1-1 By: Rudd (Senate Sponsor - Harris of Dallas) H.B. No. 2723
1-2 (In the Senate - Received from the House May 17, 1993;
1-3 May 18, 1993, read first time and referred to Committee on State
1-4 Affairs; May 20, 1993, reported favorably, as amended, by the
1-5 following vote: Yeas 10, Nays 0; May 20, 1993, sent to printer.)
1-6 COMMITTEE VOTE
1-7 Yea Nay PNV Absent
1-8 Harris of Dallas x
1-9 Rosson x
1-10 Carriker x
1-11 Henderson x
1-12 Leedom x
1-13 Lucio x
1-14 Luna x
1-15 Nelson x
1-16 Patterson x
1-17 Shelley x
1-18 Sibley x
1-19 West x
1-20 Whitmire x
1-21 COMMITTEE AMENDMENT NO. 1 By: Henderson
1-22 Amend House Bill 2723 as follows:
1-23 1. Add a new SECTION 3 to read as follows:
1-24 SECTION 3. Section 86.091, Natural Resources Code, is
1-25 amended by adding the following: "Any natural gas well which
1-26 produces high cost natural gas shall be assigned an allowable equal
1-27 to its deliverability."
1-28 2. Renumber subsequent sections accordingly.
1-29 A BILL TO BE ENTITLED
1-30 AN ACT
1-31 relating to tax and regulatory relief as incentives for the
1-32 production of certain gas that is difficult or expensive to produce
1-33 and relating to a reduced oil production tax rate for oil from
1-34 certain enhanced recovery projects.
1-35 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-36 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-37 follows:
1-38 Sec. 201.057. Temporary Exemption of Certain High-Cost Gas.
1-39 (a) In this section:
1-40 (1) "Commission" means the Railroad Commission of
1-41 Texas.
1-42 (2) "High-cost gas" means:
1-43 (A) high-cost natural gas as described by
1-44 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-45 3317), as that section exists on January 1, 1989, without regard to
1-46 whether that section is in effect or whether a determination has
1-47 been made that the gas is high-cost natural gas for purposes of
1-48 that Act; or
1-49 (B) all gas produced from oil wells or gas wells
1-50 within a commission approved co-production project.
1-51 (3) "Commission approved co-production project" means
1-52 a reservoir development project in which the commission has
1-53 recognized that water withdrawals from an oil or gas reservoir in
1-54 excess of specified minimum volumes will result in recovery of
1-55 additional oil and/or gas from the reservoir that would not be
1-56 produced by conventional production methods and where operators of
1-57 wells completed in the reservoir have begun to implement commission
1-58 requirements to withdraw such volumes of water and dispose of such
1-59 water outside the subject reservoir. Reservoirs potentially
1-60 eligible for this designation shall be limited to those reservoirs
1-61 in which oil and/or gas has been bypassed by water encroachment
1-62 caused by production from the reservoir and such bypassed oil
1-63 and/or gas may be produced as a result of reservoir-wide
1-64 high-volume water withdrawals of natural formation water.
1-65 (4) "High-volume water withdrawals" means the
1-66 withdrawal of water from a reservoir in an amount sufficient to
1-67 dewater portions of the reservoir containing oil and/or gas
1-68 previously bypassed by water encroachment.
2-1 (5) "Co-production" means the permanent removal of
2-2 water from an oil and/or gas reservoir in an effort to lower the
2-3 gas-water contact or oil-water contact in the reservoir or to
2-4 reduce reservoir pressure to recover entrained hydrocarbons from
2-5 the reservoir that would not be produced by conventional primary or
2-6 secondary production methods.
2-7 (6) "Operator" means the person responsible for the
2-8 actual physical operation of an oil or <a> gas well.
2-9 (b) High-cost gas as defined in Subsection (a)(2)(A) of this
2-10 section produced from a well that is spudded or completed between
2-11 May 24, 1989, <the date of enactment> and September 1, 1996, is
2-12 exempt from the tax imposed by this chapter during the period
2-13 beginning September 1, 1991, and ending August 31, 2001. High-cost
2-14 gas as defined in Subsection (a)(2)(B) of this section produced
2-15 from any well regardless of spud date or completion date is
2-16 eligible for refunds of tax paid and exemption from the tax imposed
2-17 by this chapter for production occurring during the period
2-18 beginning the first day of the month after commission approval of a
2-19 co-production project and ending August 31, 2001; provided,
2-20 however, in the event co-production ceases, the exemption shall
2-21 also cease on the first day of the first calendar month that begins
2-22 on or after the 91st day following the date of termination of
2-23 co-production operations. Tax must be paid when due at the rate
2-24 provided in Section 201.052 of this code for all high-cost gas, as
2-25 defined in Subsection (a)(2)(B) of this section, produced on or
2-26 before July 31, 1995. On or after September 1, 1995, the operator
2-27 may apply to the comptroller for a refund and shall be entitled to
2-28 receive a refund of all taxes paid on such high-cost gas produced
2-29 on or after the first day of the calendar month after commission
2-30 approval of the co-production project from which such gas was
2-31 produced and that is otherwise eligible for the tax exemption.
2-32 (c) The operator of a proposed or existing gas well,
2-33 including a gas well that has not been completed, or the operator
2-34 of any proposed or existing oil or gas well within a commission
2-35 approved co-production project, may apply to the commission for
2-36 certification that the well produces or will produce high-cost gas.
2-37 The application may be made but is not required to be made
2-38 concurrently with a request for a determination that gas produced
2-39 from the well is high-cost natural gas for purposes of the Natural
2-40 Gas Policy Act of 1978 (15 U.S.C. Section 3301 et seq.) or with a
2-41 request for commission approval of a co-production project. The
2-42 commission may require an applicant to provide the commission with
2-43 any relevant information required to administer this section. For
2-44 purposes of this section, a determination that gas is high-cost
2-45 natural gas for purposes of the Natural Gas Policy Act of 1978 made
2-46 according to the definition of high-cost natural gas provided by
2-47 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
2-48 3317), as that section exists on January 1, 1989, or a
2-49 determination that gas is produced from within a commission
2-50 approved co-production project is a certification that the gas is
2-51 high-cost gas for purposes of this section, and in that event
2-52 additional certification is not required to qualify for the
2-53 exemption provided by this section.
2-54 (d) To qualify for the exemption provided by this section,
2-55 the person responsible for paying the tax must apply to the
2-56 comptroller. The application must contain the certification of the
2-57 commission that the well produces high-cost gas. An application
2-58 may not be filed before January 1, 1990, or after December 31,
2-59 1998. The comptroller shall approve the application of a person
2-60 who demonstrates that the gas is eligible for the exemption. The
2-61 comptroller may require a person applying for the exemption to
2-62 provide any relevant information in the person's monthly report
2-63 that the comptroller considers necessary to administer this
2-64 section. The commission shall notify the comptroller in writing
2-65 immediately if it determines that an oil or <a> gas well previously
2-66 certified as producing high-cost gas does not produce high-cost gas
2-67 or if it takes any action or discovers any information that affects
2-68 the eligibility of gas for an exemption under this section.
2-69 (e) If, before the commission certifies that a well produces
2-70 high-cost gas or before the comptroller approves an application for
3-1 an exemption under this section, the tax imposed by this chapter is
3-2 paid on high-cost gas that otherwise qualifies for the exemption
3-3 provided by this section, the producer or producers of the gas are
3-4 entitled to a credit against other taxes imposed by this chapter in
3-5 an amount equal to the amount of the tax paid on the gas that
3-6 otherwise qualified for the exemption on or after the first day of
3-7 the next month after the month in which the application for
3-8 certification under this section was filed with the commission.
3-9 The credit is allocated to each producer according to the
3-10 producer's proportionate share in the gas. To receive a credit,
3-11 one or more of the producers must apply to the comptroller for the
3-12 credit not later than the first anniversary after the date the
3-13 comptroller approves the application for an exemption under this
3-14 section. If a producer demonstrates that the producer does not
3-15 have sufficient tax liability under this chapter to claim the
3-16 credit within five years from the date the application for the
3-17 credit is made, the producer is entitled to a refund in the amount
3-18 of any credit the comptroller determines may not be claimed within
3-19 that five years. Nothing in this subsection shall relieve the
3-20 obligation imposed by Subsection (b) to pay tax when due on
3-21 high-cost gas produced from co-production projects on or before
3-22 July 31, 1995.
3-23 (f) An applicant for commission approval of a co-production
3-24 project shall submit a written application for approval to the
3-25 commission. Such application must be filed before January 1, 1994.
3-26 The applicant shall provide the commission with any relevant
3-27 information required to administer this section, including evidence
3-28 demonstrating that the reservoir is eligible for the designation
3-29 and demonstrating the minimum volumes of high-volume water
3-30 withdrawal required to recover oil and/or gas from the reservoir
3-31 that would not be produced by conventional production methods. A
3-32 commission representative may administratively approve the
3-33 application. If the commission representative denies
3-34 administrative approval, the applicant shall have the right to a
3-35 hearing upon request.
3-36 SECTION 2. Section 202.054, Tax Code, is amended to read as
3-37 follows:
3-38 Sec. 202.054. Qualification of Oil From New or Expanded
3-39 Enhanced Recovery Project for Special Tax Rate. (a) In this
3-40 section:
3-41 (1) "Active operation" means the start and
3-42 continuation of a fluid injection program for a secondary or
3-43 tertiary recovery project to enhance the displacement process in
3-44 the reservoir.
3-45 (2) "Commission" means the Railroad Commission of
3-46 Texas.
3-47 (3) "Enhanced recovery project" means the use of any
3-48 process for the displacement of oil from the earth other than
3-49 primary recovery and includes the use of an immiscible, miscible,
3-50 chemical, thermal, or biological process and any co-production
3-51 project.
3-52 (4) "Existing enhanced recovery project" means an
3-53 enhanced recovery project that began active operations before
3-54 September 1, 1989.
3-55 (5) "Expanded enhanced recovery project" or
3-56 "expansion" means the addition of injection and producing wells,
3-57 the change of injection pattern, or other operating changes to an
3-58 existing enhanced oil recovery project that will result in the
3-59 recovery of oil that would not otherwise be recovered.
3-60 (6) "Incremental production" means the volume of oil
3-61 produced by an expanded enhanced recovery project in excess of the
3-62 production decline rate established under conditions before
3-63 expansion for an existing enhanced recovery project.
3-64 (7) "Operator" means the person responsible for the
3-65 actual physical operation of an enhanced recovery project.
3-66 (8) "Positive production response" means that the rate
3-67 of oil production from the wells affected by an enhanced recovery
3-68 project is greater than the rate that would have occurred without
3-69 the project.
3-70 (9) "Primary recovery" means the displacement of oil
4-1 from the earth into the well bore by means of the natural pressure
4-2 of the oil reservoir, including artificial lift.
4-3 (10) "Production decline rate" means the projected
4-4 future oil production from a project area as extrapolated by a
4-5 method approved by the commission.
4-6 (11) "Recovered oil tax rate" means the tax rate
4-7 provided by Section 202.052(b) of this code.
4-8 (12) "Secondary recovery project" means an enhanced
4-9 recovery project that is not a tertiary recovery project.
4-10 (13) "Tertiary recovery project" means an enhanced
4-11 recovery project using a tertiary recovery method listed in the
4-12 federal June 1979 energy regulations referred to in Section 4993,
4-13 Internal Revenue Code of 1986, or approved by the United States
4-14 secretary of the treasury for purposes of administering Section
4-15 4993, Internal Revenue Code of 1986, without regard to whether that
4-16 section remains in effect.
4-17 (14) "Co-production project" means an enhanced
4-18 recovery project in which water is permanently removed from an oil
4-19 and/or gas reservoir in an effort to lower the gas-water or
4-20 oil-water contact in the reservoir or to reduce reservoir pressure
4-21 to recover entrained hydrocarbons from the reservoir that would not
4-22 be produced by conventional primary or secondary production
4-23 methods.
4-24 (15) "Commission approved co-production project" means
4-25 a reservoir development project in which the commission has
4-26 recognized that water withdrawals from an oil or gas reservoir in
4-27 excess of specified minimum volumes will result in recovery of
4-28 additional oil and/or gas from the reservoir that would not be
4-29 produced by conventional production methods and where operators in
4-30 the field have begun to implement commission requirements to
4-31 withdraw such volumes of water and dispose of such water outside
4-32 the subject reservoir. Reservoirs potentially eligible for this
4-33 designation shall be limited to those reservoirs in which oil
4-34 and/or gas has been bypassed by water encroachment caused by
4-35 production from the reservoir and such bypassed oil and/or gas may
4-36 be produced as a result of fieldwide high-volume water withdrawals
4-37 of natural formation water.
4-38 (16) "High-volume water withdrawals" means the
4-39 withdrawal of water from a reservoir in an amount sufficient to
4-40 dewater portions of the reservoir containing oil and/or gas
4-41 previously bypassed by water encroachment.
4-42 (b) Oil produced from an enhanced recovery project other
4-43 than a co-production project qualifies for the recovered oil tax
4-44 rate if, before the project begins active operation, the commission
4-45 approves the project and designates the area to be affected by the
4-46 project. The incremental production from an expanded enhanced
4-47 recovery project other than a co-production project qualifies for
4-48 the recovered oil tax rate if, before the expansion begins, the
4-49 commission approves the expansion and designates the area to be
4-50 affected by the expansion. Oil produced from a commission approved
4-51 co-production project, whether a new enhanced recovery project or
4-52 an expanded enhanced recovery project, qualifies for the recovered
4-53 oil tax rate following commission certification of a positive
4-54 production response without regard to whether the commission
4-55 approval is before or after the project began active operations;
4-56 provided, however, tax must be paid when due at the rate provided
4-57 in Section 202.052(a) of this code for all oil produced on or
4-58 before July 31, 1995. On or after September 1, 1995, the operator
4-59 may apply to the comptroller for a refund and shall be entitled to
4-60 receive a refund equal to the difference between the tax paid on
4-61 all oil produced from a commission approved co-production project
4-62 after commission certification of a positive production response
4-63 and the tax due at the recovered oil tax rate for all oil produced
4-64 after commission certification of a positive production response
4-65 from such co-production project. The operator of a proposed
4-66 project, <or> a proposed expansion, or a proposed or existing
4-67 co-production project may apply to the commission for approval of
4-68 the project or expansion under this section. The commission may
4-69 require an applicant to provide the commission with any relevant
4-70 information required to administer this section. If approval by
5-1 the commission of a unitization agreement under Subchapter B,
5-2 Chapter 101, Natural Resources Code, is required for purposes of
5-3 carrying out the project or expansion, the commission may not
5-4 approve the project or expansion unless it approves the unitization
5-5 agreement. A person may apply for approval of a proposed enhanced
5-6 recovery project, <or> a proposed expansion, or a proposed
5-7 co-production project under this subsection concurrently with an
5-8 application for approval of a unitization agreement for purposes of
5-9 carrying out the enhanced recovery project or expansion under
5-10 Section 101.011, Natural Resources Code, or with an application for
5-11 certification of the project or expansion as a tertiary recovery
5-12 project for purposes of Section 4993, Internal Revenue Code of
5-13 1986, or may make a separate application for approval.
5-14 (c) This section applies to an enhanced recovery project
5-15 that begins active operation on or after September 1, 1989, and to
5-16 an expansion that the commission approves on or after September 1,
5-17 1991. An application for approval under this section must be filed
5-18 on or after September 1, 1989, and before January 1, 1994, for a
5-19 new enhanced recovery project, including any co-production project.
5-20 An application for approval under this section must be filed on or
5-21 after September 1, 1991, and before January 1, 1994, for an
5-22 expansion of an existing enhanced recovery project. A project may
5-23 not qualify as an expansion if the project has qualified as a new
5-24 enhanced recovery project under this section. An application may
5-25 be filed on or after September 1, 1989, even if a separate
5-26 application for approval of the project or expansion has already
5-27 been filed under Subchapter B, Chapter 101, Natural Resources Code,
5-28 or for approval as a tertiary recovery project for purposes of
5-29 Section 4993, Internal Revenue Code of 1986, if the operation of a
5-30 new project or the expansion of an existing project, other than a
5-31 co-production project, does not begin before the application for
5-32 approval under this section is approved by the commission;
5-33 provided, however, nothing herein shall require commission approval
5-34 of a co-production project prior to commencing active operations on
5-35 such project in order for such project to be eligible for the
5-36 recovered oil tax rate.
5-37 (d) An applicant for commission approval of a co-production
5-38 project shall submit a written application for approval to the
5-39 commission. Such application must be filed before January 1, 1994.
5-40 The applicant shall provide the commission with any relevant
5-41 information required to administer this section, including evidence
5-42 demonstrating that the reservoir is eligible for the designation
5-43 and demonstrating the minimum volumes of high-volume water
5-44 withdrawal required to recover oil and/or gas from the reservoir
5-45 that would not be produced by conventional production methods. A
5-46 commission representative may administratively approve the
5-47 application. If the commission representative denies
5-48 administrative approval, the applicant shall have the right to a
5-49 hearing upon request.
5-50 (e) If the commission approves an enhanced recovery project
5-51 or an expansion under this section, it shall issue a certification
5-52 of approval for an approved project designating the area to be
5-53 affected by the project.
5-54 (f) <(e)> The recovered oil tax rate applies only to oil
5-55 produced from a new enhanced oil recovery project, any
5-56 co-production project, or the incremental production caused by the
5-57 expansion of an existing enhanced recovery project from the area
5-58 the commission certifies to be affected by the project.
5-59 (g) Subject to the provisions of Subsections (b) and
5-60 <(f) Except as provided by Subsection> (h) of this section, the
5-61 recovered oil tax rate applies to oil on which a tax is imposed by
5-62 this chapter for the 10 years beginning the first day of the month
5-63 following the date the commission certifies that, in the case of an
5-64 enhanced recovery project including a co-production project, a
5-65 positive production response has occurred or, in the case of an
5-66 expansion, other than related to a co-production project,
5-67 incremental production has occurred, if the application for
5-68 certification is filed:
5-69 (1) not later than three years from the date the
5-70 commission approves the project if the project is designated as a
6-1 new or existing project other than a co-production project that
6-2 uses a secondary recovery process; or
6-3 (2) not later than five years from the date the
6-4 commission approves the project if the project is designated as a
6-5 new or existing project that uses a tertiary recovery process or is
6-6 a co-production project.
6-7 (h) <(g)> The operator may designate the certification date,
6-8 subject to commission approval. If the commission determines that
6-9 the project has caused a positive production response or
6-10 incremental production, the commission shall certify that fact.
6-11 (i) <(h)> Notwithstanding Subsection (g) <(f)> of this
6-12 section, qualification for the recovered oil tax rate ends on the
6-13 first day of the first calendar month that begins on or after the
6-14 91st day following the date of termination of the active operation
6-15 of the enhanced recovery project or of termination of an approved
6-16 expansion.
6-17 (j) <(i)> If the active operation of an approved enhanced
6-18 recovery project or expansion is terminated, the person who
6-19 immediately before the termination is the operator of the project
6-20 shall notify the commission and the comptroller in writing not
6-21 later than the 30th day after the last day of active operation.
6-22 Any person who violates this subsection is liable to the state for
6-23 a civil penalty if the person pays or attempts to pay the tax
6-24 imposed by this chapter on oil from the project at the recovered
6-25 oil tax rate after qualification for that rate ends under
6-26 Subsection (g) <(f)> or (i) <(h)> of this section. The amount of
6-27 the penalty may not exceed the sum of:
6-28 (1) $10,000; and
6-29 (2) the difference between the amount of taxes paid or
6-30 attempted to be paid and the amount of taxes due.
6-31 (k) <(j)> The attorney general may recover a penalty under
6-32 Subsection (j) <(i)> of this section in a suit brought on behalf of
6-33 the state. Venue for the suit is in Travis County.
6-34 (l) <(k)> The commission has broad discretion in
6-35 administering this section and shall adopt and enforce any
6-36 appropriate rules or orders that the commission finds necessary to
6-37 administer this section concerning the designation, operation, and
6-38 termination of enhanced recovery projects and expansions. The
6-39 commission shall notify the comptroller of any action taken under
6-40 this subsection. The comptroller shall have the power to establish
6-41 procedures in order to comply with this Act.
6-42 (m) Subject to the provisions of Subsection (b) of this
6-43 section, if <(l) If>, before the comptroller approves an
6-44 application for taxation at the recovered oil tax rate, the tax
6-45 imposed by this chapter is paid at the rate provided by Section
6-46 202.052(a) of this code on oil that qualifies under this section
6-47 for the recovered oil tax rate, the producer or producers of the
6-48 oil are entitled to a credit against taxes imposed by this chapter
6-49 in an amount equal to the difference between the tax paid on the
6-50 oil and the tax due on the oil at the recovered oil tax rate. The
6-51 credit is allocated to each producer according to the producer's
6-52 proportionate share in the oil. To receive a credit, one or more
6-53 of the producers of the oil must apply to the comptroller for the
6-54 credit not later than the first anniversary after the date the
6-55 commission certifies that a positive production response has
6-56 occurred.
6-57 (n) <(m)> To qualify for the taxation of oil at the
6-58 recovered oil tax rate, a person responsible for paying the tax
6-59 must apply to the comptroller. The application must include the
6-60 certification of the commission that the project or expansion has
6-61 been approved and that the project has resulted in a positive
6-62 production response or that the expansion has resulted in
6-63 incremental production. The comptroller shall approve the
6-64 application of a person who demonstrates that the oil is eligible
6-65 for taxation at the recovered oil tax rate. The comptroller may
6-66 require a person applying for the recovered oil tax rate to provide
6-67 any relevant information in the person's monthly report and
6-68 internal records that the comptroller considers necessary to
6-69 administer this section. The commission shall notify the
6-70 comptroller in writing immediately if it determines that active
7-1 operation of an approved enhanced recovery project or an approved
7-2 expansion has been terminated or if it takes any action or
7-3 discovers any information that affects the taxation of oil at the
7-4 recovered oil tax rate.
7-5 SECTION 3. This Act takes effect September 1, 1993.
7-6 SECTION 4. The importance of this legislation and the
7-7 crowded condition of the calendars in both houses create an
7-8 emergency and an imperative public necessity that the
7-9 constitutional rule requiring bills to be read on three several
7-10 days in each house be suspended, and this rule is hereby suspended.
7-11 * * * * *
7-12 Austin,
7-13 Texas
7-14 May 20, 1993
7-15 Hon. Bob Bullock
7-16 President of the Senate
7-17 Sir:
7-18 We, your Committee on State Affairs to which was referred H.B. No.
7-19 2723, have had the same under consideration, and I am instructed to
7-20 report it back to the Senate with the recommendation that it do
7-21 pass, as amended, and be printed.
7-22 Harris of
7-23 Dallas, Chairman
7-24 * * * * *
7-25 WITNESSES
7-26 No witnesses appeared on H.B. No. 2723.