1-1 By: Counts, et al. (Senate Sponsor - Lucio) H.B. No. 398
1-2 (In the Senate - Received from the House May 4, 1995;
1-3 May 5, 1995, read first time and referred to Committee on Finance;
1-4 May 19, 1995, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 8, Nays 1; May 19, 1995,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR H.B. No. 398 By: Lucio
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to the eligibility of certain high-cost gas for a
1-11 reduction of the gas production tax.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Section 201.057, Tax Code, is amended to read as
1-14 follows:
1-15 Sec. 201.057. TEMPORARY EXEMPTION OR TAX REDUCTION FOR <OF>
1-16 CERTAIN HIGH-COST GAS. (a) In this section:
1-17 (1) "Commission" means the Railroad Commission of
1-18 Texas.
1-19 (2) "High-cost gas" means:
1-20 (A) high-cost natural gas as described by
1-21 Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
1-22 3317), as that section exists on January 1, 1989, without regard to
1-23 whether that section is in effect or whether a determination has
1-24 been made that the gas is high-cost natural gas for purposes of
1-25 that Act; or
1-26 (B) all gas produced from oil wells or gas wells
1-27 within a commission approved co-production project.
1-28 (3) "Commission approved co-production project" means
1-29 a reservoir development project in which the commission has
1-30 recognized that water withdrawals from an oil or gas reservoir in
1-31 excess of specified minimum volumes will result in recovery of
1-32 additional oil and/or gas from the reservoir that would not be
1-33 produced by conventional production methods and where operators of
1-34 wells completed in the reservoir have begun to implement commission
1-35 requirements to withdraw such volumes of water and dispose of such
1-36 water outside the subject reservoir. Reservoirs potentially
1-37 eligible for this designation shall be limited to those reservoirs
1-38 in which oil and/or gas has been bypassed by water encroachment
1-39 caused by production from the reservoir and such bypassed oil
1-40 and/or gas may be produced as a result of reservoir-wide
1-41 high-volume water withdrawals of natural formation water.
1-42 (4) "High-volume water withdrawals" means the
1-43 withdrawal of water from a reservoir in an amount sufficient to
1-44 dewater portions of the reservoir containing oil and/or gas
1-45 previously bypassed by water encroachment.
1-46 (5) "Co-production" means the permanent removal of
1-47 water from an oil and/or gas reservoir in an effort to lower the
1-48 gas-water contact or oil-water contact in the reservoir or to
1-49 reduce reservoir pressure to recover entrained hydrocarbons from
1-50 the reservoir that would not be produced by conventional primary or
1-51 secondary production methods.
1-52 (6) "Operator" means the person responsible for the
1-53 actual physical operation of an oil or gas well.
1-54 (7) "Consecutive months" means months in consecutive
1-55 order, regardless of whether or not a well produces oil or gas
1-56 during any or all such months.
1-57 (b) High-cost gas as defined in Subsection (a)(2)(A) of this
1-58 section produced from a well that is spudded or completed between
1-59 May 24, 1989, and September 1, 1996, is exempt from the tax imposed
1-60 by this chapter during the period beginning September 1, 1991, and
1-61 ending August 31, 2001. High-cost gas as defined in Subsection
1-62 (a)(2)(B) of this section produced from any well regardless of spud
1-63 date or completion date is eligible for refunds of tax paid and
1-64 exemption from the tax imposed by this chapter for production
1-65 occurring during the period beginning the first day of the month
1-66 after commission approval of a co-production project and ending
1-67 August 31, 2001; provided, however, in the event co-production
1-68 ceases, the exemption shall also cease on the first day of the
2-1 first calendar month that begins on or after the 91st day following
2-2 the date of termination or co-production operations. Tax must be
2-3 paid when due at the rate provided in Section 201.052 of this code
2-4 for all high-cost gas, as defined in Subsection (a)(2)(B) of this
2-5 section, produced on or before July 31, 1995. On or after
2-6 September 1, 1995, the operator may apply to the comptroller for a
2-7 refund and shall be entitled to receive a refund of all taxes paid
2-8 on such high-cost gas produced on or after the first day of the
2-9 calendar month after commission approval of the co-production
2-10 project from which such gas was produced and that is otherwise
2-11 eligible for the tax exemption.
2-12 (c) High-cost gas as defined in Subsection (a)(2)(A)
2-13 produced from a well that is spudded or completed after August 31,
2-14 1996, and before September 1, 2002, is entitled to a reduction of
2-15 the tax imposed by this chapter for the first 120 consecutive
2-16 calendar months beginning on the first day of production, or until
2-17 the cumulative value of the tax reduction equals 50 percent of the
2-18 drilling and completion costs incurred for the well, whichever
2-19 occurs first. The amount of tax reduction shall be computed by
2-20 subtracting from the tax rate imposed by Section 201.052 the
2-21 product of that tax rate times the ratio of drilling and completion
2-22 costs incurred for the well to twice the median drilling and
2-23 completion costs for high-cost wells as defined in Subsection
2-24 (a)(2)(A) spudded or completed during the previous state fiscal
2-25 year, except that the effective rate of tax may not be reduced
2-26 below zero.
2-27 (d) Taxes must be paid when due at the rate provided in
2-28 Section 201.052 of this code on all high-cost gas, as defined in
2-29 Subsection (a)(2)(A) of this section, for wells spudded or
2-30 completed between September 1, 1996, and August 31, 1997. On or
2-31 after September 1, 1997, the operator of a well that was spudded or
2-32 completed and that produced high-cost gas between September 1,
2-33 1996, and August 31, 1997, may apply to the comptroller for a
2-34 refund and shall be entitled to receive a refund of taxes paid in
2-35 excess of the taxes that would have been due if calculated under
2-36 Subsection (c). Wells spudded or completed between September 1,
2-37 1996, and August 31, 1997, shall also be eligible for the reduced
2-38 tax under this section for a 120-consecutive-calendar-month period
2-39 as provided for other wells qualifying under this section. The
2-40 time period for which an operator is entitled to a refund under
2-41 this section shall be included for purposes of the calculation of
2-42 this 120-month period. The period of entitlement for reduced
2-43 taxation and refund for any qualifying well shall not exceed 120
2-44 consecutive calendar months.
2-45 (e) The operator of a proposed or existing gas well,
2-46 including a gas well that has not been completed, or the operator
2-47 of any proposed or existing oil or gas well within a commission
2-48 approved co-production project, may apply to the commission for
2-49 certification that the well produces or will produce high-cost gas.
2-50 Such application, if seeking certification as high-cost gas
2-51 according to Subsection (a)(2)(A), must be made in writing no later
2-52 than the 180th day after the first day of production. The
2-53 application may be made but is not required to be made concurrently
2-54 with a request for a determination that gas produced from the well
2-55 is high-cost natural gas for purposes of the Natural Gas Policy Act
2-56 of 1978 (15 U.S.C. Section 3301 et seq.) or with a request for
2-57 commission approval of a co-production project. The commission may
2-58 require an applicant to provide the commission with any relevant
2-59 information required to administer this section. For purposes of
2-60 this section, a determination that gas is high-cost natural gas
2-61 according to Subsection (a)(2)(A) <for purposes of the Natural Gas
2-62 Policy Act of 1978 made according to the definition of high-cost
2-63 natural gas provided by Section 107, Natural Gas Policy Act of 1978
2-64 (15 U.S.C. Section 3317), as that section exists on January 1,
2-65 1989,> or a determination that gas is produced from within a
2-66 commission approved co-production project is a certification that
2-67 the gas is high-cost gas for purposes of this section, and in that
2-68 event additional certification is not required to qualify for the
2-69 exemption or tax reduction provided by this section.
2-70 (f) <(d)> To qualify for the exemption or tax reduction
3-1 provided by this section, the person responsible for paying the tax
3-2 must apply to the comptroller. The application must contain the
3-3 certification of the commission that the well produces high-cost
3-4 gas and, if the application is for a well spudded or completed
3-5 after September 1, 1995, must contain a report of drilling and
3-6 completion costs incurred for each well on a form and in the detail
3-7 as determined by the comptroller. An application to the
3-8 comptroller for certification according to Subsection (a)(2)(A) may
3-9 not be filed after the 180th day after the first day of production.
3-10 An application to the comptroller for certification according to
3-11 Subsection (a)(2)(B) may not be filed before January 1, 1990, or
3-12 after December 31, 1998. The comptroller shall approve the
3-13 application of a person who demonstrates that the gas is eligible
3-14 for the exemption or tax reduction. The comptroller may require a
3-15 person applying for the exemption or tax reduction to provide any
3-16 relevant information in the person's monthly report that the
3-17 comptroller considers necessary to administer this section. The
3-18 commission shall notify the comptroller in writing immediately if
3-19 it determines that an oil or gas well previously certified as
3-20 producing high-cost gas does not produce high-cost gas or if it
3-21 takes any action or discovers any information that affects the
3-22 eligibility of gas for an exemption or tax reduction under this
3-23 section.
3-24 (g) As soon as practicable after March 1 of each year, the
3-25 comptroller shall determine from reports containing drilling and
3-26 completion cost data as required on applications to the comptroller
3-27 under Subsection (f), the median drilling and completion cost for
3-28 all high-cost wells as defined in Subsection (a)(2)(A) for which
3-29 application for exemption or reduced tax was made during the
3-30 previous state fiscal year. Those median drilling and completion
3-31 costs shall be used to compute the reduced tax under Subsection
3-32 (c).
3-33 (h) Information regarding drilling and completion costs
3-34 included on an application under Subsection (f) is confidential and
3-35 may not be disclosed, except to the extent aggregated with other
3-36 similar information to produce industry averages. Unauthorized
3-37 disclosure is an offense subject to the same penalty as provided by
3-38 Section 111.007 for unauthorized disclosure of federal tax return
3-39 information.
3-40 (i) <(e)> If, before the commission certifies that a well
3-41 produces high-cost gas or before the comptroller approves an
3-42 application for an exemption or tax reduction under this section,
3-43 the tax imposed by this chapter is paid on high-cost gas that
3-44 otherwise qualifies for the exemption or tax reduction provided by
3-45 this section, the producer or producers of the gas are entitled to
3-46 a credit against other taxes imposed by this chapter in an amount
3-47 equal to the amount of the tax paid on the gas that otherwise
3-48 qualified for the exemption or tax reduction on or after the first
3-49 day of the next month after the month in which the application for
3-50 certification under this section was filed with the commission.
3-51 The credit is allocated to each producer according to the
3-52 producer's proportionate share in the gas. To receive a credit,
3-53 one or more of the producers must apply to the comptroller for the
3-54 credit not later than the first anniversary after the date the
3-55 comptroller approves the application for an exemption or tax
3-56 reduction under this section. If a producer demonstrates that the
3-57 producer does not have sufficient tax liability under this chapter
3-58 to claim the credit within five years from the date the application
3-59 for the credit is made, the producer is entitled to a refund in the
3-60 amount of any credit the comptroller determines may not be claimed
3-61 within that five years. Nothing in this subsection shall relieve
3-62 the obligation imposed by Subsection (b) to pay tax when due on
3-63 high-cost gas produced from co-production projects on or before
3-64 July 31, 1995.
3-65 (j) <(f)> An applicant for commission approval of a
3-66 co-production project shall submit a written application for
3-67 approval to the commission. Such application must be filed before
3-68 January 1, 1994. The applicant shall provide the commission with
3-69 any relevant information required to administer this section,
3-70 including evidence demonstrating that the reservoir is eligible for
4-1 the designation and demonstrating the minimum volumes of
4-2 high-volume water withdrawal required to recover oil and/or gas
4-3 from the reservoir that would not be produced by conventional
4-4 production methods. A commission representative may
4-5 administratively approve the application. If the commission
4-6 representative denies administrative approval, the applicant shall
4-7 have the right to a hearing upon the request.
4-8 SECTION 2. (a) The Railroad Commission of Texas shall file
4-9 with the Legislative Budget Board such information as the
4-10 Legislative Budget Board may request to assess the impact of the
4-11 exemption or tax reduction authorized by this Act, including:
4-12 (1) the number of approved applications;
4-13 (2) the level of drilling activity;
4-14 (3) natural gas production; and
4-15 (4) any other related information and projections as
4-16 requested by the Legislative Budget Board.
4-17 (b) Reports required by this section shall be filed for the
4-18 following time periods no later than the date indicated:
4-19 (1) for the period beginning September 1, 1996,
4-20 through August 31, 1997, the report shall be filed no later than
4-21 November 1, 1997; and
4-22 (2) for the period beginning September 1, 1996,
4-23 through February 28, 1997, the report shall be filed no later than
4-24 April 1, 1997.
4-25 (c) The Railroad Commission of Texas shall, if requested by
4-26 the Legislative Budget Board, provide quarterly reports containing
4-27 the information required by Subsection (a) of this section.
4-28 SECTION 3. This Act takes effect September 1, 1995.
4-29 SECTION 4. The importance of this legislation and the
4-30 crowded condition of the calendars in both houses create an
4-31 emergency and an imperative public necessity that the
4-32 constitutional rule requiring bills to be read on three several
4-33 days in each house be suspended, and this rule is hereby suspended.
4-34 * * * * *