BILL ANALYSIS



C.S.H.B. 676
By: Craddick
March 23, 1995
Committee Report (Substituted)


BACKGROUND

H.B. 1975 was passed in the 73rd Legislature to provide tax relief
for wells which have been returned to active status after three
years or more of inactivity.  According to the Texas Railroad
Commission, the bill has been responsible for a great number of
wells reworked and again producing.  However, condensate, a
hydrocarbon and wellbore product, was left out of the legislation,
and so it is not included in the tax relief package.  The current
deadline for applying for the exemption is August 31, 1995.

PURPOSE

The bill would allow for a 10-year severance tax exemption for
wells that are brought back to production after 2-years of non-production.  The bill also expands the definition of hydrocarbons
that currently receive tax relief under Section 202.056, Tax Code. 
The bill also changes the application deadline for the current 3-year inactive well program.


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 202.056 (Exemption for Oil and Gas From
           Wells Previously Inactive), Tax Code, by amending (a)(2)
           and adding (4).

           (2) Expands the definition of "Hydrocarbons," to include
           all hydrocarbon production.

           (4) Defines, "Two-year inactive well," to be a well that
           has not produced in more than one month in the two years
           prior to application for this exemption.

SECTION 2. Amends Section 202.056(b)-(e), and (h), Tax Code, as
           follows:
           
           (b) Expands the qualifications of hydrocarbons for the
           10-year severance tax exemption to include hydrocarbons
           produced from "two-year inactive wells."  Also requires
           the Railroad Commission to notify the Comptroller's
           office if it discovers any information that affects the
           taxation of the production from a designated well.

           (c) Changes the date that a well can be designated as
           a "three-year inactive well" from the current February
           29, 1996, to August 31, 1995.  Also requires that if the
           commission designates a "two-year inactive well," under
           this section, it shall issue a certificate designating
           the well as such.  Deadline for designation as a "two-year inactive well," is February 28, 1998.

           (d) Applications for "two-year inactive well"
           certification shall be made during the period of
           September 1, 1995, and August 31, 1997.

SECTION 2. (e) Establishes that the commission may revoke a
           certificate for a "two-year
(contd.)   inactive well."

           (h) In order to receive a tax credit for taxes paid at
           the full rate before the comptroller approves an
           application, the operator must apply to the comptroller
           for the credit no later than the first anniversary after
           the date the commission certifies that a well is a "two-year inactive well".

SECTION 3. Amends Section 202.056(i)(2) by revoking the tax
           exemption upon notice from the commission that a
           certificate has been revoked.  The tax exemption is
           revoked for any oil or gas production from the date of
           notification forward.  It also provides penalties for
           violation of this subsection.

SECTION 4. Effective Date:  September 1, 1995.

SECTION 5. Emergency Clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

The original bill would have expanded the definition of
hydrocarbons to include condensate production, while C.S.H.B. 676
expands the definition to include all hydrocarbon production.  The
original bill would have extended the certification deadline for
"three-year inactive wells," by two years.  C.S.H.B. 676 shortens
the certification deadline for that program, but creates a new
program for wells that have been inactive for two years.  The "two-year" inactive well program has the same 10-year severance tax
exemption as the "three-year inactive well" program.

SUMMARY OF COMMITTEE ACTION

Public notice was posted in accordance to the rules and a public
hearing was held on March 7, 1995.  The chair laid out a committee
substitute by Representative Craddick.  Without objection, the
Committee adopted C.S.H.B. 676.  By a record vote of 7 ayes, 0
nays, 1 present not voting and 3 absent, the committee voted to
report H.B. 676 to the House as substituted with the recommendation
that it be sent to the Local and Consent Calendar, and that it do
pass.

     Testimony received in favor of the bill:
           Charles R. Matthews (Railroad Commissioner),
           representing himself
           Ben Sebree, representing Texas Mid-Continent Oil & Gas
           Assn.
           David Sebree, representing Conoco, Inc.
           Rex H. White, representing himself and TIPRO, North TX
           Oil & Gas Assn.,      West TX Oil & Gas Assn., Panhandle
           Producers & Royalty Owners Assn.,      Permian Basin
           Petro. Assn.

     Neutral testimony received on the bill:
           David Garlick, representing the Railroad Commission