H.B. No. 398
1-1 AN ACT
1-2 relating to the eligibility of certain high-cost gas for a
1-3 reduction of the gas production tax.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-6 follows:
1-7 Sec. 201.057. TEMPORARY EXEMPTION OR TAX REDUCTION FOR <OF>
1-8 CERTAIN HIGH-COST GAS. (a) In this section:
1-9 (1) "Commission" means the Railroad Commission of
1-10 Texas.
1-11 (2) "High-cost gas" means:
1-12 (A) high-cost natural gas as described by
1-13 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-14 3317), as that section exists on January 1, 1989, without regard to
1-15 whether that section is in effect or whether a determination has
1-16 been made that the gas is high-cost natural gas for purposes of
1-17 that Act; or
1-18 (B) all gas produced from oil wells or gas wells
1-19 within a commission approved co-production project.
1-20 (3) "Commission approved co-production project" means
1-21 a reservoir development project in which the commission has
1-22 recognized that water withdrawals from an oil or gas reservoir in
1-23 excess of specified minimum volumes will result in recovery of
2-1 additional oil and/or gas from the reservoir that would not be
2-2 produced by conventional production methods and where operators of
2-3 wells completed in the reservoir have begun to implement commission
2-4 requirements to withdraw such volumes of water and dispose of such
2-5 water outside the subject reservoir. Reservoirs potentially
2-6 eligible for this designation shall be limited to those reservoirs
2-7 in which oil and/or gas has been bypassed by water encroachment
2-8 caused by production from the reservoir and such bypassed oil
2-9 and/or gas may be produced as a result of reservoir-wide
2-10 high-volume water withdrawals of natural formation water.
2-11 (4) "High-volume water withdrawals" means the
2-12 withdrawal of water from a reservoir in an amount sufficient to
2-13 dewater portions of the reservoir containing oil and/or gas
2-14 previously bypassed by water encroachment.
2-15 (5) "Co-production" means the permanent removal of
2-16 water from an oil and/or gas reservoir in an effort to lower the
2-17 gas-water contact or oil-water contact in the reservoir or to
2-18 reduce reservoir pressure to recover entrained hydrocarbons from
2-19 the reservoir that would not be produced by conventional primary or
2-20 secondary production methods.
2-21 (6) "Operator" means the person responsible for the
2-22 actual physical operation of an oil or gas well.
2-23 (7) "Consecutive months" means months in consecutive
2-24 order, regardless of whether or not a well produces oil or gas
2-25 during any or all such months.
3-1 (b) High-cost gas as defined in Subsection (a)(2)(A) of this
3-2 section produced from a well that is spudded or completed between
3-3 May 24, 1989, and September 1, 1996, is exempt from the tax imposed
3-4 by this chapter during the period beginning September 1, 1991, and
3-5 ending August 31, 2001. High-cost gas as defined in Subsection
3-6 (a)(2)(B) of this section produced from any well regardless of spud
3-7 date or completion date is eligible for refunds of tax paid and
3-8 exemption from the tax imposed by this chapter for production
3-9 occurring during the period beginning the first day of the month
3-10 after commission approval of a co-production project and ending
3-11 August 31, 2001; provided, however, in the event co-production
3-12 ceases, the exemption shall also cease on the first day of the
3-13 first calendar month that begins on or after the 91st day following
3-14 the date of termination or co-production operations. Tax must be
3-15 paid when due at the rate provided in Section 201.052 of this code
3-16 for all high-cost gas, as defined in Subsection (a)(2)(B) of this
3-17 section, produced on or before July 31, 1995. On or after
3-18 September 1, 1995, the operator may apply to the comptroller for a
3-19 refund and shall be entitled to receive a refund of all taxes paid
3-20 on such high-cost gas produced on or after the first day of the
3-21 calendar month after commission approval of the co-production
3-22 project from which such gas was produced and that is otherwise
3-23 eligible for the tax exemption.
3-24 (c) High-cost gas as defined in Subsection (a)(2)(A)
3-25 produced from a well that is spudded or completed after August 31,
4-1 1996, and before September 1, 2002, is entitled to a reduction of
4-2 the tax imposed by this chapter for the first 120 consecutive
4-3 calendar months beginning on the first day of production, or until
4-4 the cumulative value of the tax reduction equals 50 percent of the
4-5 drilling and completion costs incurred for the well, whichever
4-6 occurs first. The amount of tax reduction shall be computed by
4-7 subtracting from the tax rate imposed by Section 201.052 the
4-8 product of that tax rate times the ratio of drilling and completion
4-9 costs incurred for the well to twice the median drilling and
4-10 completion costs for high-cost wells as defined in Subsection
4-11 (a)(2)(A) spudded or completed during the previous state fiscal
4-12 year, except that the effective rate of tax may not be reduced
4-13 below zero.
4-14 (d) Taxes must be paid when due at the rate provided in
4-15 Section 201.052 of this code on all high-cost gas, as defined in
4-16 Subsection (a)(2)(A) of this section, for wells spudded or
4-17 completed between September 1, 1996, and August 31, 1997. On or
4-18 after September 1, 1997, the operator of a well that was spudded or
4-19 completed and that produced high-cost gas between September 1,
4-20 1996, and August 31, 1997, may apply to the comptroller for a
4-21 refund and shall be entitled to receive a refund of taxes paid in
4-22 excess of the taxes that would have been due if calculated under
4-23 Subsection (c). Wells spudded or completed between September 1,
4-24 1996, and August 31, 1997, shall also be eligible for the reduced
4-25 tax under this section for a 120-consecutive-calendar-month period
5-1 as provided for other wells qualifying under this section. The
5-2 time period for which an operator is entitled to a refund under
5-3 this section shall be included for purposes of the calculation of
5-4 this 120-month period. The period of entitlement for reduced
5-5 taxation and refund for any qualifying well shall not exceed 120
5-6 consecutive calendar months.
5-7 (e) The operator of a proposed or existing gas well,
5-8 including a gas well that has not been completed, or the operator
5-9 of any proposed or existing oil or gas well within a commission
5-10 approved co-production project, may apply to the commission for
5-11 certification that the well produces or will produce high-cost gas.
5-12 Such application, if seeking certification as high-cost gas
5-13 according to Subsection (a)(2)(A), must be made in writing no later
5-14 than the 180th day after the first day of production. The
5-15 application may be made but is not required to be made concurrently
5-16 with a request for a determination that gas produced from the well
5-17 is high-cost natural gas for purposes of the Natural Gas Policy Act
5-18 of 1978 (15 U.S.C. Section 3301 et seq.) or with a request for
5-19 commission approval of a co-production project. The commission may
5-20 require an applicant to provide the commission with any relevant
5-21 information required to administer this section. For purposes of
5-22 this section, a determination that gas is high-cost natural gas
5-23 according to Subsection (a)(2)(A) <for purposes of the Natural Gas
5-24 Policy Act of 1978 made according to the definition of high-cost
5-25 natural gas provided by Section 107, Natural Gas Policy Act of 1978
6-1 (15 U.S.C. Section 3317), as that section exists on January 1,
6-2 1989,> or a determination that gas is produced from within a
6-3 commission approved co-production project is a certification that
6-4 the gas is high-cost gas for purposes of this section, and in that
6-5 event additional certification is not required to qualify for the
6-6 exemption or tax reduction provided by this section.
6-7 (f) <(d)> To qualify for the exemption or tax reduction
6-8 provided by this section, the person responsible for paying the tax
6-9 must apply to the comptroller. The application must contain the
6-10 certification of the commission that the well produces high-cost
6-11 gas and, if the application is for a well spudded or completed
6-12 after September 1, 1995, must contain a report of drilling and
6-13 completion costs incurred for each well on a form and in the detail
6-14 as determined by the comptroller. An application to the
6-15 comptroller for certification according to Subsection (a)(2)(A) may
6-16 not be filed after the 180th day after the first day of production.
6-17 An application to the comptroller for certification according to
6-18 Subsection (a)(2)(B) may not be filed before January 1, 1990, or
6-19 after December 31, 1998. The comptroller shall approve the
6-20 application of a person who demonstrates that the gas is eligible
6-21 for the exemption or tax reduction. The comptroller may require a
6-22 person applying for the exemption or tax reduction to provide any
6-23 relevant information in the person's monthly report that the
6-24 comptroller considers necessary to administer this section. The
6-25 commission shall notify the comptroller in writing immediately if
7-1 it determines that an oil or gas well previously certified as
7-2 producing high-cost gas does not produce high-cost gas or if it
7-3 takes any action or discovers any information that affects the
7-4 eligibility of gas for an exemption or tax reduction under this
7-5 section.
7-6 (g) As soon as practicable after March 1 of each year, the
7-7 comptroller shall determine from reports containing drilling and
7-8 completion cost data as required on applications to the comptroller
7-9 under Subsection (f), the median drilling and completion cost for
7-10 all high-cost wells as defined in Subsection (a)(2)(A) for which
7-11 application for exemption or reduced tax was made during the
7-12 previous state fiscal year. Those median drilling and completion
7-13 costs shall be used to compute the reduced tax under Subsection
7-14 (c).
7-15 (h) Information regarding drilling and completion costs
7-16 included on an application under Subsection (f) is confidential and
7-17 may not be disclosed, except to the extent aggregated with other
7-18 similar information to produce industry averages. Unauthorized
7-19 disclosure is an offense subject to the same penalty as provided by
7-20 Section 111.007 for unauthorized disclosure of federal tax return
7-21 information.
7-22 (i) <(e)> If, before the commission certifies that a well
7-23 produces high-cost gas or before the comptroller approves an
7-24 application for an exemption or tax reduction under this section,
7-25 the tax imposed by this chapter is paid on high-cost gas that
8-1 otherwise qualifies for the exemption or tax reduction provided by
8-2 this section, the producer or producers of the gas are entitled to
8-3 a credit against other taxes imposed by this chapter in an amount
8-4 equal to the amount of the tax paid on the gas that otherwise
8-5 qualified for the exemption or tax reduction on or after the first
8-6 day of the next month after the month in which the application for
8-7 certification under this section was filed with the commission.
8-8 The credit is allocated to each producer according to the
8-9 producer's proportionate share in the gas. To receive a credit,
8-10 one or more of the producers must apply to the comptroller for the
8-11 credit not later than the first anniversary after the date the
8-12 comptroller approves the application for an exemption or tax
8-13 reduction under this section. If a producer demonstrates that the
8-14 producer does not have sufficient tax liability under this chapter
8-15 to claim the credit within five years from the date the application
8-16 for the credit is made, the producer is entitled to a refund in the
8-17 amount of any credit the comptroller determines may not be claimed
8-18 within that five years. Nothing in this subsection shall relieve
8-19 the obligation imposed by Subsection (b) to pay tax when due on
8-20 high-cost gas produced from co-production projects on or before
8-21 July 31, 1995.
8-22 (j) <(f)> An applicant for commission approval of a
8-23 co-production project shall submit a written application for
8-24 approval to the commission. Such application must be filed before
8-25 January 1, 1994. The applicant shall provide the commission with
9-1 any relevant information required to administer this section,
9-2 including evidence demonstrating that the reservoir is eligible for
9-3 the designation and demonstrating the minimum volumes of
9-4 high-volume water withdrawal required to recover oil and/or gas
9-5 from the reservoir that would not be produced by conventional
9-6 production methods. A commission representative may
9-7 administratively approve the application. If the commission
9-8 representative denies administrative approval, the applicant shall
9-9 have the right to a hearing upon the request.
9-10 SECTION 2. (a) The Railroad Commission of Texas shall file
9-11 with the Legislative Budget Board such information as the
9-12 Legislative Budget Board may request to assess the impact of the
9-13 exemption or tax reduction authorized by this Act, including:
9-14 (1) the number of approved applications;
9-15 (2) the level of drilling activity;
9-16 (3) natural gas production; and
9-17 (4) any other related information and projections as
9-18 requested by the Legislative Budget Board.
9-19 (b) Reports required by this section shall be filed for the
9-20 following time periods no later than the date indicated:
9-21 (1) for the period beginning September 1, 1996,
9-22 through August 31, 1997, the report shall be filed no later than
9-23 November 1, 1997; and
9-24 (2) for the period beginning September 1, 1996,
9-25 through February 28, 1997, the report shall be filed no later than
10-1 April 1, 1997.
10-2 (c) The Railroad Commission of Texas shall, if requested by
10-3 the Legislative Budget Board, provide quarterly reports containing
10-4 the information required by Subsection (a) of this section.
10-5 SECTION 3. This Act takes effect September 1, 1995.
10-6 SECTION 4. The importance of this legislation and the
10-7 crowded condition of the calendars in both houses create an
10-8 emergency and an imperative public necessity that the
10-9 constitutional rule requiring bills to be read on three several
10-10 days in each house be suspended, and this rule is hereby suspended.