert   S. Calvert,   page   15 (V-1567)




may be contained in or produced from the porous space of the
formation  or sand. If this definition is the correct guide to the
meaning of the statute, Attorney General Opinions O-3698,     O-4188
and V-1353   are erroneous  either in part or in toto.

             We quote the following     excerpt   from      Attorney   General
Opinion   O-4188 (1942).

             “The services    described    in paragraphs     II,
      III and IV all relate to tests of the properties         of
      fluids and gasin wells as distinguished           from tests
      of solid materials    found in the wells.       The statute
      expressly   enumerates      ‘the surveying or testing of
      the sands or other formations        of the earth in any
      such oil or gas wells.’       We believe that this lan-
      guage is intended to embrace        not only the solid
      material   actually composing      the sand, but the gas,
      oil or water with which the sand may be saturated
      or other formations      permeated.      It is to be re-
      membered     that the purpose of drilling oil and gas
      wells is to produce oil or gas.        It would be strange
      indeed if a statute, patently designed to tax technical
      services   customarily     rendered by persons other
      than the driller in connection with the efficient corn-
      pletion and operation of oil and gas wells, were con-
       strued so as to tax the testing of non-productive
      formations    through which the drill must necessarily
      pass, and exempt the testing of the properties             of the
      very product, i.e., gas and oil, ‘which is sought to be
      produced.    We therefore are of the opinion that analysis
      of bottom-hole    fluids, the testing of pressures         at various
      points in the well and ascertainment          of the productivity
      index of the well are all services        which come within the
      intended scope of the statute under consideration.”

            In Opinion O-3698      (1941)   the following     ruling was made:

            “Testin      of the sands or other formations     of
      the eart
             ---Ii-+o oil and gas wells is the taking of samples
      of the earth formations      and fluid contents from the
      walls or bottom of the well and analyzing the same so
      as to ascertain      the composition   of said earth forma-
      tions and fluid contents.      See ‘Fundamentals     of the
      Petroleum      Industry,’ by Dorsey Hogar, 1939, pages
      226 to 231, and ‘Drilling      Practices,    by Charles Cyrus,
      1939, pages 182 to 195;”
Hon. Robert   S. Calvert,   page 16 (V-1567)




            Bottom hole pressure     tests, depth pressure   tests, pro-
ductivity index tests, gas-oil  ratio testing, bottom hole sampling
and analysis,  open flow potential tests and gas-condensate       well
tests were held taxable services     in Opinion V-1353   (1951).   All of
these tests are tests of “fluids”.

             In Sheppard                           Co., 208 S.W.2d 656
(Te~.Civ.App.    1948), the court held that the service of operating a
portable laboratory,    set up on the well location, for the purpose of
analyzing drill cuttings was a taxable service      under Article 7060a.
We quote the following excerpts from page 657 of the opinion:

            “The service   performed    is the analysis of
      drill cuttings whCch are taken possession       of by
      appellee after the same have been brought to the
      surface and separated from the drilling fluid by
      means of a shale-shaker.     . . . The test made on
      the drill cuttings is to determine    the gas and oil
      contents of the strata or formations     of the earth
      encountered by the drill bit. The laboratory        find-
      ings are furnished to the well owner and appellee
      is paid for the service.

            “It is not necessary to here further set out
      the methods employed by appellee since it is not
      material to the issue to be here~decided;    except
      it may be added the’ laboratory   of appellee con-
      sists of such equipment as enables it to make the
      analysis of the cuttings it takes possession   of.”

           An examination    of the record before the court       in this
case shows that the plaintiff taxpayer performed,    among        others,   the
following tests:

       “A   We take the cuttin& and put them in a quart
            container.   We put one pint of cuttings in this
            container,  and we put one-quarter     of the vol-
            ume of water.   . . . We seal this container and
            put it in what we call an agitator . . .then we
            hook two hoses to this container.      One is a
            suction hose, and the other is the return.      There
            is a compressor     motor in this system,    and we
            pull a vacuum on these cuttings equivalent to
            four inches of mercury.     By leaving the return
            valve closed, and opening up the suction side,
            we create a vacuum,     and reduce the cuttings
            below atmospheric     pressure,  which is sufficient
            with four inches of mercury     to release any
Hon. Robert         S. Calvert,   page 17 (V-1567)




              contained gases that are in the pore spaces
              or interstitial spaces. [S.F., pp- 6 & 71

       “Q     Now, what is the diagram,           Plaintiff’s     Ex-
              hibit No. 27

       “A      This is a diagram of a Wheatstone                Bridge
               gas analyzer.   [ S.F., p. g]
       u
            . . .

       ‘Q     So you arrive at two conclusions   by the
              use of this device; namely, the volume
              of the gas contained in the cuttings, and
              some notion of the quality of the gas?

        “A     It is a qualitative    analysis,    that’s   right.
               . . .

        “Q     After you have completed           the gas analysis,
               what is your next step?

        “A     We take these samples        and wash them very
               thoroughly and subject       them to ultra-violet
               ray radiation. . e.

        ‘Q     What is the purpose       of that process7

        “A     Ultra-violet  rays coming in contact with
               liquid hydro-carbons    will cause them to
               be energized   and to fluoresce  and become
               visible to the naked eye. D L)D [S.F.,  pp”
               11,121”

             The following further          details   as to these        tests   were
also   included fin the record:

        “Q And then you take those cuttings into the
           portable laboratory   and you test these
           samples   to determine the volume of the
           gas in it, and also to test whether or not,
           if there is gas there, it is high or low
           fraction gas ?

        “A     Yes.

        “Q And you test it for that purpose?
Hon. Robert    S. Calvert,       page 18 (V-1567)



       “A   Yes.

       “Q   And if you think it is in what you think is
            oil -- liquid hydro-carbons,   I believe you
            call it?

       “A   Yes.

       “Q   If you find some evidence of that, or if
            you believe it should be there, you put
            it through the other part of your labora-
            tory, which you call ultra-violet radiation?

       *A   Yes,     sir.

       “Q And you look at it and you can tell from that,
          in a general way, at least, as to whether or
          not it is a low gravity oil or a high gravity
          oil, according to the difference  in color?

       “A   That’s     right.”

            Thus it is apparent that at least some .of the services
which were held it be taxable in the Rotary case were test of ..“fluids”.
This being so, we think that the words “sands” and “formations”
must be interpreted   as including the fluid contents of said “sands”
and “formations”.    Indeed, we think the Rotary case is decisive   of
this question.

            In this connection,   we think it pertinent that the Legisla-
ture has met twice since the decision in the Rotary case.        Since it has
not seen fit to amend Article     7060a by excludvom        taxable services
the testing of “fluids, ” it must be presumed to have acquiesced       in the
judicial interpretation  of legislative  intent.

             It is also submitted that analyses    of cuttings are not analy-
ses but inspections.     Microscopic   inspections   of cuttings was one of
the services    performed   by the taxpayer in the Rotat bley;nze.  For the
reason just stated we think such service is a taxa

            In Opinions O-3698  and V-1353 it was held that side wall
sampling was a taxable service.    We are urged to make a distinction
between the taking of the sample and the testing of the sample for
the re~ason that many samples are never tested.   There is presently
pending before the Court of Civil Appeals for the Third Supreme Ju-
dicial District of Texas Robert S. Calvert and Williati B. Davis v,
.   .   .




            Hon. Robert   S. Calvert,   page 19 (V-1567)




            A-1, Bit and Tool Company.       A decision in this case could be
            decrsrve of this questron and for that reason we deem it improper
            for us to reconsider   it at this time.

                                         SUMMARY

                        Cementing     “liners”    (strings of casing whose
                  tops are situated below the surface) is a taxable
                  service   under Article      7060a, V.C.S.,     if the liners
                  are used as extensions        of the oil string as dis-
                  tinguished from liners used to repair defective
                  casing.   The following operations are not taxable
                  under Article    7060a because they do ,not constitute
                  nor are they done in connection with cementing the
                  casing seat:    cementing conductor,          surface,   inter-
                  mediate or protective       casing strings;      cementing to
                  control wells; cementing for lost circulation;             plug-
                  back operations;     cementing for abandonment;            squeeze
                  cementing operations;        cementing liners for remedial
                  or repair operations;       cementing for whipstock opera-
                  tions . Temperature       surveying done to determine           the
                  success   of cementing a casing seat is a taxable serv-
                  ice since it is performed        in connection with cement-
                  ing the casing seat.      Shooting operations which are
                  not concerned with formation fracturing              and which
                  are not performed       in connection with one of the tax-
                  able services    enumerated       in Article    7060a are not
                  taxable services.      Acidieing operations         which do not
                  have for~their purpose the dissolution            of a formation
                  are not taxable services        unless they are performed
                  in connection with a taxable service.            El,ectric logging
                  to record geological      formations,      radioactive    logging,
                  magnetic logging and dip recording are taxable serv-
                  ices.   A deflection or deviation survey is a survey of
                  the drill hole rather than a survey of the formations
                  of the earth and such surveying          is not a taxable serv-
                  ice. Neither depth measurement              surveys nor surveys
                  to locate the free.point      of stuck pipe, nor caliper log-
                  ging, nor surveys to locate the depth of collars,             nor
                  electric logging to locate junk or fish in the hole, nor
                  corrosion   surveys,     nor fluid level surveys are taxable
                  surveys because they are not surveys of the formations
                  of the earth.    Temperature        surveys are taxable only
                  if made for the purpose of surveying the formations                of
                  the earth or if they are made in connection with a tax-
                  able service.     To the extent that Attorney General Opin-
                  ion O-3698    (1941) holds to the contrary it is overruled.
                                                                              -   . .




Hon. Robert   S. Calvert,   page 20 (V-1567)




      Water-flow     surveys are taxable as a survey of the
      formations    of the earth.  The words ‘sands” and
      “formations”     must be interpreted     as including the
      fluid contents of said “sands” and “formations”.
      Sheppard v. Rotary Engineering        Co., 208 S.W.Zd
         6 (Tex.Civ.App.    1948).  Therefore     bottom hole
      pressure    testing, depth.pressure     testing, pro-
      ductivity index testing, gas-oil     ratio testing, bot-
      tom hole sampling and analyning, open flow poten-
      tial testing and gas-condensate      well testing are
      taxable services.     Microscopic    inspection of drill
      cuttings is a taxable service.      Sheppard v. Rotary
      Engineering     Co., supra.

APPROVED:                              Yours   very   truly,

W. V. Geppert                             PRICE DANIEL
Taxation Division                      Attorney General

E. Jacobson
Executive  Assistant
                                       By,$%(  ;I ;i;;-1 //’
                                            ,’ .I,           /    i’!<,   i
Charles D. Mathews                        Marietta McGregor       Creel
First Assistant                           Assistant


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