Revenue Administrative Bulletin 1992-8

Approved: March 31, 1992



(Replaces Revenue Administrative Bulletin 1989-15)

RAB-92-8. This bulletin expands upon the discussion contained in Revenue Administrative Bulletin 1989-15 by examining the stripper or marginal classification of leased property containing multiple wells and single well bores with perforations into the same or separate reservoirs. It states that individual wells on leased property may be classified as stripper or marginal if separate production records are maintained. It states that the classification of the property will be based upon the maximum efficient rates of production of all wells on the lease owned by the lessee producer. The expanded discussion can be found at the end of this bulletin.

This bulletin also explains how the statute of limitations contained in the severance tax act applies to the reclassification of wells as marginal or stripper, and how it applies to refunds based on the reclassification.

Law and Administration

The Michigan severance tax act [MCL 205.303(2); MSA 7.353(2)] provides for a severance tax rate on oil and liquid phase condensate severed from marginal properties or from stripper wells that is lower than the tax rate for regular oil wells. The lower rate is not applicable until the well in question qualifies as marginal or stripper property under the definition outlined in MCL 205.303(2); MSA 7.353(2). To qualify for the lower rate, the well must fall into the marginal or stripper definition for a qualifying period of 12 consecutive months. The 12-month qualifying period used to prove marginal or stripper status need not fall within the 4-year statute of limitations set forth in the severance tax act.

During the 12-month qualifying period, the oil and liquid phase condensate production is to be reported at the higher tax rate. At the end of the 12-month qualifying period, assuming the qualifications are met, amended severance tax returns may be filed. Any overpayment due to the higher tax rate having been paid over the 12 months may be considered for refund.

The department requires that the amended returns for the periods affected show the volume of production, the value of the product, and the tax paid for each well. For those wells that qualify as marginal or stripper properties, the lower tax rate is to be shown and the overpayment determined. No refund will be made and no credits shall be taken until such claim for refund is accepted by the department.

The statute of limitations found in the severance tax act [MCL 205.306(3); MSA 7.356(3)] applies to refund claims based on the reclassification of a well as marginal or stripper. Such claims must be made within 4 years after the date the severance tax was paid. A refund claim is subject to audit by the department for 4 years after the date set for the filing of the required return or the date the return was filed, whichever is later.


Stripper Well Crude Oil. Oil produced and sold from a property whose maximum average daily production of crude oil per well during any consecutive 12-month period does not exceed 10 barrels.

Marginal Property Crude Oil. Oil severed from a property whose average daily production (excluding condensate recovered in nonassociated production) per well during any preceding consecutive 12-month period beginning after December 31, 1972 did not exceed the number of barrels shown in the following table for the average completion depth:

Average Completion Depth in Feet Barrels Per Day
2,000 or more but less than 4,000 20 or less
4,000 or more but less than 6,000 25 or less
6,000 or more but less than 8,000 30 or less
8,000 or more 35 or less

Terms used in these guidelines shall have the same meaning as when used in comparable context in the laws and regulations of the United States relating to federal energy regulation unless a different meaning is clearly required. The department will follow the Department of Energy's policy in deeming the classification of "stripper well crude oil" and "crude oil from marginal properties" to be a permanent classification of the property.

Multiple Wells or Perforations

The term "property" refers to the lease of each separate lessee (producer). As such, the lease may include any number of individual wells.

When total production of the property (lease) falls within the production limits set out above, same having been determined on a per well average, then that property (lease) qualifies as stripper or marginal. The marginal property maximum production limits are based on the average completion depth when said property has multiple well completions.

Multiple perforations in a single bore, where each perforation is within the same reservoir, are treated as a single well with a completion depth equal to the deepest perforation.

Multiple perforations in a single bore, where each perforation is in a separate reservoir, are treated as separate wells for determining average production on a per well basis. Completion depth in this situation is the depth of the perforation.

In the event that the total property (lease) production exceeds the average daily production per well limits, the producer is not precluded from qualifying an individual well or wells on the lease as stripper or marginal, provided that production records are maintained supporting individual well production.

In determining the property (lease) classification, the production for all wells on the lease shall be at the maximum efficient rate of production and must be wells owned by the same lessee (producer) entity. For purposes of this bulletin, "maximum efficient rate" means the maximum feasible rate that will not decrease maximum practical ultimate recovery.