Texas HB 591: The Severance Tax Exemption Every Permian Operator Should Know About
If you're flaring gas in Texas, there's a state law that exempts that gas from severance tax when it's consumed on-site instead. Most operators we talk to haven't heard of it. Here's what it says, who qualifies, and how to claim it.
Governor Abbott signed House Bill 591 into law on June 2, 2023, and it took effect September 1 of that year. The bill adds Section 201.061 to the Texas Tax Code and does one simple thing: gas produced from a qualifying well that is consumed on the well site — and would otherwise have been lawfully vented or flared — is exempt from the Texas gas severance tax.
The gas severance tax in Texas is 7.5% of market value. On volumes that were previously flared (and therefore untaxed, since there's no sale), that might sound academic. But the moment you redirect that gas to a generator powering a mobile data center, there is a sale — or at least a taxable event. HB 591 makes sure that taxable event doesn't create a new cost that kills the economics of putting the gas to work.
What counts as a qualifying well?
The law defines two paths to qualification. A qualifying well is one that:
- Is connected to a pipeline where takeaway capacity is insufficient to meet the gas demand from the well during the 12-month period following the application — meaning the pipeline exists but can't move all the gas. The well must use all available pipeline capacity first; only the excess qualifies.
- Is not connected to a pipeline at all, and connection is technically or commercially unfeasible — but the well operator has contractually dedicated the well, the gas, or the lease to a pipeline operator. Alternatively, the Railroad Commission must have authorized flaring from the well for at least 30 days during the year preceding the application.
In both cases, the gas must be consumed within 1,000 feet of the well. Mobile data centers and containerized gensets parked at the wellhead fit this requirement naturally — that's the whole point of behind-the-meter gas-to-power.
How to get certified
The process runs through two agencies: the Railroad Commission of Texas (RRC) and the Texas Comptroller.
Step 1 — RRC certification. The well operator (and pipeline operator, if applicable) applies to the RRC to certify the well as a qualifying well. The RRC reviews the application and, if approved, issues a certificate. That certificate is good for 12 months — you have to recertify annually.
Step 2 — Comptroller exemption. The person responsible for paying the severance tax applies annually to the Comptroller for the exemption, providing the RRC certificate as documentation. The Comptroller may request additional information to verify eligibility.
If the well stops qualifying at any point — for example, pipeline capacity becomes available — the RRC, the well operator, or the pipeline operator must notify the Comptroller in writing immediately. The exemption isn't retroactive and doesn't cover tax liability that accrued before September 1, 2023.
Why this matters for operators
The economics of flare gas mitigation already pencil at most Permian sites with consistent volumes. HB 591 makes them pencil better by removing a potential 7.5% tax bite on gas that was previously just burning off. For the operator, it's a clean win: the gas generates revenue instead of emissions, and the state doesn't tax you for doing the right thing.
For operators who haven't explored on-site gas monetization because the margins looked tight, this exemption can be the difference between a go and a no-go — especially on smaller-volume wells where every dollar per Mcf matters.
What operators often get wrong
A few things we see in practice:
- Assuming it's automatic. It's not — you have to apply to the RRC, get a certificate, then apply to the Comptroller. The paperwork isn't heavy, but it doesn't happen by itself.
- Forgetting the 1,000-foot rule. The gas has to be consumed within 1,000 feet of the well. Site layout matters. If your genset pad is farther than that, the exemption doesn't apply.
- Missing the annual renewal. The RRC certificate expires every 12 months. Mark the calendar.
- Not using available pipeline capacity first. If the well is connected to a pipeline, you must use all available takeaway capacity before routing gas to on-site consumption. The exemption covers the excess, not the whole stream.
The broader picture
HB 591 was authored by Representative Capriglione and sponsored by Senator Blanco. The legislative analysis notes that redirecting gas from a flare to a generator results in roughly a 63% decrease in carbon emissions and a 99% decrease in methane emissions. The bill passed with broad bipartisan support — reducing flaring while creating economic activity is one of the rare issues both sides agree on.
The RRC now accepts applications for severance tax incentive certification online through the RRC Online System using Form ST-1. The process is straightforward, and the RRC's Well Compliance Analysts can answer questions at 512-463-6975.
Bottom line
If you're flaring or venting gas in Texas, HB 591 removes a tax barrier to putting that gas to productive use on-site. The exemption is there — you just have to claim it. We help operators navigate the full process, from evaluating whether a site qualifies through RRC certification and deployment of on-site power and compute infrastructure.
Want to know if your wells qualify?
Tell us your well situation and we'll walk through the HB 591 qualification criteria with you — no obligation.
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