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.