BILL ANALYSIS


                                                         S.B. 905
                                                        By: Ellis
                                                Natural Resources
                                                         03-30-95
                                       Committee Report (Amended)
BACKGROUND

There are approximately 4,000 wells, of a total of approximately
12,000 wells, on Permanent School Fund oil and gas leases that
produce fewer than 15 barrels of oil per day or its equivalent in
natural gas.  With current oil and gas prices, these 4,000 wells
are economically marginal and are often abandoned when even small
production problems occur, although many have meaningful reserves
of oil and gas.  Abandonment means that those reserves will likely
be lost, and that royalty rates, severance tax, and ad valorem tax
revenues are lost to state funds and local governments.

Reduction of the amount of royalty can extend the economic life of
marginal wells.

PURPOSE

As proposed, S.B. 905 authorizes the School Land Board to reduce
marginal property royalty rates applicable to certain oil and gas
properties on public lands, and authorizes the Board for Lease of
University Lands to limit reduction of royalty rates for certain
reservoirs on university lands.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is granted
to the School Land Board under SECTION 1 (Section 32.067, Chapter
32C, Natural Resources Code) and to the Board for Lease of
University Lands under SECTION 2 (Section 66.84(b), Education Code)
of this bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 32C, Natural Resources Code, by adding
Section 32.067, as follows:

     Sec. 32.067.  MARGINAL PROPERTY ROYALTY RATES.  (a) Defines
     "barrel of oil equivalent," "qualifying Gulf of Mexico
     property," "qualifying Gulf of Mexico reservoir," "qualifying
     property," qualifying reservoir," and "reservoir."
     
     (b) Authorizes the School Land Board (SLB), by rule, to
       provide for the reduction of royalty rates as provided by
       this section.
       
       (c) Prohibits a royalty rate for oil and gas produced from
       a qualifying reservoir to be reduced to less than one-sixteenth (6.25 percent).
       
       (d) Prohibits a royalty rate for the state's share under a
       lease issued under Chapter 52F or Sections 51.195(c)(2) and
       (d) to be reduced to less than one-thirty-second (3.125
       percent).  Authorizes the state's royalty rate to be reduced
       only if the royalty rate for the owner of the soil is
       reduced in the same proportion.
       
       (e) Prohibits a royalty rate under a lease issued under
       Chapter 52C from being reduced to a rate lower than the rate
       under lease of land that adjoins it and is held, operated,
       or under the significant control of the state's lessee.
       
       (f) Prohibits the royalty rate under a lease issued under
       Chapter 32F from being reduced to a rate lower than the rate
       under a lease of land that adjoins it.
       
       (g) Authorizes SLB, if a qualifying reservoir for which a
       royalty rate reduction is sought is included in a unit
       subject to the SLB's authority, to modify the terms and
       conditions for the unit as a condition of approving the
       royalty rate reduction request.
       
       (h) Provides that this section does not apply to the free
       royalty reserved by the state under Section 51.054.
       
       SECTION 2.   Amends Chapter 66D, Education Code, by adding Section
66.84, as follows:

     Sec. 66.84.  MARGINAL PROPERTY ROYALTY RATES.  (a) Defines
     "barrel of oil equivalent," "lease" or "leases," "qualifying
     property," "qualifying reservoir," and "reservoir."
     
     (b) Authorizes the Board for Lease of University Lands
       (BLUL), by rule, to provide that the royalty rate for
       qualifying reservoirs may be reduced to not less than one-sixteenth (6.25 percent).
       
       (c) Authorizes BLUL, if a qualifying reservoir for which
       royalty rate reduction is sought under this section is
       included in a unit subject to the BLUL's authority, to
       modify the terms and conditions of the unit as a condition
       of approving a reduction in the royalty rate.
SECTION 3. Makes application of this Act prospective.

SECTION 4. Emergency clause.
           Effective date: upon passage.