1. (a) Election of cost recovery periods for new discovery gas and high-cost gas.

   1. (1) For each natural gas well, a producer may only once obtain certification from the Director of the Oil and Gas Commission to pay the reduced severance tax rates for new discovery gas or high-cost gas.
   2. (2) Following the conclusion of the cost recovery periods of subdivision (b)(1) of this section or subdivision (c)(1) of this section, a producer may request certification to pay the reduced severance tax rate for marginal gas. Example 1: A producer completes a well in a shale formation, and the well is certified by the Director of the Oil and Gas Commission as a high- cost gas well. The producer is permitted to pay the reduced severance tax rate provided in 26 CAR § 167-105(a)(2) for high-cost gas. The producer's high-cost gas reduced severance tax period expires, and the producer is able to obtain natural gas production in the same well but in a new formation. The producer may not request certification to pay at the reduced severance tax rates for new discovery gas or high-cost gas. The producer may request certification to pay at the reduced severance tax rate for marginal gas. Example 2: A producer completes a well that is certified by the Director of the Oil and Gas Commission as a new discovery gas well and is permitted to pay the reduced severance tax rate provided in 26 CAR § 167-105(a)(1). The producer's new discovery gas reduced severance tax period expires, and the producer is able to obtain natural gas production in the same well but in a shale formation. The producer may not request certification to pay at the reduced severance tax rates for new discovery gas or high-cost gas. The producer may request certification to pay at the reduced severance tax rate for marginal gas.

2. (b) New discovery gas.

   1. (1)

      1. (A) The one and one-half percent (1.5%) severance tax rate on new discovery gas shall apply to the first twenty-four (24) consecutive calendar months beginning on the date of first production from the new discovery gas well, regardless of whether production commenced prior to January 1, 2009.
      2. (B) Provided, however, that all production attributable to the period prior to January 1, 2009, shall be taxed at the rate in effect prior to January 1, 2009.
   2. (2) At the end of the twenty-four-month period, the severance tax rate under 26 CAR § 167-105(a)(3) or 26 CAR § 167-105(a)(4), as applicable, shall apply.

3. (c) High-cost gas.

   1. (1)

      1. (A) The one and one-half percent (1.5%) severance tax rate on high-cost gas shall apply to the first thirty-six (36) consecutive calendar months beginning on the date of first production from the high-cost gas well, regardless of whether production commenced prior to January 1, 2009.
      2. (B) Provided, however, that all production attributable to the period prior to January 1, 2009, shall be taxed at the rate in effect prior to January 1, 2009.

   2. (2) If a high-cost gas well has not achieved payout by the end of the thirty-six-month period, the one and one-half percent (1.5%) severance tax rate of 26 CAR § 167-105(a)(2) may be extended until the earlier to occur of:

      1. (A) Payout of the high-cost gas well; or
      2. (B) Twelve (12) months following the expiration of the original thirty-six-month period.

   3. (3)

      1. (A) In order to request an extension of the thirty-six-month high-cost gas cost recovery period, a producer of a high-cost well shall furnish the Secretary of the Department of Finance and Administration an initial payout statement, in a form to be prescribed by the secretary, setting forth the following:

4. (i) The producer's cumulative costs of drilling and completing the high-cost gas well;

   1. (ii) The producer's cumulative costs of operating the high-cost gas well through the end of the last month of the payout period reflected on the initial payout statement;

      1. (iii) The total volume of gas production from the high-cost gas well through the end of the last month of the payout period reflected on the initial payout statement; and

         1. (iv) The total actual cash receipts received from the production of natural gas from the high-cost gas well through the end of the last month of the payout period reflected on the initial payout statement.
      2. (B) The secretary shall make the determination whether the extension requested pursuant to subdivision (c)(2) of this section shall be granted within ten (10) business days of receipt of the application and initial payout statement from the producer.

   2. (4)

      1. (A) For each high-cost gas well a producer has requested an extension of the thirty-six-month high-cost gas recovery period, the producer shall furnish a verified final payout statement to the director within twenty-five (25) days after the end of the month in which the earlier of the following occurs:

         1. (i) Payout of the high-cost gas well; or
         2. (ii) Twelve (12) months following the expiration of the original thirty-six-month period.

      2. (B) The producer's final payout statement shall be in a form to be prescribed by the director and set forth the following:

         1. (i) The producer's cumulative cost of operating the high-cost gas well through the end of the last month reflected on the final payout statement;
         2. (ii) The volume of gas production from the high-cost gas well through the end of the last month reflected on the final payout statement;
         3. (iii) The actual cash receipts received from production from the high-cost gas well through the end of the last month reflected on the final payout statement; and
         4. (iv) The remaining dollar amount needed to achieve payout for the high-cost gas well, if applicable.
   3. (5) At the later of the expiration of the thirty-six-month period provided in subdivision (c)(1) of this section or any allowed extension provided in subdivision (c)(2) of this section, the severance tax rate of 26 CAR § 167-105(a)(3) or 26 CAR § 167-105(a)(4), as applicable, shall apply to high-cost gas.

Codification Notes: This section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "Source: Ark. Code Ann. § 26-58-127."