By: Harris of Dallas S.B. No. 100
A BILL TO BE ENTITLED
1-1 relating to tax and regulatory relief as incentives for the
1-2 production of certain gas that is difficult or expensive to produce
1-3 and relating to a reduced oil production tax rate for oil from
1-4 certain enhanced recovery projects.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-8 Sec. 201.057. TEMPORARY EXEMPTION OF CERTAIN HIGH-COST GAS
1-9 (a) In this section:
1-10 (1) "Commission" means the Railroad Commission of
1-12 (2) "High-cost gas" means:
1-13 (A) high-cost natural gas as described by
1-14 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-15 3317), as that section exists on January 1, 1989, without regard to
1-16 whether that section is in effect or whether a determination has
1-17 been made that the gas is high-cost natural gas for purposes of
1-18 that Act<
1-19 (B) all gas produced from oil wells or gas wells
1-20 within a commission approved co-production project.
1-21 (3) "Commission approved co-production project" means
1-22 a reservoir development project in which the commission has
1-23 recognized, after notice and hearing, that water withdrawals from
2-1 an oil or gas field in excess of specified minimum volumes will
2-2 increase recovery of oil and/or gas from the reservoir and where
2-3 operators in the field have begun to implement commission
2-4 requirements to withdraw such volumes of water and dispose of such
2-5 water outside the subject reservoir.
2-6 (4) "Co-production" means the permanent removal of
2-7 water from an oil and/or gas reservoir in an effort to lower the
2-8 gas-liquid contact in the reservoir or to reduce reservoir pressure
2-9 to increase ultimate recovery of hydrocarbons from the reservoir.
2-10 (5) "Operator" means the person responsible for the
2-11 actual physical operation of < a> an oil or gas well.
2-12 (b) High-cost gas produced from a well that is spudded or
2-13 completed between the < date of enactment> May 24, 1989 and
2-14 September 1, 1996, and high cost gas produced from any well within
2-15 a commission approved co-production project is exempt from the tax
2-16 imposed by this chapter during the period beginning September 1,
2-17 1991, and ending August 31, 2001.
2-18 (c) The operator of a proposed or existing gas well,
2-19 including a gas well that has not been completed, or the operator
2-20 of any proposed or existing oil or gas well within a commission
2-21 approved co-production project, may apply to the commission for
2-22 certification that the well produces or will produce high-cost gas.
2-23 The application may be made but is not required to be made
2-24 concurrently with a request for a determination that gas produced
2-25 from the well is high-cost natural gas for purposes of the Natural
3-1 Gas Policy Act of 1978 (15 U.S.C. Section 3301 et seq.) or with a
3-2 request for commission approval of a co-production project. The
3-3 commission may require an applicant to provide the commission with
3-4 any relevant information required to administer this section. For
3-5 purposes of this section, a determination that gas is high-cost
3-6 natural gas for purposes of the Natural Gas Policy Act of 1978 made
3-7 according to the definition of high-cost natural gas provided by
3-8 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
3-9 3317), as that section exists on January 1, 1989, is a
3-10 certification that the gas is high-cost gas for purposes of this
3-11 section, and in that event additional certification is not required
3-12 to qualify for the exemption provided by this section.
3-13 (d) To qualify for the exemption provided by this section,
3-14 the person responsible for paying the tax must apply to the
3-15 comptroller. The application must contain the certification of the
3-16 commission that the well produces high-cost gas. An application
3-17 may not be filed before January 1, 1990, or after December 31,
3-18 1998. The comptroller shall approve the application of a person
3-19 who demonstrates that the gas is eligible for the exemption. The
3-20 comptroller may require a person applying for the exemption to
3-21 provide any relevant information in the person's monthly report
3-22 that the comptroller considers necessary to administer this
3-23 section. The commission shall notify the comptroller in writing
3-24 immediately if it determines that an oil or gas well previously
3-25 certified as producing high-cost gas does not produce high-cost gas
4-1 or if it takes any action or discovers any information that affects
4-2 the eligibility of gas for an exemption under this section.
4-3 (e) If, before the commission certifies that a well produces
4-4 high-cost gas or before the comptroller approves an application for
4-5 an exemption under this section, the tax imposed by this chapter is
4-6 paid on high-cost gas that otherwise qualifies for the exemption
4-7 provided by this section, the producer or producers of the gas are
4-8 entitled to a credit against other taxes imposed by this chapter in
4-9 an amount equal to the amount of the tax paid on the gas that
4-10 otherwise qualified for the exemption on or after the first day of
4-11 the next month after the month in which the application for
4-12 certification under this section was filed with the commission.
4-13 The credit is allocated to each producer according to the
4-14 producer's proportionate share in the gas. To receive a credit,
4-15 one or more of the producers must apply to the comptroller for the
4-16 credit not later than the first anniversary after the date the
4-17 comptroller approves the application for an exemption under this
4-18 section. If a producer demonstrates that the producer does not
4-19 have sufficient tax liability under this chapter to claim the
4-20 credit within five years from the date the application for the
4-21 credit is made, the producer is entitled to a refund in the amount
4-22 of any credit the comptroller determines may not be claimed within
4-23 that five years.
4-24 SECTION 2. Section 202.054, Tax Code, is amended to read as
5-1 Sec. 202.054. QUALIFICATION OF OIL FROM NEW OR EXPANDED
5-2 ENHANCED RECOVERY PROJECT FOR SPECIAL TAX RATE
5-3 (a) In this section:
5-4 (1) "Active operation" means the start and
5-5 continuation of a fluid injection or co-production program for a
5-6 secondary or tertiary recovery project to enhance the displacement
5-7 process in the reservoir.
5-8 (2) "Commission" means the Railroad Commission of
5-10 (3) "Enhanced recovery project" means the use of any
5-11 process for the displacement of oil from the earth other than
5-12 primary recovery and includes the use of an immiscible, miscible,
5-13 chemical, thermal, or biological process and any co-production
5-15 (4) "Existing enhanced recovery project" means an
5-16 enhanced recovery project that began active operations before
5-17 September 1, 1989.
5-18 (5) "Expanded enhanced recovery project" or
5-19 "expansion" means the addition of injection and producing wells,
5-20 the change of injection pattern, or other operating changes to an
5-21 existing enhanced oil recovery project that will result in the
5-22 recovery of oil that would not otherwise be recovered.
5-23 (6) "Incremental production" means the volume of oil
5-24 produced by an expanded enhanced recovery project in excess of the
5-25 production decline rate established under conditions before
6-1 expansion for an existing enhanced recovery project.
6-2 (7) "Operator" means the person responsible for the
6-3 actual physical operation of an enhanced recovery project.
6-4 (8) "Positive production response" means that the rate
6-5 of oil production from the wells affected by an enhanced recovery
6-6 project is greater than the rate that would have occurred without
6-7 the project.
6-8 (9) "Primary recovery" means the displacement of oil
6-9 from the earth into the well bore by means of the natural pressure
6-10 of the oil reservoir, including artificial lift.
6-11 (10) "Production decline rate" means the projected
6-12 future oil production from a project area as extrapolated by a
6-13 method approved by the commission.
6-14 (11) "Recovered oil tax rate" means the tax rate
6-15 provided by Section 202.052(b) of this code.
6-16 (12) "Secondary recovery project" means an enhanced
6-17 recovery project that is not a tertiary recovery project.
6-18 (13) "Tertiary recovery project" means an enhanced
6-19 recovery project using a tertiary recovery method listed in the
6-20 federal June 1979 energy regulations referred to in Section 4993,
6-21 Internal Revenue Code of 1986, or approved by the United States
6-22 secretary of the treasury for purposes of administering Section
6-23 4993, Internal Revenue Code of 1986, without regard to whether that
6-24 section remains in effect.
6-25 (14) "Co-production project" means an enhanced
7-1 recovery project in which water is permanently removed from an oil
7-2 and/or gas reservoir in an effort to lower the gas-liquid contact
7-3 in the reservoir or to reduce reservoir pressure to increase
7-4 ultimate recovery of hydrocarbons from the reservoir.
7-5 (15) "Commission approved co-production project" means
7-6 a reservoir development project in which the commission has
7-7 recognized, after notice and hearing, that water withdrawals from
7-8 an oil or gas field in excess of specified minimum volumes will
7-9 increase recovery of oil and/or gas from the reservoir and where
7-10 operators in the field have begun to implement commission
7-11 requirements to withdraw such volumes of water and dispose of such
7-12 water outside the subject reservoir.
7-13 (b) Oil produced from an enhanced recovery project other
7-14 than a co-production project qualifies for the recovered oil tax
7-15 rate if, before the project begins active operation, the commission
7-16 approves the project and designates the area to be affected by the
7-17 project. The incremental production from an expanded enhanced
7-18 recovery project other than a co-production project qualifies for
7-19 the recovered oil tax rate if, before the expansion begins, the
7-20 commission approves the expansion and designates the area to be
7-21 affected by the expansion. Oil produced from a commission approved
7-22 co-production project, whether a new enhanced recovery project or
7-23 an expanded enhanced recovery project, qualifies for the recovered
7-24 oil tax rate upon commission approval without regard to whether the
7-25 approval is before or after the project began active operations.
8-1 The operator of a proposed project, < or> a proposed expansion, or a
8-2 proposed or existing co-production project may apply to the
8-3 commission for approval of the project or expansion under this
8-4 section. The commission may require an applicant to provide the
8-5 commission with any relevant information required to administer
8-6 this section. If approval by the commission of a unitization
8-7 agreement under Subchapter B, Chapter 101, Natural Resources Code,
8-8 is required for purposes of carrying out the project or expansion,
8-9 the commission may not approve the project or expansion unless it
8-10 approves the unitization agreement. A person may apply for
8-11 approval of a proposed enhanced recovery project, < or> a proposed
8-12 expansion or a proposed co-production project under this subsection
8-13 concurrently with an application for approval of a unitization
8-14 agreement for purposes of carrying out the enhanced recovery
8-15 project or expansion under Section 101.011, Natural Resources Code,
8-16 or with an application for certification of the project or
8-17 expansion as a tertiary recovery project for purposes of Section
8-18 4993, Internal Revenue Code of 1986, or may make a separate
8-19 application for approval.
8-20 (c) This section applies to an enhanced recovery project
8-21 that begins active operation on or after September 1, 1989, and to
8-22 an expansion that the commission approves on or after
8-23 September 1, 1991. An application for approval under this section
8-24 must be filed on or after September 1, 1989, and before
8-25 January 1, 1994, for a new enhanced recovery project. An
9-1 application for approval under this section must be filed on or
9-2 after September 1, 1991, and before January 1, 1994, for an
9-3 expansion of an existing enhanced recovery project. A project may
9-4 not qualify as an expansion if the project has qualified as a new
9-5 enhanced recovery project under this section. An application may
9-6 be filed on or after September 1, 1989, even if a separate
9-7 application for approval of the project or expansion has already
9-8 been filed under Subchapter B, Chapter 101, Natural Resources Code,
9-9 or for approval as a tertiary recovery project for purposes of
9-10 Section 493, Internal Revenue Code of 1986, if the operation of a
9-11 new project or the expansion of an existing project, other than a
9-12 co-production project, does not begin before the application for
9-13 approval under this section is approved by the commission< .>;
9-14 provided, however, nothing herein shall require commission approval
9-15 of a co-production project prior to commencing active operations on
9-16 such project in order for such project to be eligible for the
9-17 recovered oil tax rate.
9-18 (d) If the commission approves an enhanced recovery project
9-19 or an expansion under this section, it shall issue a certification
9-20 of approval for an approved project designating the area to be
9-21 affected by the project.
9-22 (e) The recovered oil tax rate applies only to oil produced
9-23 from a new enhanced oil recovery project or the incremental
9-24 production caused by the expansion of an existing enhanced recovery
9-25 project from the area the commission certifies to be affected by
10-1 the project.
10-2 (f) Except as provided by Subsection < (h)> (i) of this
10-3 section, the recovered oil tax rate applies to oil on which a tax
10-4 is imposed by this chapter for the 10 years beginning the first day
10-5 of the month following the date the commission certifies that, in
10-6 the case of an enhanced recovery project other than a co-production
10-7 project, a positive production response has occurred or, in the
10-8 case of an expansion, other than related to a co-production
10-9 project, incremental production has occurred, if the application
10-10 for certification is filed:
10-11 (1) not later than three years from the date the
10-12 commission approves the project if the project is designated as a
10-13 new or existing project that uses a secondary recovery process; or
10-14 (2) not later than five years from the date the
10-15 commission approves the project if the project is designated as a
10-16 new or existing project that uses a tertiary recovery process.
10-17 (g) The operator may designate the certification date,
10-18 subject to commission approval. If the commission determines that
10-19 the project has caused a positive production response or
10-20 incremental production, the commission shall certify that fact.
10-21 (h) The recovered oil tax rate applies to all oil produced
10-22 from a commission approved co-production project, whether a new
10-23 enhanced recovery project or an expanded enhanced recovery project,
10-24 for the ten years beginning the first day of the month following
10-25 the date the commission approves such project. A commission order
11-1 approving a co-production project shall entitle the operator
11-2 thereof to the recovered oil tax rate without commission
11-3 certification of positive production response or incremental
11-5 < (h)> (i) Notwithstanding Subsections (f) and (h) of this
11-6 section, qualification for the recovered oil tax rate ends on the
11-7 first day of the first calendar month that begins on or after the
11-8 91st day following the date of termination of the active operation
11-9 of the enhanced recovery project or of termination of an approved
11-11 (j) If the active operation of an approved enhanced recovery
11-12 project or expansion is terminated, the person who immediately
11-13 before the termination is the operator of the project shall notify
11-14 the commission and the comptroller in writing not later than the
11-15 30th day after the last day of active operation. Any person who
11-16 violates this subsection is liable to the state for a civil penalty
11-17 if the person pays or attempts to pay the tax imposed by this
11-18 chapter on oil from the project at the recovered oil tax rate after
11-19 qualification for that rate ends under Subsection (f), (h) or (i)
11-20 of this section. The amount of the penalty may not exceed the sum
11-22 (1) $10,000; and
11-23 (2) the difference between the amount of taxes paid or
11-24 attempted to be paid and the amount of taxes due.
11-25 < (j)> (k) The attorney general may recover a penalty under
12-1 Subsection < (i)> (j) of this section in a suit brought on behalf of
12-2 the state. Venue for the suit is in Travis County.
12-3 < (k)> (l) The commission has broad discretion in
12-4 administering this section and shall adopt and enforce any
12-5 appropriate rules or orders that the commission finds necessary to
12-6 administer this section concerning the designation, operation, and
12-7 termination of enhanced recovery projects and expansions. The
12-8 commission shall notify the comptroller of any action taken under
12-9 this subsection. The comptroller shall have the power to establish
12-10 procedures in order to comply with this Act.
12-11 < (l)> (m) If, before the comptroller approves an application
12-12 for taxation at the recovered oil tax rate, the tax imposed by this
12-13 chapter is paid at the rate provided by Section 202.052(a) of this
12-14 code on oil that qualifies under this section for the recovered oil
12-15 tax rate, the producer or producers of the oil are entitled to a
12-16 credit against taxes imposed by this chapter in an amount equal to
12-17 the difference between the tax paid on the oil and the tax due on
12-18 the oil at the recovered oil tax rate. The credit is allocated to
12-19 each producer according to the producer's proportionate share in
12-20 the oil. To receive a credit, one or more of the producers of the
12-21 oil must apply to the comptroller for the credit not later than the
12-22 first anniversary after the date the commission certifies that a
12-23 positive production response has occurred.
12-24 < (m)> (n) To qualify for the taxation of oil at the
12-25 recovered oil tax rate, a person responsible for paying the tax
13-1 must apply to the comptroller. The application must include the
13-2 certification of the commission that the project or expansion has
13-3 been approved and, for projects other than a co-production project,
13-4 that the project has resulted in a positive production response or
13-5 that the expansion has resulted in incremental production. The
13-6 comptroller shall approve the application of a person who
13-7 demonstrates that the oil is eligible for taxation at the recovered
13-8 oil tax rate. The comptroller may require a person applying for
13-9 the recovered oil tax rate to provide any relevant information in
13-10 the person's monthly report and internal records that the
13-11 comptroller considers necessary to administer this section. The
13-12 commission shall notify the comptroller in writing immediately if
13-13 it determines that active operation of an approved enhanced
13-14 recovery project or an approved expansion has been terminated or if
13-15 it takes any action or discovers any information that affects the
13-16 taxation of oil at the recovered oil tax rate.
13-17 SECTION 3. This Act takes effect , 1993.
13-18 SECTION 4. The importance of this legislation and the
13-19 crowded condition of the calendars in both houses create an
13-20 emergency and an imperative public necessity that the
13-21 constitutional rule requiring bills to be read on three several
13-22 days in each house be suspended, and this rule is hereby suspended.