BILL ANALYSIS C.S.H.B. 398 By: Counts (Lucio) Finance 05-19-95 Senate Committee Report (Substituted) BACKGROUND "High-cost gas" received its name because it is expensive to drill and produce. Currently, the incentive for high-cost gas production is low because market clearing prices do not account for the cost of producing it. Currently, gas production in Texas is declining. PURPOSE As proposed, C.S.H.B. 398 provides a tax exemption for high-cost gas. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 201.057, Tax Code, as follows: Sec. 201.057. New heading: TEN-YEAR EXEMPTION OF CERTAIN HIGH-COST GAS. (a) Defines "consecutive months." (b) Makes no change. (c) Provides that high-cost gas that is spudded or completed between August 31, 1996, and September 1, 2002, is entitled to a reduction in the tax imposed by this chapter for the first 120 consecutive months beginning on the first day of production, or until the cumulative value of the tax reduction equals 50 percent of the drilling and completion costs incurred for the well, whichever occurs first. Sets forth the method of the computation of the tax reduction. (d) Requires taxes to be paid when due at the rate provided in Section 201.052 of this code on all high-cost gas, as defined in Subsection (a)(2)(A) of this section, for wells spudded or completed between September 1, 1996 and August 31, 1997. Authorizes the operator of a well that was spudded or completed and that produced high-cost gas between September 1, 1996 and August 31, 1997, on or after September 1, 1997, to apply to the comptroller for a refund and shall be entitled to receive a refund of taxes paid in excess of the taxes that would have been due if calculated under Subsection (c). Requires wells spudded or completed between September 1, 1996, and August 31, 1997, to also be eligible for the reduced tax under this section for a 120-consecutive-calendar-month period as provided for other wells qualifying under this section. Requires the time period for which an operator is entitled to a refund under this section to be included for purposes of the calculation of this 120-month period. Prohibits the period of entitlement for reduced taxation and refund for any qualifying well from exceeding 120 consecutive calendar months. (e) Requires an application seeking certification as high-cost gas according to Subsection (a)(2)(A) to be made in writing no later than the 180th day after the first day of production. Deletes the reference to 15 U.S.C. Section 3317 (Natural Gas Policy Act) for purposes of this section. Makes a conforming change. (f) Requires an application to contain the certification of the commission that the well produce high-cost gas and, if the application is for a well spudded or completed after September 1, 1995, to contain a report of drilling and completion costs incurred for each well on a form and in the detail as determined by the comptroller.Prohibits an application to the comptroller relating to high-cost gas as defined by Subsection (a)(2)(A) of this section from being filed after December 31, 2000. (g) Requires the comptroller to determine from reports containing drilling and completion cost data as required on applications to the comptroller under Subsection (e), the median drilling and completion cost for all high-cost wells as defined in Subsection (a)(2)(A) for which application for exemption or reduced tax was made during the previous state fiscal year. Requires those median drilling and completion costs to be used to compute the reduced tax under Subsection (c). (h) Provides that information regarding drilling and completion costs included on an application under Subsection (e) is confidential and may not be from being disclosed, except to the extent aggregated with other similar information to produce industry averages. Provides that unauthorized disclosure is an offense subject to the same penalty as provided by Section 111.007 for unauthorized disclosure of federal tax return information. (i) Redesignated from existing Subsection (e). Makes conforming changes. (j) Redesignated from existing Subsection (f). SECTION 2. Requires the Railroad Commission of Texas (RCC) to file with the Legislative Budget Board (LBB) such information as is requested by LBB to assess the impact of the exemption or tax reduction authorized by this Act. Sets forth the information which may be included in the request. (b) Sets forth the time periods by which the required reports under this section are to be filed. (c) Requires RCC to provide quarterly reports containing the information required by Subsection (a) of this section, if requested by LBB. SECTION 3. Effective date: September 1, 1995. SECTION 4. Emergency clause.