BILL ANALYSIS C.S.H.B. 398 By: Counts March 16, 1995 Committee Report (Substituted) BACKGROUND Currently, high-cost gas, as defined in Section 201.057(a)(2), Tax Code, is exempt from the natural gas production tax if it is produced from wells spudded or completed between May 24, 1989 and September 1, 1996. The current exemption applies to production during the period beginning September 1, 1991 and ending August 31, 2001. The Railroad Commission credits nearly 6,000 wells in the past six years to this exemption program. The total economic impact to the state has been over 16 billion dollars, and over 333 million dollars in state and local taxes. PURPOSE This bill extends the 10-year severance tax exemption on certain high-cost gas wells. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 201.057(a), (b), (c) and (d), Tax Code: (a) Adds Subsection (a)(7) defining "Consecutive months." (b) Extends the eligibility period for the exemption for wells that qualify under Subsection (a)(2)(A). Changes the latest date for spudding or completing high-cost gas wells from September 1, 1996 to September 1, 2006. Also changes the ending date for the exemption. The current exemption ends August 31, 2001, regardless of when production began. The bill would exempt production for 120 consecutive calendar months beginning on the first day of production. All wells that qualify in this section, are limited to 120 consecutive months tax exemption. For wells spudded or completed between September 1, 1996, and August 31, 1997: * Tax must be paid when due at the rate imposed in Section 201.052(a). * On or after September 1, 1997, an operator may apply for and shall receive a refund for all production in that time period. * The time period for which an operator is entitled to a refund in this section is included in the 120 month limit of tax exemption. The application of the exemption and production period for wells that qualify under Subsection (a)(2)(B) do not change. (c) Provides an application deadline for exemption of high-cost gas under Subsection (a)(2)(A), for proposed or existing wells that produce or will produce high-cost gas, to be August 31, 2006. All applications to the Railroad Commission must be in writing. (d) Extends the deadline for applications to the comptroller under Subsection (a)(2)(A) to be December 31, 2007. SECTION 2. Effective Date: September 1, 1995. SECTION 3. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE H.B. 398 extends the 10-year severance tax exemption program for high-cost gas as defined in Section 201.057(a)(2). It also extends all application and certification deadlines that are applicable to the program. C.S.H.B. 398 extends the exemption only for high-cost gas as defined in Section 201.057(a)(2)(A). It also changes the ending period of the exemption differently in that the original bill has a definite ending date for the exemption. C.S.H.B. 398 allows 120 consecutive months of tax exemption beginning on the first day of production, even if the first day of production is the last day that a well may be spudded or completed. For wells that are spudded or completed between September 1, 1996, and August 31, 1997, producers pay the tax and then after August 31, 1997, may apply for and shall receive a refund of taxes paid. The original bill had no such provision. SUMMARY OF COMMITTEE ACTION Public notice was posted in accordance to the rules and a public hearing was held on March 7, 1995. Representative Counts explained the bill. Without objection, the committee approved C.S.H.B. 398 by Representative Craddick. By a record vote of 6 ayes, 0 nays, 1 present not voting and 4 absent, the committee voted to report H.B. 398 as substituted to the House with the recommendation that it do pass. Testimony received in favor of the bill: Grant Billingsley, representing TIPRO, Panhandle Producers & Royalty Owners Assn., Permian Basin Petro. Assn., North Texas Oil & Gas Assn., West Central Texas Oil & Gas Assn., and Wagner & Brown, LTD. Kathleen E. Magruder, representing herself and Enron Capital & Trade Resources Robert J. Duenckel, representing Marathon Oil Co. Arnold H. Brackenridge, representing Trans Texas Gas Corporation Ben Sebree, representing Texas Mid-Continent Oil & Gas Assn. David Sebree, representing Conoco, Inc. Neutral testimony received on the bill: Mike Reissig, representing the Comptroller of Public Accounts