1-1 By: Harris of Dallas S.B. No. 100
1-2 (In the Senate - Filed January 13, 1993; January 14, 1993,
1-3 read first time and referred to Committee on State Affairs;
1-4 May 10, 1993, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 9, Nays 0; May 10, 1993,
1-6 sent to printer.)
1-7 COMMITTEE VOTE
1-8 Yea Nay PNV Absent
1-9 Harris of Dallas x
1-10 Rosson x
1-11 Carriker x
1-12 Henderson x
1-13 Leedom x
1-14 Lucio x
1-15 Luna x
1-16 Nelson x
1-17 Patterson x
1-18 Shelley x
1-19 Sibley x
1-20 West x
1-21 Whitmire x
1-22 COMMITTEE SUBSTITUTE FOR S.B. No. 100 By: Harris of Dallas
1-23 A BILL TO BE ENTITLED
1-24 AN ACT
1-25 relating to tax and regulatory relief as incentives for the
1-26 production of certain gas that is difficult or expensive to produce
1-27 and to a reduced oil production tax rate for oil from certain
1-28 enhanced recovery projects.
1-29 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-30 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-31 follows:
1-32 Sec. 201.057. TEMPORARY EXEMPTION OF CERTAIN HIGH-COST GAS.
1-33 (a) In this section:
1-34 (1) "Commission" means the Railroad Commission of
1-35 Texas.
1-36 (2) "Commission-approved coproduction project" means a
1-37 reservoir development project in which the commission has
1-38 recognized that water withdrawals from an oil or gas reservoir in
1-39 excess of specified minimum volumes will result in recovery of
1-40 additional oil and/or gas from the reservoir that would not be
1-41 produced by conventional production methods and operators of wells
1-42 completed in the reservoir have begun to implement commission
1-43 requirements to withdraw such volumes of water and dispose of such
1-44 water outside the subject reservoir. Reservoirs potentially
1-45 eligible for this designation shall be limited to those reservoirs
1-46 in which oil and/or gas has been bypassed by water encroachment
1-47 caused by production from the reservoir and such bypassed oil
1-48 and/or gas may be produced as a result of reservoir-wide
1-49 high-volume water withdrawals of natural-formation water.
1-50 (3) "Coproduction" means the permanent removal of
1-51 water from an oil and/or gas reservoir in an effort to lower the
1-52 gas-water contact or oil-water contact in the reservoir or to
1-53 reduce reservoir pressure to recover entrained hydrocarbons from
1-54 the reservoir that would not be produced by conventional primary or
1-55 secondary production methods.
1-56 (4) "High-cost gas" means:
1-57 (A) high-cost natural gas as described by
1-58 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-59 3317), as that section exists on January 1, 1989, without regard to
1-60 whether that section is in effect or whether a determination has
1-61 been made that the gas is high-cost natural gas for purposes of
1-62 that Act; or
1-63 (B) all gas produced from oil wells or gas wells
1-64 within a commission-approved coproduction project.
1-65 (5) "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 (6) <(3)> "Operator" means the person responsible for
2-2 the actual physical operation of an oil or <a> gas well.
2-3 (b) High-cost gas as defined in Subsection (a)(4)(A) of this
2-4 section, produced from a well that is spudded or completed between
2-5 May 24, 1989, <the date of enactment> and September 1, 1996, is
2-6 exempt from the tax imposed by this chapter during the period
2-7 beginning September 1, 1991, and ending August 31, 2001. High-cost
2-8 gas as defined in Subsection (a)(4)(B) of this section produced
2-9 from any well regardless of spud date or completion date is
2-10 eligible for a refund of tax paid and exemption from the tax
2-11 imposed by this chapter for production occurring during the period
2-12 beginning the first day of the month after commission approval of a
2-13 coproduction project and ending August 31, 2001; however, in the
2-14 event coproduction ceases, the exemption shall also cease on the
2-15 first day of the first calendar month that begins on or after the
2-16 91st day following the date of termination of coproduction
2-17 operations. Tax must be paid when due at the rate provided in
2-18 Section 201.052 of this code for all high-cost gas, as defined in
2-19 Subsection (a)(4)(B) of this section, produced on or before
2-20 July 31, 1998. On or after September 1, 1998, the operator may
2-21 apply to the comptroller for a refund and shall be entitled to
2-22 receive a refund of all taxes paid on such high-cost gas produced
2-23 on or after the first day of the calendar month after commission
2-24 approval of the coproduction project from which such gas was
2-25 produced and which is otherwise eligible for the tax exemption.
2-26 (c) The operator of a proposed or existing gas well,
2-27 including a gas well that has not been completed, or the operator
2-28 of any proposed or existing oil or gas well within a
2-29 commission-approved coproduction project, may apply to the
2-30 commission for certification that the well produces or will produce
2-31 high-cost gas. The application may be made but is not required to
2-32 be made concurrently with a request for a determination that gas
2-33 produced from the well is high-cost natural gas for purposes of the
2-34 Natural Gas Policy Act of 1978 (15 U.S.C. Section 3301 et seq.) or
2-35 with a request for commission approval of a coproduction project.
2-36 The commission may require an applicant to provide the commission
2-37 with any relevant information required to administer this section.
2-38 For purposes of this section, a determination that gas is high-cost
2-39 natural gas for purposes of the Natural Gas Policy Act of 1978 made
2-40 according to the definition of high-cost natural gas provided by
2-41 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
2-42 3317), as that section exists on January 1, 1989, or a
2-43 determination that gas is produced from within a
2-44 commission-approved coproduction project is a certification that
2-45 the gas is high-cost gas for purposes of this section, and in that
2-46 event additional certification is not required to qualify for the
2-47 exemption provided by this section.
2-48 (d) To qualify for the exemption provided by this section,
2-49 the person responsible for paying the tax must apply to the
2-50 comptroller. The application must contain the certification of the
2-51 commission that the well produces high-cost gas. An application
2-52 may not be filed before January 1, 1990, or after December 31,
2-53 1998. The comptroller shall approve the application of a person
2-54 who demonstrates that the gas is eligible for the exemption. The
2-55 comptroller may require a person applying for the exemption to
2-56 provide any relevant information in the person's monthly report
2-57 that the comptroller considers necessary to administer this
2-58 section. The commission shall notify the comptroller in writing
2-59 immediately if it determines that an oil or <a> gas well previously
2-60 certified as producing high-cost gas does not produce high-cost gas
2-61 or if it takes any action or discovers any information that affects
2-62 the eligibility of gas for an exemption under this section.
2-63 (e) If, before the commission certifies that a well produces
2-64 high-cost gas or before the comptroller approves an application for
2-65 an exemption under this section, the tax imposed by this chapter is
2-66 paid on high-cost gas that otherwise qualifies for the exemption
2-67 provided by this section, the producer or producers of the gas are
2-68 entitled to a credit against other taxes imposed by this chapter in
2-69 an amount equal to the amount of the tax paid on the gas that
2-70 otherwise qualified for the exemption on or after the first day of
3-1 the next month after the month in which the application for
3-2 certification under this section was filed with the commission.
3-3 The credit is allocated to each producer according to the
3-4 producer's proportionate share in the gas. To receive a credit,
3-5 one or more of the producers must apply to the comptroller for the
3-6 credit not later than the first anniversary after the date the
3-7 comptroller approves the application for an exemption under this
3-8 section. If a producer demonstrates that the producer does not
3-9 have sufficient tax liability under this chapter to claim the
3-10 credit within five years from the date the application for the
3-11 credit is made, the producer is entitled to a refund in the amount
3-12 of any credit the comptroller determines may not be claimed within
3-13 that five years. Nothing in this subsection shall relieve the
3-14 obligation imposed by Subsection (b) of this section to pay tax
3-15 when due on high-cost gas produced from coproduction projects on or
3-16 before July 31, 1995.
3-17 (f) An applicant for commission approval of a coproduction
3-18 project shall submit a written application for approval to the
3-19 commission. Such application must be filed before January 1, 1994.
3-20 The applicant shall provide the commission with any relevant
3-21 information required to administer this section, including evidence
3-22 demonstrating that the reservoir is eligible for the designation
3-23 and demonstrating the minimum volumes of high-volume water
3-24 withdrawal required to recover oil and/or gas from the reservoir
3-25 that would not be produced by conventional production methods. A
3-26 commission representative may administratively approve the
3-27 application. If the commission representative denies
3-28 administrative approval, the applicant shall have the right to a
3-29 hearing on request.
3-30 SECTION 2. Section 202.054, Tax Code, is amended to read as
3-31 follows:
3-32 Sec. 202.054. Qualification of Oil From New or Expanded
3-33 Enhanced Recovery Project for Special Tax Rate. (a) In this
3-34 section:
3-35 (1) "Active operation" means the start and
3-36 continuation of a fluid injection program for a secondary or
3-37 tertiary recovery project to enhance the displacement process in
3-38 the reservoir.
3-39 (2) "Commission" means the Railroad Commission of
3-40 Texas.
3-41 (3) "Commission-approved coproduction project" means a
3-42 reservoir development project in which the commission has
3-43 recognized that water withdrawals from an oil or gas reservoir in
3-44 excess of specified minimum volumes will result in recovery of
3-45 additional oil and/or gas from the reservoir that would not be
3-46 produced by conventional production methods and where operators in
3-47 the field have begun to implement commission requirements to
3-48 withdraw such volumes of water and dispose of such water outside
3-49 the subject reservoir. Reservoirs potentially eligible for this
3-50 designation shall be limited to those reservoirs in which oil
3-51 and/or gas has been bypassed by water encroachment caused by
3-52 production from the reservoir and such bypassed oil and/or gas may
3-53 be produced as a result of field-wide high volume water withdrawals
3-54 of natural-formation water.
3-55 (4) "Coproduction project" means an enhanced recovery
3-56 project in which water is permanently removed from an oil and/or
3-57 gas reservoir in an effort to lower the gas-water or oil-water
3-58 contact in the reservoir or to reduce reservoir pressure to recover
3-59 entrained hydrocarbons from the reservoir that would not be
3-60 produced by conventional primary or secondary production methods.
3-61 (5) "Enhanced recovery project" means the use of any
3-62 process for the displacement of oil from the earth other than
3-63 primary recovery and includes the use of an immiscible, miscible,
3-64 chemical, thermal, or biological process and any coproduction
3-65 project.
3-66 (6) <(4)> "Existing enhanced recovery project" means
3-67 an enhanced recovery project that began active operations before
3-68 September 1, 1989.
3-69 (7) <(5)> "Expanded enhanced recovery project" or
3-70 "expansion" means the addition of injection and producing wells,
4-1 the change of injection pattern, or other operating changes to an
4-2 existing enhanced oil recovery project that will result in the
4-3 recovery of oil that would not otherwise be recovered.
4-4 (8) "High-volume water withdrawals" means the
4-5 withdrawal of water from a reservoir in an amount sufficient to
4-6 dewater portions of the reservoir containing oil and/or gas
4-7 previously bypassed by water encroachment.
4-8 (9) <(6)> "Incremental production" means the volume of
4-9 oil produced by an expanded enhanced recovery project in excess of
4-10 the production decline rate established under conditions before
4-11 expansion for an existing enhanced recovery project.
4-12 (10) <(7)> "Operator" means the person responsible for
4-13 the actual physical operation of an enhanced recovery project.
4-14 (11) <(8)> "Positive production response" means that
4-15 the rate of oil production from the wells affected by an enhanced
4-16 recovery project is greater than the rate that would have occurred
4-17 without the project.
4-18 (12) <(9)> "Primary recovery" means the displacement
4-19 of oil from the earth into the well bore by means of the natural
4-20 pressure of the oil reservoir, including artificial lift.
4-21 (13) <(10)> "Production decline rate" means the
4-22 projected future oil production from a project area as extrapolated
4-23 by a method approved by the commission.
4-24 (14) <(11)> "Recovered oil tax rate" means the tax
4-25 rate provided by Section 202.052(b) of this code.
4-26 (15) <(12)> "Secondary recovery project" means an
4-27 enhanced recovery project that is not a tertiary recovery project.
4-28 (16) <(13)> "Tertiary recovery project" means an
4-29 enhanced recovery project using a tertiary recovery method listed
4-30 in the federal June 1979 energy regulations referred to in Section
4-31 4993, Internal Revenue Code of 1986, or approved by the United
4-32 States secretary of the treasury for purposes of administering
4-33 Section 4993, Internal Revenue Code of 1986, without regard to
4-34 whether that section remains in effect.
4-35 (b) Oil produced from an enhanced recovery project other
4-36 than a coproduction project qualifies for the recovered oil tax
4-37 rate if, before the project begins active operation, the commission
4-38 approves the project and designates the area to be affected by the
4-39 project. The incremental production from an expanded enhanced
4-40 recovery project other than a coproduction project qualifies for
4-41 the recovered oil tax rate if, before the expansion begins, the
4-42 commission approves the expansion and designates the area to be
4-43 affected by the expansion. Oil produced from a commission-approved
4-44 coproduction project, whether a new enhanced recovery project or an
4-45 expanded enhanced recovery project, qualifies for the recovered oil
4-46 tax rate following commission certification of a positive
4-47 production response without regard to whether the commission
4-48 approval is granted before or after the project begins active
4-49 operations; however, tax must be paid when due at the rate provided
4-50 in Section 202.052(a) of this code for all oil produced on or
4-51 before July 31, 1998. On or after September 1, 1998, the operator
4-52 may apply to the comptroller for a refund and shall be entitled to
4-53 receive a refund equal to the difference between the tax paid on
4-54 all oil produced from a commission-approved coproduction project
4-55 after commission certification of a positive production response
4-56 and the tax due at the recovered oil tax rate for all oil produced
4-57 after commission certification of a positive production response
4-58 from such coproduction project. The operator of a proposed
4-59 project, <or> a proposed expansion, or a proposed or existing
4-60 coproduction project may apply to the commission for approval of
4-61 the project or expansion under this section. The commission may
4-62 require an applicant to provide the commission with any relevant
4-63 information required to administer this section. If approval by
4-64 the commission of a unitization agreement under Subchapter B,
4-65 Chapter 101, Natural Resources Code, is required for purposes of
4-66 carrying out the project or expansion, the commission may not
4-67 approve the project or expansion unless it approves the unitization
4-68 agreement. A person may apply for approval of a proposed enhanced
4-69 recovery project, <or> a proposed expansion, or a proposed
4-70 coproduction project under this subsection concurrently with an
5-1 application for approval of a unitization agreement for purposes of
5-2 carrying out the enhanced recovery project or expansion under
5-3 Section 101.011, Natural Resources Code, or with an application for
5-4 certification of the project or expansion as a tertiary recovery
5-5 project for purposes of Section 4993, Internal Revenue Code of
5-6 1986, or may make a separate application for approval.
5-7 (c) This section applies to an enhanced recovery project
5-8 that begins active operation on or after September 1, 1989, and to
5-9 an expansion that the commission approves on or after September 1,
5-10 1991. An application for approval under this section must be filed
5-11 on or after September 1, 1989, and before January 1, 1994, for a
5-12 new enhanced recovery project, including any coproduction project.
5-13 An application for approval under this section must be filed on or
5-14 after September 1, 1991, and before January 1, 1994, for an
5-15 expansion of an existing enhanced recovery project. A project may
5-16 not qualify as an expansion if the project has qualified as a new
5-17 enhanced recovery project under this section. An application may
5-18 be filed on or after September 1, 1989, even if a separate
5-19 application for approval of the project or expansion has already
5-20 been filed under Subchapter B, Chapter 101, Natural Resources Code,
5-21 or for approval as a tertiary recovery project for purposes of
5-22 Section 4993, Internal Revenue Code of 1986, if the operation of a
5-23 new project or the expansion of an existing project, other than a
5-24 coproduction project, does not begin before the application for
5-25 approval under this section is approved by the commission; however,
5-26 nothing herein shall require commission approval of a coproduction
5-27 project prior to commencing active operations on such project in
5-28 order for such project to be eligible for the recovered oil tax
5-29 rate.
5-30 (d) An applicant for commission approval of a coproduction
5-31 project shall submit a written application for approval to the
5-32 commission. Such application must be filed before January 1, 1994.
5-33 The applicant shall provide the commission with any relevant
5-34 information required to administer this section, including evidence
5-35 demonstrating that the reservoir is eligible for the designation
5-36 and demonstrating the minimum volumes of high-volume water
5-37 withdrawal required to recover oil and/or gas from the reservoir
5-38 that would not be produced by conventional production methods. A
5-39 commission representative may administratively approve the
5-40 application. If the commission representative denies
5-41 administrative approval, the applicant shall have the right to a
5-42 hearing on request.
5-43 (e) If the commission approves an enhanced recovery project
5-44 or an expansion under this section, it shall issue a certification
5-45 of approval for an approved project designating the area to be
5-46 affected by the project.
5-47 (f) <(e)> The recovered oil tax rate applies only to oil
5-48 produced from a new enhanced oil recovery project, any coproduction
5-49 project, or the incremental production caused by the expansion of
5-50 an existing enhanced recovery project from the area the commission
5-51 certifies to be affected by the project.
5-52 (g) Subject to the provisions of Subsections (b) and (i)
5-53 <(f) Except as provided by Subsection (h)> of this section, the
5-54 recovered oil tax rate applies to oil on which a tax is imposed by
5-55 this chapter for the 10 years beginning the first day of the month
5-56 following the date the commission certifies that, in the case of an
5-57 enhanced recovery project including a coproduction project, a
5-58 positive production response has occurred or, in the case of an
5-59 expansion other than one related to a coproduction project,
5-60 incremental production has occurred, if the application for
5-61 certification is filed:
5-62 (1) not later than three years from the date the
5-63 commission approves the project if the project is designated as a
5-64 new or existing project other than a coproduction project that uses
5-65 a secondary recovery process; or
5-66 (2) not later than five years from the date the
5-67 commission approves the project if the project is designated as a
5-68 new or existing project that uses a tertiary recovery process or is
5-69 a coproduction project.
5-70 (h) <(g)> The operator may designate the certification date,
6-1 subject to commission approval. If the commission determines that
6-2 the project has caused a positive production response or
6-3 incremental production, the commission shall certify that fact.
6-4 (i) <(h)> Notwithstanding Subsection (g) <(f)> of this
6-5 section, qualification for the recovered oil tax rate ends on the
6-6 first day of the first calendar month that begins on or after the
6-7 91st day following the date of termination of the active operation
6-8 of the enhanced recovery project or of termination of an approved
6-9 expansion.
6-10 (j) <(i)> If the active operation of an approved enhanced
6-11 recovery project or expansion is terminated, the person who
6-12 immediately before the termination is the operator of the project
6-13 shall notify the commission and the comptroller in writing not
6-14 later than the 30th day after the last day of active operation.
6-15 Any person who violates this subsection is liable to the state for
6-16 a civil penalty if the person pays or attempts to pay the tax
6-17 imposed by this chapter on oil from the project at the recovered
6-18 oil tax rate after qualification for that rate ends under
6-19 Subsection (g) or (i) <(f) or (h)> of this section. The amount of
6-20 the penalty may not exceed the sum of:
6-21 (1) $10,000; and
6-22 (2) the difference between the amount of taxes paid or
6-23 attempted to be paid and the amount of taxes due.
6-24 (k) <(j)> The attorney general may recover a penalty under
6-25 Subsection (j) <(i)> of this section in a suit brought on behalf of
6-26 the state. Venue for the suit is in Travis County.
6-27 (l) <(k)> The commission has broad discretion in
6-28 administering this section and shall adopt and enforce any
6-29 appropriate rules or orders that the commission finds necessary to
6-30 administer this section concerning the designation, operation, and
6-31 termination of enhanced recovery projects and expansions. The
6-32 commission shall notify the comptroller of any action taken under
6-33 this subsection. The comptroller shall have the power to establish
6-34 procedures in order to comply with this Act.
6-35 (m) Subject to the provisions of Subsection (b) of this
6-36 section, if <(l) If>, before the comptroller approves an
6-37 application for taxation at the recovered oil tax rate, the tax
6-38 imposed by this chapter is paid at the rate provided by Section
6-39 202.052(a) of this code on oil that qualifies under this section
6-40 for the recovered oil tax rate, the producer or producers of the
6-41 oil are entitled to a credit against taxes imposed by this chapter
6-42 in an amount equal to the difference between the tax paid on the
6-43 oil and the tax due on the oil at the recovered oil tax rate. The
6-44 credit is allocated to each producer according to the producer's
6-45 proportionate share in the oil. To receive a credit, one or more
6-46 of the producers of the oil must apply to the comptroller for the
6-47 credit not later than the first anniversary after the date the
6-48 commission certifies that a positive production response has
6-49 occurred.
6-50 (n) <(m)> To qualify for the taxation of oil at the
6-51 recovered oil tax rate, a person responsible for paying the tax
6-52 must apply to the comptroller. The application must include the
6-53 certification of the commission that the project or expansion has
6-54 been approved and that the project has resulted in a positive
6-55 production response or that the expansion has resulted in
6-56 incremental production. The comptroller shall approve the
6-57 application of a person who demonstrates that the oil is eligible
6-58 for taxation at the recovered oil tax rate. The comptroller may
6-59 require a person applying for the recovered oil tax rate to provide
6-60 any relevant information in the person's monthly report and
6-61 internal records that the comptroller considers necessary to
6-62 administer this section. The commission shall notify the
6-63 comptroller in writing immediately if it determines that active
6-64 operation of an approved enhanced recovery project or an approved
6-65 expansion has been terminated or if it takes any action or
6-66 discovers any information that affects the taxation of oil at the
6-67 recovered oil tax rate.
6-68 SECTION 3. This Act takes effect September 1, 1993.
6-69 SECTION 4. The importance of this legislation and the
6-70 crowded condition of the calendars in both houses create an
7-1 emergency and an imperative public necessity that the
7-2 constitutional rule requiring bills to be read on three several
7-3 days in each house be suspended, and this rule is hereby suspended.
7-4 * * * * *
7-5 Austin,
7-6 Texas
7-7 May 10, 1993
7-8 Hon. Bob Bullock
7-9 President of the Senate
7-10 Sir:
7-11 We, your Committee on State Affairs to which was referred S.B. No.
7-12 100, have had the same under consideration, and I am instructed to
7-13 report it back to the Senate with the recommendation that it do not
7-14 pass, but that the Committee Substitute adopted in lieu thereof do
7-15 pass and be printed.
7-16 Harris of
7-17 Dallas, Chairman
7-18 * * * * *
7-19 WITNESSES
7-20 FOR AGAINST ON
7-21 ___________________________________________________________________
7-22 Name: Doug Dashiell x
7-23 Representing: Arch Petroleum Inc.
7-24 City: Ft. Worth
7-25 -------------------------------------------------------------------
7-26 Name: Don Ray George x
7-27 Representing: Arch Petroleum Inc.
7-28 City: Ft. Worth
7-29 -------------------------------------------------------------------
7-30 Name: Don Kennard x
7-31 Representing: Arch Petroleum Inc.
7-32 City: Ft. Worth
7-33 -------------------------------------------------------------------