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 reservoirwide high-volume
2-12 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 <a> an oil or gas well.
2-25 (b) High-cost gas as defined in paragraph (a)(2)(A) of this
3-1 section, produced from a well that is spudded or completed between
3-2 <the date of enactment> May 24, 1989 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 paragraph (a)(2)(B) of this section is exempt
3-6 from the tax imposed by this chapter during the period beginning
3-7 the first day of the month after Commission approval of a
3-8 co-production project and ending August 31, 2001, provided,
3-9 however, in the event coproduction ceases, the exemption shall also
3-10 cease on the first day of the first calendar month that begins on
3-11 or after the 91st day following the date of termination of
3-12 coproduction operations.
3-13 (c) The operator of a proposed or existing gas well,
3-14 including a gas well that has not been completed, or the operator
3-15 of any proposed or existing oil or gas well within a commission
3-16 approved co-production project, may apply to the commission for
3-17 certification that the well produces or will produce high-cost gas.
3-18 The application may be made but is not required to be made
3-19 concurrently with a request for a determination that gas produced
3-20 from the well is high-cost natural gas for purposes of the Natural
3-21 Gas Policy Act of 1978 (15 U.S.C. Section 3301 et seq.) or with a
3-22 request for commission approval of a co-production project. The
3-23 commission may require an applicant to provide the commission with
3-24 any relevant information required to administer this section. For
3-25 purposes of this section, a determination that gas is high-cost
4-1 natural gas for purposes of the Natural Gas Policy Act of 1978 made
4-2 according to the definition of high-cost natural gas provided by
4-3 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
4-4 3317), as that section exists on January 1, 1989, or a
4-5 determination that gas is produced from within a Commission
4-6 approved co-production project is a certification that the gas is
4-7 high-cost gas for purposes of this section, and in that event
4-8 additional certification is not required to qualify for the
4-9 exemption provided by this section.
4-10 (d) To qualify for the exemption provided by this section,
4-11 the person responsible for paying the tax must apply to the
4-12 comptroller. The application must contain the certification of the
4-13 commission that the well produces high-cost gas. An application
4-14 may not be filed before January 1, 1990, or after December 31,
4-15 1998. The comptroller shall approve the application of a person
4-16 who demonstrates that the gas is eligible for the exemption. The
4-17 comptroller may require a person applying for the exemption to
4-18 provide any relevant information in the person's monthly report
4-19 that the comptroller considers necessary to administer this
4-20 section. The commission shall notify the comptroller in writing
4-21 immediately if it determines that an oil or gas well previously
4-22 certified as producing high-cost gas does not produce high-cost gas
4-23 or if it takes any action or discovers any information that affects
4-24 the eligibility of gas for an exemption under this section.
4-25 (e) If, before the commission certifies that a well produces
5-1 high-cost gas or before the comptroller approves an application for
5-2 an exemption under this section, the tax imposed by this chapter is
5-3 paid on high-cost gas that otherwise qualifies for the exemption
5-4 provided by this section, the producer or producers of the gas are
5-5 entitled to a credit against other taxes imposed by this chapter in
5-6 an amount equal to the amount of the tax paid on the gas that
5-7 otherwise qualified for the exemption on or after the first day of
5-8 the next month after the month in which the application for
5-9 certification under this section was filed with the commission.
5-10 The credit is allocated to each producer according to the
5-11 producer's proportionate share in the gas. To receive a credit,
5-12 one or more of the producers must apply to the comptroller for the
5-13 credit not later than the first anniversary after the date the
5-14 comptroller approves the application for an exemption under this
5-15 section. If a producer demonstrates that the producer does not
5-16 have sufficient tax liability under this chapter to claim the
5-17 credit within five years from the date the application for the
5-18 credit is made, the producer is entitled to a refund in the amount
5-19 of any credit the comptroller determines may not be claimed within
5-20 that five years.
5-21 (f) An applicant for Commission approval of a coproduction
5-22 project shall submit a written application for approval to the
5-23 Commission. Such application must be filed before January 1, 1994.
5-24 The applicant shall provide the Commission with any relevant
5-25 information required to administer this section, including evidence
6-1 demonstrating that the reservoir is eligible for the designation
6-2 and demonstrating the minimum volumes of high-volume water
6-3 withdrawal required to recover oil and/or gas from the reservoir
6-4 that would not be produced by conventional production methods. A
6-5 Commission representative may administratively approve the
6-6 application. If the Commission representative denies
6-7 administrative approval, the applicant shall have the right to a
6-8 hearing upon request.
6-9 SECTION 2. Section 202.054, Tax Code, is amended to read as
6-10 follows:
6-11 Sec. 202.054. Qualification of Oil From New or Expanded
6-12 Enhanced Recovery Project for Special Tax Rate. (a) In this
6-13 section:
6-14 (1) "Active operation" means the start and
6-15 continuation of a fluid injection program for a secondary or
6-16 tertiary recovery project to enhance the displacement process in
6-17 the reservoir.
6-18 (2) "Commission" means the Railroad Commission of
6-19 Texas.
6-20 (3) "Enhanced recovery project" means the use of any
6-21 process for the displacement of oil from the earth other than
6-22 primary recovery and includes the use of an immiscible, miscible,
6-23 chemical, thermal, or biological process and any co-production
6-24 project.
6-25 (4) "Existing enhanced recovery project" means an
7-1 enhanced recovery project that began active operations before
7-2 September 1, 1989.
7-3 (5) "Expanded enhanced recovery project" or
7-4 "expansion" means the addition of injection and producing wells,
7-5 the change of injection pattern, or other operating changes to an
7-6 existing enhanced oil recovery project that will result in the
7-7 recovery of oil that would not otherwise be recovered.
7-8 (6) "Incremental production" means the volume of oil
7-9 produced by an expanded enhanced recovery project in excess of the
7-10 production decline rate established under conditions before
7-11 expansion for an existing enhanced recovery project.
7-12 (7) "Operator" means the person responsible for the
7-13 actual physical operation of an enhanced recovery project.
7-14 (8) "Positive production response" means that the rate
7-15 of oil production from the wells affected by an enhanced recovery
7-16 project is greater than the rate that would have occurred without
7-17 the project.
7-18 (9) "Primary recovery" means the displacement of oil
7-19 from the earth into the well bore by means of the natural pressure
7-20 of the oil reservoir, including artificial lift.
7-21 (10) "Production decline rate" means the projected
7-22 future oil production from a project area as extrapolated by a
7-23 method approved by the commission.
7-24 (11) "Recovered oil tax rate" means the tax rate
7-25 provided by Section 202.052(b) of this code.
8-1 (12) "Secondary recovery project" means an enhanced
8-2 recovery project that is not a tertiary recovery project.
8-3 (13) "Tertiary recovery project" means an enhanced
8-4 recovery project using a tertiary recovery method listed in the
8-5 federal June 1979 energy regulations referred to in Section
8-6 4993, Internal Revenue Code of 1986,**1 or approved by the United
8-7 States secretary of the treasury for purposes of administering
8-8 Section 4993, Internal Revenue Code of 1986, without regard to
8-9 whether that section remains in effect.
8-10 (14) "Co-production project" means an enhanced
8-11 recovery project in which water is permanently removed from an oil
8-12 and/or gas reservoir in an effort to lower the gas-water or
8-13 oil-water contact in the reservoir or to reduce reservoir pressure
8-14 to recover entrained hydrocarbons from the reservoir that would not
8-15 be produced by conventional primary or secondary production
8-16 methods.
8-17 (15) "Commission approved co-production project" means
8-18 a reservoir development project in which the commission has
8-19 recognized that water withdrawals from an oil or gas reservoir in
8-20 excess of specified minimum volumes will result in recovery of
8-21 additional oil and/or gas from the reservoir that would not be
8-22 produced by conventional production methods and where operators in
8-23---
8-24.S.C.A. Sec. 4993 (repealed).
8-25 the field have begun to implement commission requirements to
9-1 withdraw such volumes of water and dispose of such water outside
9-2 the subject reservoir. Reservoirs potentially eligible for this
9-3 designation shall be limited to those reservoirs in which oil
9-4 and/or gas has been bypassed by water encroachment caused by
9-5 production from the reservoir and such bypassed oil and/or gas may
9-6 be produced as a result of fieldwide high volume water withdrawals
9-7 of natural formation water.
9-8 (16) "High-volume water withdrawals" means the
9-9 withdrawal of water from a reservoir in an amount sufficient to
9-10 dewater portions of the reservoir containing oil and/or gas
9-11 previously bypassed by water encroachment.
9-12 (b) Oil produced from an enhanced recovery project other
9-13 than a co-production project qualifies for the recovered oil tax
9-14 rate if, before the project begins active operation, the commission
9-15 approves the project and designates the area to be affected by the
9-16 project. The incremental production from an expanded enhanced
9-17 recovery project other than a co-production project qualifies for
9-18 the recovered oil tax rate if, before the expansion begins, the
9-19 commission approves the expansion and designates the area to be
9-20 affected by the expansion. Oil produced from a commission approved
9-21 co-production project, whether a new enhanced recovery project or
9-22 an expanded enhanced recovery project, qualifies for the recovered
9-23 oil tax rate without regard to whether the commission approval is
9-24 before or after the project began active operations. The operator
9-25 of a proposed project, <or> a proposed expansion, or a proposed or
10-1 existing co-production project may apply to the commission for
10-2 approval of the project or expansion under this section. The
10-3 commission may require an applicant to provide the commission with
10-4 any relevant information required to administer this section. If
10-5 approval by the commission of a unitization agreement under
10-6 Subchapter B, Chapter 101, Natural Resources Code,**2 is required
10-7 for purposes of carrying out the project or expansion, the
10-8 commission may not approve the project or expansion unless it
10-9 approves the unitization agreement. A person may apply for
10-10 approval of a proposed enhanced recovery project, <or> a proposed
10-11 expansion or a proposed co-production project under this subsection
10-12 concurrently with an application for approval of a unitization
10-13 agreement for purposes of carrying out the enhanced recovery
10-14 project or expansion under Section 101.011, Natural Resources Code,
10-15 or with an application for certification of the project or
10-16 expansion as a tertiary recovery project for purposes of Section
10-17 4993, Internal Revenue Code of 1986, or may make a separate
10-18 application for approval.
10-19 (c) This section applies to an enhanced recovery project
10-20 that begins active operation on or after September 1, 1989, and to
10-21 an expansion that the commission approves on or after September 1,
10-22 1991. An application for approval under this section must be filed
10-23 on or after September 1, 1989, and before January 1, 1994, for a
10-24 new enhanced recovery project, including any coproduction project.
10-25 An application for approval under this section must be filed on or
11-1 after September 1, 1991, and before January 1, 1994, for an
11-2 expansion of an existing enhanced recovery project. A project may
11-3 not qualify as an expansion if the project has qualified as a new
11-4 enhanced recovery project under this section. An application may
11-5 be filed on or after September 1, 1989, even if a separate
11-6---
11-7C.A. Natural Resources Code, Sec. 101.011 et seq.
11-8 application for approval of the project or expansion has already
11-9 been filed under Subchapter B, Chapter 101, Natural Resources Code,
11-10 or for approval as a tertiary recovery project for purposes of
11-11 Section 493, Internal Revenue Code of 1986, if the operation of a
11-12 new project or the expansion of an existing project, other than a
11-13 co-production project, does not begin before the application for
11-14 approval under this section is approved by the commission<.>;
11-15 provided, however, nothing herein shall require commission approval
11-16 of a co-production project prior to commencing active operations on
11-17 such project in order for such project to be eligible for the
11-18 recovered oil tax rate.
11-19 (d) An applicant for Commission approval of a coproduction
11-20 project shall submit a written application for approval to the
11-21 Commission. Such application must be filed before January 1, 1994.
11-22 The applicant shall provide the Commission with any relevant
11-23 information required to administer this section, including evidence
11-24 demonstrating that the reservoir is eligible for the designation
11-25 and demonstrating the minimum volumes of high-volume water
12-1 withdrawal required to recover oil and/or gas from the reservoir
12-2 that would not be produced by conventional production methods. A
12-3 Commission representative may administratively approve the
12-4 application. If the Commission representative denies
12-5 administrative approval, the applicant shall have the right to a
12-6 hearing upon request.
12-7 (e) If the commission approves an enhanced recovery project
12-8 or an expansion under this section, it shall issue a certification
12-9 of approval for an approved project designating the area to be
12-10 affected by the project.
12-11 (f) The recovered oil tax rate applies only to oil produced
12-12 from a new enhanced oil recovery project, including a coproduction
12-13 project, or the incremental production caused by the expansion of
12-14 an existing enhanced recovery project from the area the commission
12-15 certifies to be affected by the project.
12-16 (g) Except as provided by Subsection (h) of this section,
12-17 the recovered oil tax rate applies to oil on which a tax is imposed
12-18 by this chapter for the 10 years beginning the first day of the
12-19 month following the date the commission certifies that, in the case
12-20 of an enhanced recovery project including a coproduction project, a
12-21 positive production response has occurred or, in the case of an
12-22 expansion, other than related to a co-production project,
12-23 incremental production has occurred, if the application for
12-24 certification is filed:
12-25 (1) not later than three years from the date the
13-1 commission approves the project if the project is designated as a
13-2 new or existing project other than a coproduction project that uses
13-3 a secondary recovery process; or
13-4 (2) not later than five years from the date the
13-5 commission approves the project if the project is designated as a
13-6 new or existing project that uses a tertiary recovery process or is
13-7 a coproduction project.
13-8 (h) The operator may designate the certification date,
13-9 subject to commission approval. If the commission determines that
13-10 the project has caused a positive production response or
13-11 incremental production, the commission shall certify that fact.
13-12 (i) Notwithstanding Subsection (f) of this section,
13-13 qualification for the recovered oil tax rate ends on the first day
13-14 of the first calendar month that begins on or after the 91st day
13-15 following the date of termination of the active operation of the
13-16 enhanced recovery project or of termination of an approved
13-17 expansion.
13-18 (j) If the active operation of an approved enhanced recovery
13-19 project or expansion is terminated, the person who immediately
13-20 before the termination is the operator of the project shall notify
13-21 the commission and the comptroller in writing not later than the
13-22 30th day after the last day of active operation. Any person who
13-23 violates this subsection is liable to the state for a civil penalty
13-24 if the person pays or attempts to pay the tax imposed by this
13-25 chapter on oil from the project at the recovered oil tax rate after
14-1 qualification for that rate ends under Subsection (f), (h) or (i)
14-2 of this section. The amount of the penalty may not exceed the sum
14-3 of:
14-4 (1) $10,000; and
14-5 (2) the difference between the amount of taxes paid or
14-6 attempted to be paid and the amount of taxes due.
14-7 (k) The attorney general may recover a penalty under
14-8 Subsection (i) of this section in a suit brought on behalf of the
14-9 state. Venue for the suit is in Travis County.
14-10 (l) The commission has broad discretion in administering
14-11 this section and shall adopt and enforce any appropriate rules or
14-12 orders that the commission finds necessary to administer this
14-13 section concerning the designation, operation, and termination of
14-14 enhanced recovery projects and expansions. The commission shall
14-15 notify the comptroller of any action taken under this subsection.
14-16 The comptroller shall have the power to establish procedures in
14-17 order to comply with this Act.
14-18 (m) If, before the comptroller approves an application for
14-19 taxation at the recovered oil tax rate, the tax imposed by this
14-20 chapter is paid at the rate provided by Section 202.052(a) of this
14-21 code on oil that qualifies under this section for the recovered oil
14-22 tax rate, the producer or producers of the oil are entitled to a
14-23 credit against taxes imposed by this chapter in an amount equal to
14-24 the difference between the tax paid on the oil and the tax due on
14-25 the oil at the recovered oil tax rate. The credit is allocated to
15-1 each producer according to the producer's proportionate share in
15-2 the oil. To receive a credit, one or more of the producers of the
15-3 oil must apply to the comptroller for the credit not later than the
15-4 first anniversary after the date the commission certifies that a
15-5 positive production response has occurred.
15-6 (n) To qualify for the taxation of oil at the recovered oil
15-7 tax rate, a person responsible for paying the tax must apply to the
15-8 comptroller. The application must include the certification of the
15-9 commission that the project or expansion has been approved and that
15-10 the project has resulted in a positive production response or that
15-11 the expansion has resulted in incremental production. The
15-12 comptroller shall approve the application of a person who
15-13 demonstrates that the oil is eligible for taxation at the recovered
15-14 oil tax rate. The comptroller may require a person applying for
15-15 the recovered oil tax rate to provide any relevant information in
15-16 the person's monthly report and internal records that the
15-17 comptroller considers necessary to administer this section. The
15-18 commission shall notify the comptroller in writing immediately if
15-19 it determines that active operation of an approved enhanced
15-20 recovery project or an approved expansion has been terminated or if
15-21 it takes any action or discovers any information that affects the
15-22 taxation of oil at the recovered oil tax rate.
15-23 SECTION 3. This Act takes effect __________, 1993.
15-24 SECTION 4. The importance of this legislation and the
15-25 crowded condition of the calendars in both houses create an
16-1 emergency and an imperative public necessity that the
16-2 constitutional rule requiring bills to be read on three several
16-3 days in each house be suspended, and this rule is hereby suspended.