§ 57-51.1-03 — Exemptions from oil extraction tax (Effective through June 30, 2031)

North Dakota § 57-51.1-03

• Jurisdiction: North Dakota
• Title 57: Taxation
• Ch. 57-51.1: Oil Extraction Tax

Text

The following activities are specifically exempted from the oil extraction tax:
1. The activity of extracting from the earth any oil that is exempt from the gross
production tax imposed by chapter 57-51.
2. The activity of extracting from the earth any oil from a stripper well property or
individual stripper well.
3. a. The incremental production from a secondary recovery project which has been
certified as a qualified project by the industrial commission after July 1, 1991, is
exempt from any taxes imposed under this chapter for a period of five years from
the date the incremental production begins.
b. The incremental production from a tertiary recovery project which has been
certified as a qualified project by the industrial commission is exempt from any
taxes imposed under this chapter for a period of ten years from the date the
incremental production begins. Incremental production from a tertiary recovery
project from a horizontal well drilled and completed within the Bakken and Three
Forks formations which has been certified as a qualified project by the industrial
commission is not exempt from July 1, 2015, through June 30, 2017, and is
thereafter exempt from any taxes imposed under this chapter for a period of five
years from July 1, 2017, or the date the incremental production begins, whichever
is later.
c. The incremental production from a tertiary recovery project that injects more than
fifty percent carbon dioxide produced from coal and has been certified as a
qualified project by the industrial commission is exempt from any taxes imposed
under this chapter for a period of twenty years from the date the incremental
production begins or from the date the project is certified by the industrial
commission as meeting the fifty percent or more carbon dioxide produced from
coal injection requirement, whichever is later. To qualify for the exemption under
this subsection, the project must be located outside the Bakken or Three Forks
formations and must use carbon dioxide produced from coal. The incremental
production that has been certified by the industrial commission under this section
must be used to calculate the exemption under this subdivision.
d. The incremental production from a tertiary recovery project that injects more than
fifty percent carbon dioxide produced from coal and has been certified as a
qualified project by the industrial commission is exempt from any taxes imposed
under this chapter for a period of ten years from the date the incremental
production begins or from the date the project is certified by the industrial
commission as meeting the fifty percent or more carbon dioxide produced from
coal injection requirement, whichever is later. To qualify for the exemption under
this subsection, the project must be located within the Bakken or Three Forks
formations and must use carbon dioxide produced from coal. The incremental
production that has been certified by the industrial commission under this section
must be used to calculate the exemption under this subdivision.
e. For purposes of this subsection, incremental production is defined in the following
manner:
(1) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where there has not been a secondary recovery
project, incremental production means the difference between the total
amount of oil produced from the unit during the secondary recovery project
and the amount of primary production from the unit. For purposes of this
paragraph, primary production means the amount of oil which would have
been produced from the unit if the secondary recovery project had not been
commenced. The industrial commission shall determine the amount of
primary production in a manner which conforms to the practice and
procedure used by the commission at the time the project is certified.
(2) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where a secondary recovery project was in existence

prior to July 1, 1991, and where the industrial commission cannot establish
an accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during a
new secondary recovery project and the amount of production which would
be equivalent to the average monthly production from the unit during the
most recent twelve months of normal production reduced by a production
decline rate of ten percent for each year. The industrial commission shall
determine the average monthly production from the unit during the most
recent twelve months of normal production and must upon request or upon
its own motion hold a hearing to make this determination. For purposes of
this paragraph, when determining the most recent twelve months of normal
production the industrial commission is not required to use twelve
consecutive months. In addition, the production decline rate of ten percent
must be applied from the last month in the twelve-month period of time.
(3) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where a secondary recovery project was in existence
before July 1, 1991, and where the industrial commission can establish an
accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during the
new secondary recovery project and the total amount of oil that would have
been produced from the unit if the new secondary recovery project had not
been commenced. For purposes of this paragraph, the total amount of oil
that would have been produced from the unit if the new secondary recovery
project had not been commenced includes both primary production and
production that occurred as a result of the secondary recovery project that
was in existence before July 1, 1991. The industrial commission shall
determine the amount of oil that would have been produced from the unit if
the new secondary recovery project had not been commenced in a manner
that conforms to the practice and procedure used by the commission at the
time the new secondary recovery project is certified.
(4) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there has not been a secondary recovery
project, incremental production means the difference between the total
amount of oil produced from the unit during the tertiary recovery project and
the amount of primary production from the unit. For purposes of this
paragraph, primary production means the amount of oil which would have
been produced from the unit if the tertiary recovery project had not been
commenced. The industrial commission shall determine the amount of
primary production in a manner which conforms to the practice and
procedure used by the commission at the time the project is certified.
(5) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there is or has been a secondary recovery
project, incremental production means the difference between the total
amount of oil produced during the tertiary recovery project and the amount
of production which would be equivalent to the average monthly production
from the unit during the most recent twelve months of normal production
reduced by a production decline rate of ten percent for each year. The
industrial commission shall determine the average monthly production from
the unit during the most recent twelve months of normal production and
must upon request or upon its own motion hold a hearing to make this
determination. For purposes of this paragraph, when determining the most
recent twelve months of normal production the industrial commission is not
required to use twelve consecutive months. In addition, the production
decline rate of ten percent must be applied from the last month in the
twelve-month period of time.

(6) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there is or has been a secondary recovery
project and where the industrial commission can establish an accurate
production decline curve, incremental production means the difference
between the total amount of oil produced from the unit during the tertiary
recovery project and the total amount of oil that would have been produced
from the unit if the tertiary recovery project had not been commenced. For
purposes of this paragraph, the total amount of oil that would have been
produced from the unit if the tertiary recovery project had not been
commenced includes both primary production and production that occurred
as a result of any secondary recovery project. The industrial commission
shall determine the amount of oil that would have been produced from the
unit if the tertiary recovery project had not been commenced in a manner
that conforms to the practice and procedure used by the commission at the
time the tertiary recovery project is certified.
(7) For purposes of determining the exemption provided for in subdivisions c
and d, and with respect to a unit where a tertiary recovery project was in
existence, and where the industrial commission cannot establish an
accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during a
new tertiary recovery project and the amount of production which would be
equivalent to the average monthly production from the unit during the most
recent twelve months of normal production reduced by a production decline
rate of ten percent for each year. The industrial commission shall determine
the average monthly production from the unit during the most recent twelve
months of normal production and shall upon request or upon its own motion
hold a hearing to make this determination. For purposes of this paragraph,
in determining the most recent twelve months of normal production the
industrial commission is not required to use twelve consecutive months. In
addition, the production decline rate of ten percent must be applied from the
last month in the twelve-month period of time.
(8) For purposes of determining the exemption provided for in subdivisions c
and d, and with respect to a unit where a tertiary recovery project was in
existence, and where the industrial commission can establish an accurate
production decline curve, incremental production means the difference
between the total amount of oil produced from the unit during the new
tertiary recovery project and the total amount of oil that would have been
produced from the unit if the new tertiary recovery project had not been
commenced. For purposes of this paragraph, the total amount of oil that
would have been produced from the unit if the new tertiary recovery project
had not been commenced includes both primary production and production
that occurred as a result of the tertiary recovery project that was previously
in existence. The industrial commission shall determine the amount of oil
that would have been produced from the unit if the new tertiary recovery
project had not been commenced in a manner that conforms to the practice
and procedure used by the commission at the time the new tertiary recovery
project is certified.
f. The industrial commission shall adopt rules relating to this exemption which must
include procedures for determining incremental production as defined in
subdivision e.
4. The first three hundred thousand barrels of oil produced during the first thirty-six
months after completion, from a well drilled and completed outside the Bakken and
Three Forks formations is subject to a reduced tax rate of two percent of the gross
value at the well of the oil extracted under this chapter. The tax rate reduction under
this subsection does not apply to a well located within the exterior boundaries of a
reservation, a well located on trust properties outside reservation boundaries as

defined in section 57-51.2-02, or a straddle well as defined in section 57-51.1-07.10
located on reservation trust land, unless a tribe makes an irrevocable election to opt-in
to the tax rate reduction by providing written notice to the tax commissioner. If a tribe
provides notice of its election to opt-in to the tax rate reduction, the tax commissioner
shall apply the tax rate reduction beginning in the month of production after the notice
is received by the tax commissioner.
5. The production from a restimulation well that has been certified as a qualified well by
the industrial commission after August 1, 2023, is subject to a reduced tax rate of
two percent of the gross value at the well of the oil extracted under this chapter for the
first seventy-five thousand barrels of production or for a period of eighteen months
after the month in which oil was first produced from the restimulation well, whichever
occurs first. The tax rate reduction under this subsection does not apply to a well
located within the exterior boundaries of a reservation, a well located on trust
properties outside reservation boundaries as defined in section 57-51.2-02, or a
straddle well located on reservation trust land as defined in section 57-51.1-07.10,
unless a tribe makes an irrevocable election to opt-in to the tax rate reduction by
providing written notice to the tax commissioner. If a tribe provides notice of its election
to opt-in to the tax rate reduction, the tax commissioner shall apply the tax rate
reduction beginning in the month of production after the notice is received by the tax
commissioner. The industrial commission shall certify whether the well qualifies as a
restimulation well under section 57-51.1-01 in a manner that conforms to the practice
and procedure used by the commission at the time the restimulation well is certified.
6. a. The first two hundred fifty thousand barrels of oil produced during the first
thirty-six months after completion from a development incentive well drilled and
completed before July 1, 2028, and certified as a qualified well by the industrial
commission, are exempt from the tax under section 57-51.1-02.
b. For purposes of the exemption under this subsection:
(1) An operator seeking certification of a well as a development incentive well
shall meet the burden of demonstrating to the industrial commission that the
well meets the criteria under subsection 2 of section 57-51.1-01.
(2) An operator seeking certification of a well as a development incentive well
must be classified as one of the following:
(a) An operator with between forty and ninety-nine wells within the
Bakken or Three Forks formations which have been:
[1] Drilled by the operator during the period beginning July 1, 2023,
and ending June 30, 2025; or
[2] Drilled during the period beginning July 1, 2023, and ending June
30, 2025, and acquired by the operator.
(b) An operator with between one hundred and one hundred forty-nine
wells within the Bakken or Three Forks formations which have been:
[1] Drilled by the operator during the period beginning July 1, 2023,
and ending June 30, 2025; or
[2] Drilled during the period beginning July 1, 2023, and ending June
30, 2025, and acquired by the operator.
(c) An operator with one hundred fifty or more wells within the Bakken or
Three Forks formations which have been:
[1] Drilled by the operator during the period beginning July 1, 2023,
and ending June 30, 2025; or
[2] Drilled during the period beginning July 1, 2023, and ending June
30, 2025, and acquired by the operator.
(3) The industrial commission may not certify more than:
(a) Four development incentive wells for an operator classified under
subparagraph a of paragraph 2 of subdivision b;
(b) Eight development incentive wells for an operator classified under
subparagraph b of paragraph 2 of subdivision b; and

(c) Twelve development incentive wells for an operator classified under
subparagraph c of paragraph 2 of subdivision b.
c. The tax exemption under this subsection does not apply to a well located within
the exterior boundaries of a reservation, a well located on trust properties outside
reservation boundaries as defined in section 57-51.2-02, or a straddle well as
defined in section 57-51.1-07.10 located on reservation trust land, unless a tribe
makes an irrevocable election to opt-in to the tax exemption by providing written
notice to the tax commissioner. If a tribe provides notice of its election to opt-in to
the tax exemption, the tax commissioner shall apply the tax exemption beginning
in the month of production after the notice is received by the tax commissioner.
Exemptions from oil extraction tax. (Effective after June 30, 2031) The following
activities are specifically exempted from the oil extraction tax:
1. The activity of extracting from the earth any oil that is exempt from the gross
production tax imposed by chapter 57-51.
2. The activity of extracting from the earth any oil from a stripper well property or
individual stripper well.
3. a. The incremental production from a secondary recovery project which has been
certified as a qualified project by the industrial commission after July 1, 1991, is
exempt from any taxes imposed under this chapter for a period of five years from
the date the incremental production begins.
b. The incremental production from a tertiary recovery project which has been
certified as a qualified project by the industrial commission is exempt from any
taxes imposed under this chapter for a period of ten years from the date the
incremental production begins. Incremental production from a tertiary recovery
project from a horizontal well drilled and completed within the Bakken and Three
Forks formations which has been certified as a qualified project by the industrial
commission is not exempt from July 1, 2015, through June 30, 2017, and is
thereafter exempt from any taxes imposed under this chapter for a period of five
years from July 1, 2017, or the date the incremental production begins, whichever
is later.
c. The incremental production from a tertiary recovery project that injects more than
fifty percent carbon dioxide produced from coal and has been certified as a
qualified project by the industrial commission is exempt from any taxes imposed
under this chapter for a period of twenty years from the date the incremental
production begins or from the date the project is certified by the industrial
commission as meeting the fifty percent or more carbon dioxide produced from
coal injection requirement, whichever is later. To qualify for the exemption under
this subsection, the project must be located outside the Bakken or Three Forks
formations and must use carbon dioxide produced from coal. The incremental
production that has been certified by the industrial commission under this section
must be used to calculate the exemption under this subdivision.
d. The incremental production from a tertiary recovery project that injects more than
fifty percent carbon dioxide produced from coal and has been certified as a
qualified project by the industrial commission is exempt from any taxes imposed
under this chapter for a period of ten years from the date the incremental
production begins or from the date the project is certified by the industrial
commission as meeting the fifty percent or more carbon dioxide produced from
coal injection requirement, whichever is later. To qualify for the exemption under
this subsection, the project must be located within the Bakken or Three Forks
formations and must use carbon dioxide produced from coal. The incremental
production that has been certified by the industrial commission under this section
must be used to calculate the exemption under this subdivision.
e. For purposes of this subsection, incremental production is defined in the following
manner:
(1) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where there has not been a secondary recovery

project, incremental production means the difference between the total
amount of oil produced from the unit during the secondary recovery project
and the amount of primary production from the unit. For purposes of this
paragraph, primary production means the amount of oil which would have
been produced from the unit if the secondary recovery project had not been
commenced. The industrial commission shall determine the amount of
primary production in a manner which conforms to the practice and
procedure used by the commission at the time the project is certified.
(2) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where a secondary recovery project was in existence
prior to July 1, 1991, and where the industrial commission cannot establish
an accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during a
new secondary recovery project and the amount of production which would
be equivalent to the average monthly production from the unit during the
most recent twelve months of normal production reduced by a production
decline rate of ten percent for each year. The industrial commission shall
determine the average monthly production from the unit during the most
recent twelve months of normal production and must upon request or upon
its own motion hold a hearing to make this determination. For purposes of
this paragraph, when determining the most recent twelve months of normal
production the industrial commission is not required to use twelve
consecutive months. In addition, the production decline rate of ten percent
must be applied from the last month in the twelve-month period of time.
(3) For purposes of determining the exemption provided for in subdivision a and
with respect to a unit where a secondary recovery project was in existence
before July 1, 1991, and where the industrial commission can establish an
accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during the
new secondary recovery project and the total amount of oil that would have
been produced from the unit if the new secondary recovery project had not
been commenced. For purposes of this paragraph, the total amount of oil
that would have been produced from the unit if the new secondary recovery
project had not been commenced includes both primary production and
production that occurred as a result of the secondary recovery project that
was in existence before July 1, 1991. The industrial commission shall
determine the amount of oil that would have been produced from the unit if
the new secondary recovery project had not been commenced in a manner
that conforms to the practice and procedure used by the commission at the
time the new secondary recovery project is certified.
(4) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there has not been a secondary recovery
project, incremental production means the difference between the total
amount of oil produced from the unit during the tertiary recovery project and
the amount of primary production from the unit. For purposes of this
paragraph, primary production means the amount of oil which would have
been produced from the unit if the tertiary recovery project had not been
commenced. The industrial commission shall determine the amount of
primary production in a manner which conforms to the practice and
procedure used by the commission at the time the project is certified.
(5) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there is or has been a secondary recovery
project, incremental production means the difference between the total
amount of oil produced during the tertiary recovery project and the amount
of production which would be equivalent to the average monthly production
from the unit during the most recent twelve months of normal production

reduced by a production decline rate of ten percent for each year. The
industrial commission shall determine the average monthly production from
the unit during the most recent twelve months of normal production and
must upon request or upon its own motion hold a hearing to make this
determination. For purposes of this paragraph, when determining the most
recent twelve months of normal production the industrial commission is not
required to use twelve consecutive months. In addition, the production
decline rate of ten percent must be applied from the last month in the
twelve-month period of time.
(6) For purposes of determining the exemption provided for in subdivision b and
with respect to a unit where there is or has been a secondary recovery
project and where the industrial commission can establish an accurate
production decline curve, incremental production means the difference
between the total amount of oil produced from the unit during the tertiary
recovery project and the total amount of oil that would have been produced
from the unit if the tertiary recovery project had not been commenced. For
purposes of this paragraph, the total amount of oil that would have been
produced from the unit if the tertiary recovery project had not been
commenced includes both primary production and production that occurred
as a result of any secondary recovery project. The industrial commission
shall determine the amount of oil that would have been produced from the
unit if the tertiary recovery project had not been commenced in a manner
that conforms to the practice and procedure used by the commission at the
time the tertiary recovery project is certified.
(7) For purposes of determining the exemption provided for in subdivisions c
and d, and with respect to a unit where a tertiary recovery project was in
existence, and where the industrial commission cannot establish an
accurate production decline curve, incremental production means the
difference between the total amount of oil produced from the unit during a
new tertiary recovery project and the amount of production which would be
equivalent to the average monthly production from the unit during the most
recent twelve months of normal production reduced by a production decline
rate of ten percent for each year. The industrial commission shall determine
the average monthly production from the unit during the most recent twelve
months of normal production and shall upon request or upon its own motion
hold a hearing to make this determination. For purposes of this paragraph,
in determining the most recent twelve months of normal production the
industrial commission is not required to use twelve consecutive months. In
addition, the production decline rate of ten percent must be applied from the
last month in the twelve-month period of time.
(8) For purposes of determining the exemption provided for in subdivisions c
and d, and with respect to a unit where a tertiary recovery project was in
existence, and where the industrial commission can establish an accurate
production decline curve, incremental production means the difference
between the total amount of oil produced from the unit during the new
tertiary recovery project and the total amount of oil that would have been
produced from the unit if the new tertiary recovery project had not been
commenced. For purposes of this paragraph, the total amount of oil that
would have been produced from the unit if the new tertiary recovery project
had not been commenced includes both primary production and production
that occurred as a result of the tertiary recovery project that was previously
in existence. The industrial commission shall determine the amount of oil
that would have been produced from the unit if the new tertiary recovery
project had not been commenced in a manner that conforms to the practice
and procedure used by the commission at the time the new tertiary recovery
project is certified.

f. The industrial commission shall adopt rules relating to this exemption which must
include procedures for determining incremental production as defined in
subdivision e.
4. The first three hundred thousand barrels of oil produced during the first thirty-six
months after completion, from a well drilled and completed outside the Bakken and
Three Forks formations is subject to a reduced tax rate of two percent of the gross
value at the well of the oil extracted under this chapter. The tax rate reduction under
this subsection does not apply to a well located within the exterior boundaries of a
reservation, a well located on trust properties outside reservation boundaries as
defined in section 57-51.2-02, or a straddle well as defined in section 57-51.1-07.10
located on reservation trust land, unless a tribe makes an irrevocable election to opt-in
to the tax rate reduction by providing written notice to the tax commissioner. If a tribe
provides notice of its election to opt-in to the tax rate reduction, the tax commissioner
shall apply the tax rate reduction beginning in the month of production after the notice
is received by the tax commissioner.
5. The production from a restimulation well that has been certified as a qualified well by
the industrial commission after August 1, 2023, is subject to a reduced tax rate of
two percent of the gross value at the well of the oil extracted under this chapter for the
first seventy-five thousand barrels of production or for a period of eighteen months
after the month in which oil was first produced from the restimulation well, whichever
occurs first. The tax rate reduction under this subsection does not apply to a well
located within the exterior boundaries of a reservation, a well located on trust
properties outside reservation boundaries as defined in section 57-51.2-02, or a
straddle well located on reservation trust land as defined in section 57-51.1-07.10,
unless a tribe makes an irrevocable election to opt-in to the tax rate reduction by
providing written notice to the tax commissioner. If a tribe provides notice of its election
to opt-in to the tax rate reduction, the tax commissioner shall apply the tax rate
reduction beginning in the month of production after the notice is received by the tax
commissioner. The industrial commission shall certify whether the well qualifies as a
restimulation well under section 57-51.1-01 in a manner that conforms to the practice
and procedure used by the commission at the time the restimulation well is certified.