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