BILL ANALYSIS C.S.H.B. 1593 By: CRADDICK March 23, 1995 Committee Report (Substituted) BACKGROUND An increasing number of small checks for proceeds from production are being issued as interests are transferred to more and more owners. This "dilution of interest" is an increasing administrative problem for both royalty and working interest owners. Both groups through a Fractionalization Committee sponsored by the National Association of Royalty Owners have been studying this issue. A recent survey sponsored by National Association of Division Order Analysts indicates that industry is experiencing a dilution rate of 5% to 10% per year. Other statistics from the survey show that over 50% of checks remitted are less than $100 and that up to 33% of checks issued for less than $10 are never cashed. Uncashed checks present further problems in that they require more handling as they must be redeposited and ultimately reported as unclaimed property. These trends are expected to continue to burden both payors and owners. PURPOSE This legislation will reduce the administrative burden and resultant costs in addition to providing a measure in dealing with the ever increasing number of royalty and working interest owners. By reducing the number of checks issued, the overhead associated with the property is reduced which can mean an increased economic life for a well. 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 Sections 91.402(d) and (f), Natural Resources Code as follows: Subsection (d) increases from $25 to $100 the amount that may be accrued before disbursement or allows the disbursement to be made after "12 months' proceeds accumulate" (deleting the December 31 deadline) or allows more than 12 months accumulation if the proceeds amount to less than $10. Subsection (f), "Payments" is changed to "Payment,""payees" is changed to "payee." The payor can remit annually for the aggregate of up to 12 months' accumulation of proceeds if the "payor owes the payee" a total of $100, up from $25 or less "for production from all oil and gas wells for which the payor must pay the payee." However, if the payee requests payment monthly, the payment must be made if the accumulation is more than $25. Additionally, a payee may request payment annually for disbursements of less than $10. SECTION 2: Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute allows payors to accumulate proceeds for more than 12 months if the proceeds amount to less than $10. The original bill did not allow for this. However, by written request of the payee, the payor can be required to pay monthly for amounts of $25 or more (rather than waiting for the $100 threshold set in the bill) and yearly for amounts of less than $10. SUMMARY OF COMMITTEE ACTION H.B. 1593 was considered by the Energy Resources Committee in a public hearing on March 6, 1995. The following witnesses testified in favor of the bill: Ben Sebree, representing Texas Mid-Continent Oil & Gas Association; Sara K. Tays, representing Exxon Co. U.S.A. and Texas Mid-Continent Oil & Gas Association; and, Lynda Clinger, representing Koch Oil Company; Stephen W. Murchison, representing Marathon Oil Company; Tracy Elm, representing G.P.M. Gas Co., Phillips Petroleum Co., and the National Association of Division Order Analysts; Ken Rigsbee, representing Phillips Petroleum Co.; Lindsey Dingmore, representing T.I.P.R.O; David Sebree, representing Cononco Inc. and DuPont; and, Rachel Sanders, representing Scurlock Permian Corp. The bill was left pending. H.B. 1593 was considered by the Energy Resources Committee in a formal meeting on March 22, 1995. The committee considered a complete substitute to the bill. The substitute was adopted without objection. The bill was reported favorably as substituted, with the recommendation that it do pass and be printed and be sent to the Committee on Local and Consent Calendars, by a record vote of 8 ayes, 0 nays, 0 PNV, and 1 absent.