By Earley H.B. No. 1736 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the establishment of an economic limit factor for 1-3 certain oil production and to oil and gas production as the result 1-4 of new drilling technology. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Subchapter B, Chapter 202, Tax Code, is amended 1-7 by adding Section 202.055 to read as follows: 1-8 Sec. 202.055. POLICY. The legislature finds and declares 1-9 that the maximization of the economic life of the oil reserves in 1-10 Texas is a matter of highest priority and urgency. Maximizing the 1-11 economic life of the oil reserves in Texas is vital to the nation, 1-12 the state, and the people of Texas. It is the policy of the State 1-13 of Texas to maintain the current economic life of the oil reserves 1-14 in Texas and to increase the economic life of the oil reserves in 1-15 Texas. Further, it is the policy of the State of Texas to 1-16 encourage the development and use of all current and state of the 1-17 art oil and gas recovery processes and technologies in the 1-18 production of the oil and gas reserves in Texas. 1-19 SECTION 2. Subchapter C, Chapter 202, Tax Code, is amended 1-20 by adding Section 202.056 to read as follows: 1-21 Sec. 202.056. ECONOMIC LIMIT FACTOR OF CERTAIN OIL. (a) In 1-22 this section: 1-23 (1) "Base production rate" means the volume of fluids, 1-24 if any, reported on a monthly basis for an oil well to the 2-1 commission on the proper form for a period of 12 months. 2-2 (2) "Commission" means the Railroad Commission of 2-3 Texas. 2-4 (3) "Current production rate" means the daily volume 2-5 of fluids produced from an oil well as properly reported to the 2-6 commission for the applicable month. 2-7 (4) "Exemption period" means each month during which 2-8 neither the price quoted for West Texas Intermediate nor the price 2-9 quoted for West Texas Sour, as reported in the Wall Street Journal 2-10 on the first Monday of the month, is above $25 per barrel. 2-11 (b) To maximize the recovery of the oil reserves in Texas, 2-12 to lessen the dependence on imported oil, and to encourage the 2-13 exploration, development, and production of Texas oil reserves, the 2-14 legislature establishes an economic limit factor of .25 during the 2-15 exemption period for the first three barrels of oil of an oil 2-16 well's current production rate after September 1, 1993, and the 2-17 rate imposed by this chapter shall be multiplied by the economic 2-18 limit factor in calculating the tax due. 2-19 (c) To maximize the recovery of the oil reserves in Texas, 2-20 to lessen the dependence on imported oil, and to encourage the 2-21 exploration, development, and production of Texas oil reserves, the 2-22 legislature establishes an economic limit factor of .50 during the 2-23 exemption period for oil produced after September 1, 1993, from an 2-24 oil well that had a base production rate less than or equal to 10 2-25 barrels of oil per day and has a current production rate less than 2-26 or equal to 10 barrels of oil per day and 90 percent of the current 2-27 production rate is water. The tax imposed by this chapter on the 3-1 first three barrels of production shall be calculated in accordance 3-2 with Subsection (b) and the tax rate imposed by this chapter on the 3-3 remaining production shall be multiplied by the economic limit 3-4 factor set out in this subsection in calculating the tax due. 3-5 (d) The operator shall verify and report to the comptroller, 3-6 upon a form and in the manner prescribed by the comptroller, the 3-7 current production rate of each oil well either on an individual 3-8 well basis or on a lease basis for the applicable oil wells on the 3-9 lease for which the operator is applying Subsections (b) and (c). 3-10 The operator shall retain a copy of all reports and forms used to 3-11 report the well's base production rate and the well's current 3-12 production rate to the commission for a period of 5 years. The 3-13 comptroller shall have the right to audit said reports and forms 3-14 for a period of 5 years from the month in which the operator filed 3-15 the report with the comptroller. The comptroller shall prescribe a 3-16 reasonable penalty and interest for violations of the terms of this 3-17 section in an amount not to exceed 3 times the amount of the 3-18 under-reported tax due. 3-19 SECTION 3. Subchapter B, Chapter 201, Tax Code, is amended 3-20 by adding Section 201.058 to read as follows: 3-21 Sec. 201.058. NEW TECHNOLOGY PRODUCTION TAX EXEMPTION. (a) 3-22 To promote new technology for the exploration, development, and 3-23 production of natural gas and crude oil within the state, all 3-24 natural gas and crude oil produced from any well drilled after 3-25 September 1, 1993, using horizontal well technology, or some other 3-26 new drilling technology certified by the Railroad Commission of 3-27 Texas, shall be exempt from the tax imposed by this chapter for a 4-1 period of 12 months beginning with the first day of the fourth 4-2 month in which production of natural gas or crude oil production 4-3 was sold in commercial quantities. 4-4 (b) The Railroad Commission of Texas shall prescribe 4-5 reasonable regulations for the certification of new drilling 4-6 technology. 4-7 (c) The operator of each well drilled after September 1, 4-8 1993, using horizontal well technology, or some other new 4-9 technology certified by the Railroad Commission of Texas, shall 4-10 verify and report to the comptroller, upon a form and in a manner 4-11 prescribed by the comptroller, within 30 days of the date of first 4-12 production from the well the identification number of the well, a 4-13 copy of the drilling permit issued by the Railroad Commission of 4-14 Texas, the date of first production as verified by attaching a copy 4-15 of the first production report submitted to the Railroad Commission 4-16 of Texas, and the date the exemption provided for in Subsection (a) 4-17 shall cease. 4-18 SECTION 4. Subchapter B, Chapter 202, Tax Code, is amended 4-19 by adding Section 202.055 to read as follows: 4-20 Sec. 202.055. NEW TECHNOLOGY PRODUCTION TAX EXEMPTION. (a) 4-21 To promote new technology for the exploration, development, and 4-22 production of natural gas and crude oil within the state, all 4-23 natural gas and crude oil produced from any well drilled after 4-24 September 1, 1993, using horizontal well technology, or some other 4-25 new drilling technology certified by the Railroad Commission of 4-26 Texas, shall be exempt from the tax imposed by this chapter for a 4-27 period of 12 months beginning with the first day of the fourth 5-1 month in which production of natural gas or crude oil production 5-2 was sold in commercial quantities. 5-3 (b) The Railroad Commission of Texas shall prescribe 5-4 reasonable regulations for the certification of new drilling 5-5 technology. 5-6 (c) The operator of each well drilled after September 1, 5-7 1993, using horizontal well technology, or some other new 5-8 technology certified by the Railroad Commission of Texas, shall 5-9 verify and report to the comptroller, upon a form and in a manner 5-10 prescribed by the comptroller, within 30 days of the date of first 5-11 production from the well the identification number of the well, a 5-12 copy of the drilling permit issued by the Railroad Commission of 5-13 Texas, the date of first production as verified by attaching a copy 5-14 of the first production report submitted to the Railroad Commission 5-15 of Texas, and the date the exemption provided for in Subsection (a) 5-16 shall cease. 5-17 SECTION 5. The importance of this legislation and the 5-18 crowded condition of the calendars in both houses create an 5-19 emergency and an imperative public necessity that the 5-20 constitutional rule requiring bills to be read on three several 5-21 days in each house be suspended, and this rule is hereby suspended.