By Rudd H.B. No. 2723
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to tax and regulatory relief as incentives for the
1-3 production of certain gas that is difficult or expensive to produce
1-4 and relating to a reduced oil production tax rate for oil from
1-5 certain enhanced recovery projects.
1-6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-8 follows:
1-9 Sec. 201.057. Temporary Exemption of Certain High-Cost Gas.
1-10 (a) In this section:
1-11 (1) "Commission" means the Railroad Commission of
1-12 Texas.
1-13 (2) "High-cost gas" means:
1-14 (A) high-cost natural gas as described by
1-15 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-16 3317), as that section exists on January 1, 1989, without regard to
1-17 whether that section is in effect or whether a determination has
1-18 been made that the gas is high-cost natural gas for purposes of
1-19 that Act; or
1-20 (B) all gas produced from oil wells or gas wells
1-21 within a commission approved co-production project.
1-22 (3) "Commission approved co-production project" means
1-23 a reservoir development project in which the commission has
2-1 recognized that water withdrawals from an oil or gas reservoir in
2-2 excess of specified minimum volumes will result in recovery of
2-3 additional oil and/or gas from the reservoir that would not be
2-4 produced by conventional production methods and where operators of
2-5 wells completed in the reservoir have begun to implement commission
2-6 requirements to withdraw such volumes of water and dispose of such
2-7 water outside the subject reservoir. Reservoirs potentially
2-8 eligible for this designation shall be limited to those reservoirs
2-9 in which oil and/or gas has been bypassed by water encroachment
2-10 caused by production from the reservoir and such bypassed oil
2-11 and/or gas may be produced as a result of reservoir-wide
2-12 high-volume water withdrawals of natural formation water.
2-13 (4) "High-volume water withdrawals" means the
2-14 withdrawal of water from a reservoir in an amount sufficient to
2-15 dewater portions of the reservoir containing oil and/or gas
2-16 previously bypassed by water encroachment.
2-17 (5) "Co-production" means the permanent removal of
2-18 water from an oil and/or gas reservoir in an effort to lower the
2-19 gas-water contact or oil-water contact in the reservoir or to
2-20 reduce reservoir pressure to recover entrained hydrocarbons from
2-21 the reservoir that would not be produced by conventional primary or
2-22 secondary production methods.
2-23 (6) "Operator" means the person responsible for the
2-24 actual physical operation of an oil or <a> gas well.
2-25 (b) High-cost gas as defined in Subsection (a)(2)(A) of this
3-1 section produced from a well that is spudded or completed between
3-2 May 24, 1989, <the date of enactment> and September 1, 1996, is
3-3 exempt from the tax imposed by this chapter during the period
3-4 beginning September 1, 1991, and ending August 31, 2001. High-cost
3-5 gas as defined in Subsection (a)(2)(B) of this section produced
3-6 from any well regardless of spud date or completion date is
3-7 eligible for refunds of tax paid and exemption from the tax imposed
3-8 by this chapter for production occurring during the period
3-9 beginning the first day of the month after commission approval of a
3-10 co-production project and ending August 31, 2001; provided,
3-11 however, in the event co-production ceases, the exemption shall
3-12 also cease on the first day of the first calendar month that begins
3-13 on or after the 91st day following the date of termination of
3-14 co-production operations. Tax must be paid when due at the rate
3-15 provided in Section 201.052 of this code for all high-cost gas, as
3-16 defined in Subsection (a)(2)(B) of this section, produced on or
3-17 before July 31, 1995. On or after September 1, 1995, the operator
3-18 may apply to the comptroller for a refund and shall be entitled to
3-19 receive a refund of all taxes paid on such high-cost gas produced
3-20 on or after the first day of the calendar month after commission
3-21 approval of the co-production project from which such gas was
3-22 produced and that is otherwise eligible for the tax exemption.
3-23 (c) The operator of a proposed or existing gas well,
3-24 including a gas well that has not been completed, or the operator
3-25 of any proposed or existing oil or gas well within a commission
4-1 approved co-production project, may apply to the commission for
4-2 certification that the well produces or will produce high-cost gas.
4-3 The application may be made but is not required to be made
4-4 concurrently with a request for a determination that gas produced
4-5 from the well is high-cost natural gas for purposes of the Natural
4-6 Gas Policy Act of 1978 (15 U.S.C. Section 3301 et seq.) or with a
4-7 request for commission approval of a co-production project. The
4-8 commission may require an applicant to provide the commission with
4-9 any relevant information required to administer this section. For
4-10 purposes of this section, a determination that gas is high-cost
4-11 natural gas for purposes of the Natural Gas Policy Act of 1978 made
4-12 according to the definition of high-cost natural gas provided by
4-13 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
4-14 3317), as that section exists on January 1, 1989, or a
4-15 determination that gas is produced from within a commission
4-16 approved co-production project is a certification that the gas is
4-17 high-cost gas for purposes of this section, and in that event
4-18 additional certification is not required to qualify for the
4-19 exemption provided by this section.
4-20 (d) To qualify for the exemption provided by this section,
4-21 the person responsible for paying the tax must apply to the
4-22 comptroller. The application must contain the certification of the
4-23 commission that the well produces high-cost gas. An application
4-24 may not be filed before January 1, 1990, or after December 31,
4-25 1998. The comptroller shall approve the application of a person
5-1 who demonstrates that the gas is eligible for the exemption. The
5-2 comptroller may require a person applying for the exemption to
5-3 provide any relevant information in the person's monthly report
5-4 that the comptroller considers necessary to administer this
5-5 section. The commission shall notify the comptroller in writing
5-6 immediately if it determines that an oil or <a> gas well previously
5-7 certified as producing high-cost gas does not produce high-cost gas
5-8 or if it takes any action or discovers any information that affects
5-9 the eligibility of gas for an exemption under this section.
5-10 (e) If, before the commission certifies that a well produces
5-11 high-cost gas or before the comptroller approves an application for
5-12 an exemption under this section, the tax imposed by this chapter is
5-13 paid on high-cost gas that otherwise qualifies for the exemption
5-14 provided by this section, the producer or producers of the gas are
5-15 entitled to a credit against other taxes imposed by this chapter in
5-16 an amount equal to the amount of the tax paid on the gas that
5-17 otherwise qualified for the exemption on or after the first day of
5-18 the next month after the month in which the application for
5-19 certification under this section was filed with the commission.
5-20 The credit is allocated to each producer according to the
5-21 producer's proportionate share in the gas. To receive a credit,
5-22 one or more of the producers must apply to the comptroller for the
5-23 credit not later than the first anniversary after the date the
5-24 comptroller approves the application for an exemption under this
5-25 section. If a producer demonstrates that the producer does not
6-1 have sufficient tax liability under this chapter to claim the
6-2 credit within five years from the date the application for the
6-3 credit is made, the producer is entitled to a refund in the amount
6-4 of any credit the comptroller determines may not be claimed within
6-5 that five years. Nothing in this subsection shall relieve the
6-6 obligation imposed by Subsection (b) to pay tax when due on
6-7 high-cost gas produced from co-production projects on or before
6-8 July 31, 1995.
6-9 (f) An applicant for commission approval of a co-production
6-10 project shall submit a written application for approval to the
6-11 commission. Such application must be filed before January 1, 1994.
6-12 The applicant shall provide the commission with any relevant
6-13 information required to administer this section, including evidence
6-14 demonstrating that the reservoir is eligible for the designation
6-15 and demonstrating the minimum volumes of high-volume water
6-16 withdrawal required to recover oil and/or gas from the reservoir
6-17 that would not be produced by conventional production methods. A
6-18 commission representative may administratively approve the
6-19 application. If the commission representative denies
6-20 administrative approval, the applicant shall have the right to a
6-21 hearing upon request.
6-22 SECTION 2. Section 202.054, Tax Code, is amended to read as
6-23 follows:
6-24 Sec. 202.054. Qualification of Oil From New or Expanded
6-25 Enhanced Recovery Project for Special Tax Rate. (a) In this
7-1 section:
7-2 (1) "Active operation" means the start and
7-3 continuation of a fluid injection program for a secondary or
7-4 tertiary recovery project to enhance the displacement process in
7-5 the reservoir.
7-6 (2) "Commission" means the Railroad Commission of
7-7 Texas.
7-8 (3) "Enhanced recovery project" means the use of any
7-9 process for the displacement of oil from the earth other than
7-10 primary recovery and includes the use of an immiscible, miscible,
7-11 chemical, thermal, or biological process and any co-production
7-12 project.
7-13 (4) "Existing enhanced recovery project" means an
7-14 enhanced recovery project that began active operations before
7-15 September 1, 1989.
7-16 (5) "Expanded enhanced recovery project" or
7-17 "expansion" means the addition of injection and producing wells,
7-18 the change of injection pattern, or other operating changes to an
7-19 existing enhanced oil recovery project that will result in the
7-20 recovery of oil that would not otherwise be recovered.
7-21 (6) "Incremental production" means the volume of oil
7-22 produced by an expanded enhanced recovery project in excess of the
7-23 production decline rate established under conditions before
7-24 expansion for an existing enhanced recovery project.
7-25 (7) "Operator" means the person responsible for the
8-1 actual physical operation of an enhanced recovery project.
8-2 (8) "Positive production response" means that the rate
8-3 of oil production from the wells affected by an enhanced recovery
8-4 project is greater than the rate that would have occurred without
8-5 the project.
8-6 (9) "Primary recovery" means the displacement of oil
8-7 from the earth into the well bore by means of the natural pressure
8-8 of the oil reservoir, including artificial lift.
8-9 (10) "Production decline rate" means the projected
8-10 future oil production from a project area as extrapolated by a
8-11 method approved by the commission.
8-12 (11) "Recovered oil tax rate" means the tax rate
8-13 provided by Section 202.052(b) of this code.
8-14 (12) "Secondary recovery project" means an enhanced
8-15 recovery project that is not a tertiary recovery project.
8-16 (13) "Tertiary recovery project" means an enhanced
8-17 recovery project using a tertiary recovery method listed in the
8-18 federal June 1979 energy regulations referred to in Section 4993,
8-19 Internal Revenue Code of 1986, or approved by the United States
8-20 secretary of the treasury for purposes of administering Section
8-21 4993, Internal Revenue Code of 1986, without regard to whether that
8-22 section remains in effect.
8-23 (14) "Co-production project" means an enhanced
8-24 recovery project in which water is permanently removed from an oil
8-25 and/or gas reservoir in an effort to lower the gas-water or
9-1 oil-water contact in the reservoir or to reduce reservoir pressure
9-2 to recover entrained hydrocarbons from the reservoir that would not
9-3 be produced by conventional primary or secondary production
9-4 methods.
9-5 (15) "Commission approved co-production project" means
9-6 a reservoir development project in which the commission has
9-7 recognized that water withdrawals from an oil or gas reservoir in
9-8 excess of specified minimum volumes will result in recovery of
9-9 additional oil and/or gas from the reservoir that would not be
9-10 produced by conventional production methods and where operators in
9-11 the field have begun to implement commission requirements to
9-12 withdraw such volumes of water and dispose of such water outside
9-13 the subject reservoir. Reservoirs potentially eligible for this
9-14 designation shall be limited to those reservoirs in which oil
9-15 and/or gas has been bypassed by water encroachment caused by
9-16 production from the reservoir and such bypassed oil and/or gas may
9-17 be produced as a result of fieldwide high-volume water withdrawals
9-18 of natural formation water.
9-19 (16) "High-volume water withdrawals" means the
9-20 withdrawal of water from a reservoir in an amount sufficient to
9-21 dewater portions of the reservoir containing oil and/or gas
9-22 previously bypassed by water encroachment.
9-23 (b) Oil produced from an enhanced recovery project other
9-24 than a co-production project qualifies for the recovered oil tax
9-25 rate if, before the project begins active operation, the commission
10-1 approves the project and designates the area to be affected by the
10-2 project. The incremental production from an expanded enhanced
10-3 recovery project other than a co-production project qualifies for
10-4 the recovered oil tax rate if, before the expansion begins, the
10-5 commission approves the expansion and designates the area to be
10-6 affected by the expansion. Oil produced from a commission approved
10-7 co-production project, whether a new enhanced recovery project or
10-8 an expanded enhanced recovery project, qualifies for the recovered
10-9 oil tax rate following commission certification of a positive
10-10 production response without regard to whether the commission
10-11 approval is before or after the project began active operations;
10-12 provided, however, tax must be paid when due at the rate provided
10-13 in Section 202.052(a) of this code for all oil produced on or
10-14 before July 31, 1995. On or after September 1, 1995, the operator
10-15 may apply to the comptroller for a refund and shall be entitled to
10-16 receive a refund equal to the difference between the tax paid on
10-17 all oil produced from a commission approved co-production project
10-18 after commission certification of a positive production response
10-19 and the tax due at the recovered oil tax rate for all oil produced
10-20 after commission certification of a positive production response
10-21 from such co-production project. The operator of a proposed
10-22 project, <or> a proposed expansion, or a proposed or existing
10-23 co-production project may apply to the commission for approval of
10-24 the project or expansion under this section. The commission may
10-25 require an applicant to provide the commission with any relevant
11-1 information required to administer this section. If approval by
11-2 the commission of a unitization agreement under Subchapter B,
11-3 Chapter 101, Natural Resources Code, is required for purposes of
11-4 carrying out the project or expansion, the commission may not
11-5 approve the project or expansion unless it approves the unitization
11-6 agreement. A person may apply for approval of a proposed enhanced
11-7 recovery project, <or> a proposed expansion, or a proposed
11-8 co-production project under this subsection concurrently with an
11-9 application for approval of a unitization agreement for purposes of
11-10 carrying out the enhanced recovery project or expansion under
11-11 Section 101.011, Natural Resources Code, or with an application for
11-12 certification of the project or expansion as a tertiary recovery
11-13 project for purposes of Section 4993, Internal Revenue Code of
11-14 1986, or may make a separate application for approval.
11-15 (c) This section applies to an enhanced recovery project
11-16 that begins active operation on or after September 1, 1989, and to
11-17 an expansion that the commission approves on or after September 1,
11-18 1991. An application for approval under this section must be filed
11-19 on or after September 1, 1989, and before January 1, 1994, for a
11-20 new enhanced recovery project, including any co-production project.
11-21 An application for approval under this section must be filed on or
11-22 after September 1, 1991, and before January 1, 1994, for an
11-23 expansion of an existing enhanced recovery project. A project may
11-24 not qualify as an expansion if the project has qualified as a new
11-25 enhanced recovery project under this section. An application may
12-1 be filed on or after September 1, 1989, even if a separate
12-2 application for approval of the project or expansion has already
12-3 been filed under Subchapter B, Chapter 101, Natural Resources Code,
12-4 or for approval as a tertiary recovery project for purposes of
12-5 Section 4993, Internal Revenue Code of 1986, if the operation of a
12-6 new project or the expansion of an existing project, other than a
12-7 co-production project, does not begin before the application for
12-8 approval under this section is approved by the commission;
12-9 provided, however, nothing herein shall require commission approval
12-10 of a co-production project prior to commencing active operations on
12-11 such project in order for such project to be eligible for the
12-12 recovered oil tax rate.
12-13 (d) An applicant for commission approval of a co-production
12-14 project shall submit a written application for approval to the
12-15 commission. Such application must be filed before January 1, 1994.
12-16 The applicant shall provide the commission with any relevant
12-17 information required to administer this section, including evidence
12-18 demonstrating that the reservoir is eligible for the designation
12-19 and demonstrating the minimum volumes of high-volume water
12-20 withdrawal required to recover oil and/or gas from the reservoir
12-21 that would not be produced by conventional production methods. A
12-22 commission representative may administratively approve the
12-23 application. If the commission representative denies
12-24 administrative approval, the applicant shall have the right to a
12-25 hearing upon request.
13-1 (e) If the commission approves an enhanced recovery project
13-2 or an expansion under this section, it shall issue a certification
13-3 of approval for an approved project designating the area to be
13-4 affected by the project.
13-5 (f) <(e)> The recovered oil tax rate applies only to oil
13-6 produced from a new enhanced oil recovery project, any
13-7 co-production project, or the incremental production caused by the
13-8 expansion of an existing enhanced recovery project from the area
13-9 the commission certifies to be affected by the project.
13-10 (g) Subject to the provisions of Subsections (b) and
13-11 <(f) Except as provided by Subsection> (h) of this section, the
13-12 recovered oil tax rate applies to oil on which a tax is imposed by
13-13 this chapter for the 10 years beginning the first day of the month
13-14 following the date the commission certifies that, in the case of an
13-15 enhanced recovery project including a co-production project, a
13-16 positive production response has occurred or, in the case of an
13-17 expansion, other than related to a co-production project,
13-18 incremental production has occurred, if the application for
13-19 certification is filed:
13-20 (1) not later than three years from the date the
13-21 commission approves the project if the project is designated as a
13-22 new or existing project other than a co-production project that
13-23 uses a secondary recovery process; or
13-24 (2) not later than five years from the date the
13-25 commission approves the project if the project is designated as a
14-1 new or existing project that uses a tertiary recovery process or is
14-2 a co-production project.
14-3 (h) <(g)> The operator may designate the certification date,
14-4 subject to commission approval. If the commission determines that
14-5 the project has caused a positive production response or
14-6 incremental production, the commission shall certify that fact.
14-7 (i) <(h)> Notwithstanding Subsection (g) <(f)> of this
14-8 section, qualification for the recovered oil tax rate ends on the
14-9 first day of the first calendar month that begins on or after the
14-10 91st day following the date of termination of the active operation
14-11 of the enhanced recovery project or of termination of an approved
14-12 expansion.
14-13 (j) <(i)> If the active operation of an approved enhanced
14-14 recovery project or expansion is terminated, the person who
14-15 immediately before the termination is the operator of the project
14-16 shall notify the commission and the comptroller in writing not
14-17 later than the 30th day after the last day of active operation.
14-18 Any person who violates this subsection is liable to the state for
14-19 a civil penalty if the person pays or attempts to pay the tax
14-20 imposed by this chapter on oil from the project at the recovered
14-21 oil tax rate after qualification for that rate ends under
14-22 Subsection (g) <(f)> or (i) <(h)> of this section. The amount of
14-23 the penalty may not exceed the sum of:
14-24 (1) $10,000; and
14-25 (2) the difference between the amount of taxes paid or
15-1 attempted to be paid and the amount of taxes due.
15-2 (k) <(j)> The attorney general may recover a penalty under
15-3 Subsection (j) <(i)> of this section in a suit brought on behalf of
15-4 the state. Venue for the suit is in Travis County.
15-5 (l) <(k)> The commission has broad discretion in
15-6 administering this section and shall adopt and enforce any
15-7 appropriate rules or orders that the commission finds necessary to
15-8 administer this section concerning the designation, operation, and
15-9 termination of enhanced recovery projects and expansions. The
15-10 commission shall notify the comptroller of any action taken under
15-11 this subsection. The comptroller shall have the power to establish
15-12 procedures in order to comply with this Act.
15-13 (m) Subject to the provisions of Subsection (b) of this
15-14 section, if <(l) If>, before the comptroller approves an
15-15 application for taxation at the recovered oil tax rate, the tax
15-16 imposed by this chapter is paid at the rate provided by Section
15-17 202.052(a) of this code on oil that qualifies under this section
15-18 for the recovered oil tax rate, the producer or producers of the
15-19 oil are entitled to a credit against taxes imposed by this chapter
15-20 in an amount equal to the difference between the tax paid on the
15-21 oil and the tax due on the oil at the recovered oil tax rate. The
15-22 credit is allocated to each producer according to the producer's
15-23 proportionate share in the oil. To receive a credit, one or more
15-24 of the producers of the oil must apply to the comptroller for the
15-25 credit not later than the first anniversary after the date the
16-1 commission certifies that a positive production response has
16-2 occurred.
16-3 (n) <(m)> To qualify for the taxation of oil at the
16-4 recovered oil tax rate, a person responsible for paying the tax
16-5 must apply to the comptroller. The application must include the
16-6 certification of the commission that the project or expansion has
16-7 been approved and that the project has resulted in a positive
16-8 production response or that the expansion has resulted in
16-9 incremental production. The comptroller shall approve the
16-10 application of a person who demonstrates that the oil is eligible
16-11 for taxation at the recovered oil tax rate. The comptroller may
16-12 require a person applying for the recovered oil tax rate to provide
16-13 any relevant information in the person's monthly report and
16-14 internal records that the comptroller considers necessary to
16-15 administer this section. The commission shall notify the
16-16 comptroller in writing immediately if it determines that active
16-17 operation of an approved enhanced recovery project or an approved
16-18 expansion has been terminated or if it takes any action or
16-19 discovers any information that affects the taxation of oil at the
16-20 recovered oil tax rate.
16-21 SECTION 3. This Act takes effect September 1, 1993.
16-22 SECTION 4. The importance of this legislation and the
16-23 crowded condition of the calendars in both houses create an
16-24 emergency and an imperative public necessity that the
16-25 constitutional rule requiring bills to be read on three several
17-1 days in each house be suspended, and this rule is hereby suspended.