By Counts                                              H.B. No. 398
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to tax exemption for certain high-cost gas to promote its
    1-3  continued production.
    1-5        SECTION 1.  Sec. 201.057,  Tax Code, is amended to read
    1-6  follows:
    1-7        Sec. 201.057.  Temporary Exemption of Certain High-Cost Gas.
    1-8  (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        (b)  High-cost gas as defined in Subsection (a)(2)(A) of this
   2-24  section produced from a well that is spudded or completed between
   2-25  May 24, 1989, and September 1, 1996 is exempt from the tax imposed
    3-1  by this chapter during the period beginning September 1, 1991, and
    3-2  ending August 31, 2001.  High-cost gas produced from a well spudded
    3-3  or completed after September 1, 1996 but before September 1, 2002
    3-4  shall also be exempt from tax from September 1, 1996 through August
    3-5  31, 2007.  High-cost gas as defined in Subsection (a)(2)(B) of this
    3-6  section produced from any well regardless of spud date or
    3-7  completion date is eligible for refunds of tax paid and exemption
    3-8  from the tax imposed by this chapter for production occurring
    3-9  during the period beginning the first day of the month after
   3-10  commission approval of a co-production project and ending August
   3-11  31, 2001; provided, however, in the event co-production ceases, the
   3-12  exemption shall also cease on the first day of the first calendar
   3-13  month that begins on or after the 91st day following the date of
   3-14  termination of co-production operations.  Tax must be paid when due
   3-15  at the rate provided in Section 201.052 of this code for all
   3-16  high-cost gas, as defined in Subsection (a)(2)(B) of this section,
   3-17  produced on or before July 31, 1995.  On or after September 1,
   3-18  1995, the operator may apply to the comptroller for a refund and
   3-19  shall be entitled to receive a refund of all taxes paid on such
   3-20  high-cost gas produced on or after the first day of the calendar
   3-21  month after commission approval of the co-production project from
   3-22  which such gas was produced and that is otherwise eligible for the
   3-23  tax exemption.
   3-24        (c)  The operator of a proposed or existing gas well,
   3-25  including a gas well that has not been completed, or the operator
    4-1  of any proposed or existing oil or gas well within a commission
    4-2  approved co-production project, may apply to the commission for
    4-3  certification that the well produces or will produce high-cost gas.
    4-4  The application may be made but is not required to be made
    4-5  concurrently with a request for a determination that gas produced
    4-6  from the well is high-cost natural gas for purposes of the Natural
    4-7  Gas Policy Act of 1978 (15 U.S.C.  Section 3301 et seq.) or with a
    4-8  request for commission approval of a co-production project.  The
    4-9  commission may require an applicant to provide the commission with
   4-10  any relevant information required to administer this section.  For
   4-11  purposes of this section, a determination that gas is high-cost
   4-12  natural gas for proposed of the Natural Gas Policy Act of 1978 made
   4-13  according to the definition of high-cost natural gas provided by
   4-14  Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
   4-15  3317), as that section exists on January 1, 1989, or a
   4-16  determination that gas is produced from within a commission
   4-17  approved co-production project is a certification that the gas is
   4-18  high-cost gas for purposes of this section, and in that event
   4-19  additional certification is not required to qualify for the
   4-20  exemption provided by this section
   4-21        (d)  To qualify for the exemption provided by this section,
   4-22  the person responsible for paying the tax must apply to the
   4-23  comptroller.  The application must contain the certification of the
   4-24  commission that the well produces high-cost gas.  An application
   4-25  may not be filed before January 1, 1990 or after December 31, <1998>
    5-1  2004.  The comptroller shall approve the application of a person
    5-2  who demonstrates that the gas is eligible for the exemption.  The
    5-3  comptroller may require a person applying for the exemption to
    5-4  provide any relevant information in the person's monthly report
    5-5  that the comptroller considers necessary to administer this
    5-6  section.  The commission shall notify the comptroller in writing
    5-7  immediately if it determines that an oil or gas well previously
    5-8  certified as producing high-cost gas does not produce high-cost gas
    5-9  or if it takes any action or discovers any information that affects
   5-10  the eligibility of gas for an exemption under this section.
   5-11        (e)  If, before the commission certifies that a well produces
   5-12  high-cost gas or before the comptroller approves an application for
   5-13  an exemption under this section, the tax imposed by this chapter is
   5-14  paid on high-cost gas that otherwise qualifies for the exemption
   5-15  provided by this section, the producer or producers of the gas are
   5-16  entitled to a credit against other taxes imposed by this chapter in
   5-17  an amount equal to the amount of the tax paid on the gas that
   5-18  otherwise qualified for the exemption on or after the first day of
   5-19  the next month after the month in which the application for
   5-20  certification under this section was filed with the commission.
   5-21  The credit is allocated to each producer according to the
   5-22  producer's proportionate share in the gas.  To receive a credit,
   5-23  one or more of the producers must apply to the comptroller for the
   5-24  credit not later than the first anniversary after the date the
   5-25  comptroller approves the application for an exemption under this
    6-1  section.  If a producer demonstrates that the producer does not
    6-2  have sufficient tax liability under this chapter to claim the
    6-3  credit within five years from the date the application for the
    6-4  credit is made, the producer is entitled to a refund in the amount
    6-5  of any credit the comptroller determines may not be claimed within
    6-6  that five years.  Nothing in this subsection shall relieve the
    6-7  obligation imposed by Subsection (b) to pay tax when due on
    6-8  high-cost gas produced from co-production projects on or before
    6-9  July 31, 1995
   6-10        (f)  An applicant for commission approval of a co-production
   6-11  project shall submit a written application for approval to the
   6-12  commission.  Such application must be filed before January 1, 1994.
   6-13  The applicant shall provide the commission with any relevant
   6-14  information required to administer this section, including evidence
   6-15  demonstrating that the reservoir is eligible for the designation
   6-16  and demonstrating the minimum volumes of high-volume water
   6-17  withdrawal required to recover oil and/or gas from the reservoir
   6-18  that would not be produced by conventional production methods.  A
   6-19  commission representative may administratively approve the
   6-20  application.  If the commission representative denies
   6-21  administrative approval, the applicant shall have the right to a
   6-22  hearing upon request.  (As added by Ch. 1197, Laws 1989; as amended
   6-23  by Ch. 958, Laws 1993, effective September 1, 1993.)
   6-24        SECTION 2.  This Act takes effect September 1, 1995.
   6-25        SECTION 3.  The importance of this legislation and the
    7-1  crowded condition of the calendars in both houses create an
    7-2  emergency and an imperative public necessity that the
    7-3  constitutional rule requiring bills to be read on three several
    7-4  days in each house be suspended, and this rule is hereby suspended.