Case Information

*1 Txm ATTO~Y GENERNL OF %YExAs AUSTIN II. TEXAS Honorable George~ Ii. Sheppard

Comptroller of Public Accounts

Austin, Texas Opinion No. 0-4188

Bear Sir: Re: Taxability of the business of maklng core analysis and various fluid tests .ln all and gas wells under the oil well servioing tax statute.

This is in reply togDur request for our opinion as to taxability under Section I of Article H.B. No. Aets of the 47th of certain oll'well serglces performed by Core Laboratories, zYatures .

Th&partPcular ser+lces about whioh you inquire are described by yoti as followst

"A part of said s&ices'consists ~of the

workof the company in.analyzing.co~es taken from 011 wells., Core Laboratodes; Ino.* does not take the coreSfrom the wells, but the cores ax delivered to it. +ls the core 1s removed froti,,tge well by the operator or~contract+ engaged in drilling the well, the core is delivered to Core Laboratories, ,Inc. An analysisof the substances thetiof,is made by Core Laboratories ln its Iaboratories, which analysis is furnished ,to the client; Core LaboFatorles, Inc., '~ ln connection with this.'work does~ not make sny survey or test In any oil or gas well.

“A,Portion of &he Berviaes~ relates Co, the

analysis of bottom-h&i fltiids, and in this servlke Core Laboratories, Inc., lowers it8 oontainer into the well and obtalna a sample' k&tha'f~uids'akd gaSes from the bottom of the well, which sample does not con- tain sand or earth. The sample contained in the con- tainer Is t&en to Core Laboratbrlest Dallas Lk%boratory and analyzed. The analysis determines the properties of the gas and fluid content. It does not suryey, test or analyze the sand or formation of the earth in any 011 or gas well.

"A portion of the servleres consists 3.n the taking by this company of a bottKim-tile PressuIW test.

Honorable George A. SheppaPd, Page 2 o-4188

By means of a gauge lowered into tha well the pres-

sure of the fluid at the bottom of the weil is

determlned. The pressure is l+ew+e tested at.. ._ _ . ._ -. otnar poznte zn tne well m oraer co correlate cne

bottom-hole pressure test above described. The only

purpose of this test Is to determine by the pressure

gauge the preseure exerted at the bottom of the well

by the column of fluid ln the well.

"Iv. “A portion of the services relates to a test m&de by Core Laboratories, Inc., by means of

placing an instrument In the bottom of the hole of

the wall to record decreases lr,the pressure at the

bottom of the well occasioned by the flow of 011.

The amount of 011 which is produced during this ln-

terval is measurea and Its ratio to the decline ln

the bottom-hole pressure Is known as the productivity

tidex of the well. No test or survey of sands or

formation of the earth in sny o$!l or gas well is made

In this test."

It Is out opinion that'all four of the services outlined

above come wlthln the Intended scope of .the Act. we quote .irqm .Subsectlon (b) of Section 1 of Artlc.le House Bill No. and underline that por- tion thereof which we billeve cover8 the aescrkbed services.

"(b) Every person @I this State engaged in,the buslnesaaf fumniBhi.ng any servlC@ or perform-

ing any 'duty for ofhsrs for a OonsMeration or compen-

sation, with the use of ~IQK device, tools, &Hzumenta

or equlpm,ent, eleotrioal, mec$aniaal, or otherwise or

by uieans of anychem%aaX, eleottiioal, or mechanlcai

process when such aervlce 18 performed in connecfion lth the tlng f tn t f 3.1 or. gas ng

%I or ~!?~ho&& or"a~~~le~~he"f~t"ion~of

such wells or the surveylw ortesting of the sands

or other formations of the earth in any such ol.1 or

gas wells."

Although Core Laboratories, Inc., may not itself "take the .:oores from the wells' it can hardly bye denied that it ,is Ufurnishing . . . service , . . for others for a conaideratlon . . . by means of . . . . . chemical, electrical or mechanical prooess . . . .ln+onnectlon wfth the surveying or testing of sands or other formations of thecearth . . . ...' The analylyeis of samples Is one of the recognized methods of test- the formatlone:ln oil or gas wells. Surely It cannot be oontended that the statute was Intended to apply only when the analysis ia aotually made in the well, or where the same &ersbn or firm both extracts the aoze and snalyees the same.

The services described in paZ%3graphB fI, III and m all

relate to tests of the properties of fluids and grs, In wells as distlnguls~ from tests of solid materials found in the wells. The statute expressly enumerates 'the suveylng or testing of the sands or other formations of t@c *3 o-418a:

Ronorable George H. Sheppard, Page 3 earth ln any such oil or gas wells." We,belleve th@t this language 1s intended to embrace not only the solid material aCtuall$ composing the sand, but the gas, 011 or water with which the sand may be saturated or other fqrmatlons permeated. It Is to be remembered that the purpose of drilling oil @nd gas wells is to produce 011 or gas. It would be strange indeed If a statute, patently designed to tsx technlcal'services customarl rendered by persons other than the driller ln connection with the efficient completion and operation of ail and gas wells, were construed so as to tax the testing of non-productive formatlona through which the drill must necessarily pass, and exempt the.testlng of the properties of the very product, I.e., gas and 011, whlah Is sought to be produoed. We therefore are of the opinion that analysis of bottom-hole fluids, the testing of pressures at various polnts 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.

Yours very truly .ATTQHNKY QHNERAL OF TEXAS By s/Walter R. Ko& Walter R. Koch Assistant, APPRUVIDJAR

s/ Qrover Sellers

FXRST ASSISTANT

ATTQRlWQEbiIEBAL

Approved Opinion Committee by 8.4 C.C.d. Chairman