By Craddick H.B. No. 683
74R1959 CBH-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to an exemption from the oil and gas production taxes for
1-3 marginal oil and gas wells and to the promotion of the drilling of
1-4 new oil and gas wells.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 201.053, Tax Code, is amended to read as
1-7 follows:
1-8 Sec. 201.053. GAS NOT TAXED. The tax imposed by this
1-9 chapter does not apply to gas:
1-10 (1) injected into the earth in this state, unless sold
1-11 for that purpose;
1-12 (2) produced from oil wells with oil and lawfully
1-13 vented or flared; or
1-14 (3) used for lifting oil, unless sold for that
1-15 purpose<; or>
1-16 <(4) produced in this state from a well that qualifies
1-17 under Section 202.056>.
1-18 SECTION 2. Chapter 201, Tax Code, is amended by adding
1-19 Section 201.056 to read as follows:
1-20 Sec. 201.056. TAX EXEMPTIONS. The exemptions described by
1-21 Section 202.056 and Chapter 205 apply to the taxes imposed by this
1-22 chapter as authorized by and subject to the certifications and
1-23 approvals required by those exemption provisions.
1-24 SECTION 3. Section 202.052(c), Tax Code, is amended to read
2-1 as follows:
2-2 (c) The exemptions described by Section 202.056 and Chapter
2-3 205 apply to <For> oil produced in this state from a well that
2-4 qualifies under Section 202.056 or Chapter 205 subject to the
2-5 certifications and approvals required by those exemption
2-6 provisions<, the rate of tax imposed by this chapter shall be
2-7 reduced to zero>.
2-8 SECTION 4. Subtitle I, Title 2, Tax Code, is amended by
2-9 adding Chapter 205 to read as follows:
2-10 CHAPTER 205. TAX EXEMPTION FOR CATEGORY TWO MARGINAL
2-11 OIL AND GAS LEASES
2-12 Sec. 205.001. DEFINITIONS. In this chapter:
2-13 (1) "Barrel" means 42 standard gallons.
2-14 (2) "BOE" means a barrel of oil equivalent and refers
2-15 to the sum of:
2-16 (A) oil, condensate, and other liquid
2-17 hydrocarbon production volumes in barrels; and
2-18 (B) gas production volumes, in mcf, divided by
2-19 six.
2-20 (3) "Category two marginal lease" means a lease
2-21 certified under Section 205.003.
2-22 (4) "Commission" means the Railroad Commission of
2-23 Texas.
2-24 (5) "Hydrocarbon" means any oil, gas, condensate, or
2-25 other liquid hydrocarbons produced from a well.
2-26 (6) "Lease" means one or more gas or oil wells for
2-27 which the commission has assigned the same lease or identification
3-1 number.
3-2 (7) "Mcf" means 1,000 cubic feet of gas as measured
3-3 according to Section 91.052, Natural Resources Code.
3-4 (8) "New well chit" means the voucher issued by the
3-5 commission under Section 205.005 for each BOE of production
3-6 capacity of a new well.
3-7 (9) "New well" means an oil or gas well that, during
3-8 the period beginning on January 1, 1995, and ending on August 31,
3-9 1997, is:
3-10 (A) spudded, sidetracked, horizontally drilled,
3-11 or deepened to a different commission-designated field; or
3-12 (B) a plugged oil or gas well and reentered.
3-13 Sec. 205.002. TAX EXEMPTION. Hydrocarbon production from a
3-14 category two marginal lease is exempt from the taxes imposed by
3-15 Chapters 201 and 202 if the comptroller has approved the tax
3-16 exemption under Section 205.006.
3-17 Sec. 205.003. APPLICATION FOR CERTIFICATION. (a) The
3-18 operator of an eligible lease may apply to the commission for
3-19 certification of the lease as a category two marginal lease.
3-20 (b) In addition to other requirements of this chapter, the
3-21 operator must include with the application any relevant information
3-22 the commission requires.
3-23 (c) If the commission approves the application, the
3-24 commission shall issue a certificate to the operator. The
3-25 certificate must:
3-26 (1) include identification of the category two
3-27 marginal lease; and
4-1 (2) state the date on which the tax exemption takes
4-2 effect, subject to the comptroller's approval of the exemption
4-3 under Section 205.006.
4-4 (d) The tax exemption is effective on the first day of the
4-5 first month after the 12-month production period required by
4-6 Section 205.004.
4-7 Sec. 205.004. QUALIFICATION FOR CERTIFICATION. (a) A lease
4-8 is eligible for certification as a category two marginal lease if:
4-9 (1) during any 12-consecutive-month period ending
4-10 before the month in which the application for certification as a
4-11 category two marginal lease is filed with the commission,
4-12 hydrocarbon production from the lease does not exceed an amount
4-13 equal to:
4-14 (A) 15 BOE times the number of producing wells
4-15 on the lease, times the number of days in those months in which
4-16 some hydrocarbon production was reported to the commission; or
4-17 (B) 25 BOE times the number of producing wells
4-18 on the lease, times the number of days in those months in which
4-19 some hydrocarbon production was reported to the commission, if the
4-20 volume of water produced from wells associated with oil production
4-21 equals 85 percent or more of the total liquids produced from the
4-22 lease; and
4-23 (2) the operator submits with the application new well
4-24 chits issued under Section 205.005 in an amount equal to the
4-25 hydrocarbon production from the lease as determined under this
4-26 section.
4-27 (b) The 12-consecutive-month production period required by
5-1 Subsection (a) must begin:
5-2 (1) on or after September 1, 1994; and
5-3 (2) with a month for which some hydrocarbon production
5-4 is reported to the commission.
5-5 (c) A 12-month period is ineligible under Subsection (a)
5-6 unless during at least seven calendar months of the period some
5-7 hydrocarbons have been produced and reported to the commission.
5-8 (d) Production is determined under this section by rounding
5-9 up to the nearest BOE produced.
5-10 (e) A lease that has a new well must meet each requirement
5-11 prescribed by this section to qualify for a tax exemption under
5-12 this chapter.
5-13 Sec. 205.005. NEW WELL CHITS. (a) The operator of a new
5-14 well may apply to the commission for new well chits only after five
5-15 months of production is reported for the well.
5-16 (b) An operator must apply for new well chits before
5-17 September 1998.
5-18 (c) The commission shall issue to the operator one new well
5-19 chit for each BOE capacity from the new well. The commission shall
5-20 issue the chits in denominations of 1 BOE, 5 BOE, and 10 BOE.
5-21 (d) For purposes of issuing new well chits, the BOE capacity
5-22 for a new oil well on a single-well oil lease or for a new gas well
5-23 is the lesser of:
5-24 (1) the daily average BOEs from the well during the
5-25 five-month period preceding the application for new well chits; or
5-26 (2) the daily average BOEs from the well in the most
5-27 recent month of production for which a production report has been
6-1 filed and shows some production.
6-2 (e) The BOE capacity for a new oil well on a multi-well oil
6-3 lease is the lesser of:
6-4 (1) the results of a BOE capacity test on the new
6-5 well; or
6-6 (2) the daily average BOEs from the new well during
6-7 the five consecutive calendar months preceding the date of the BOE
6-8 capacity test.
6-9 (f) In determining BOE capacity under Subsection (e),
6-10 production from the lease is apportioned between the new well and
6-11 other oil wells on the lease according to the new well BOE capacity
6-12 test and the sum of the most recent BOE capacity tests for all of
6-13 the other oil wells on the lease.
6-14 (g) A BOE capacity test for a new well must be performed not
6-15 earlier than the 60th day before the date on which the operator
6-16 applies for the new well chits. BOE capacity tests for all other
6-17 wells must have been performed not earlier than the 180th day
6-18 before the date on which the operator applies for the new well
6-19 chits. All BOE capacity tests must be performed in accordance with
6-20 commission rules.
6-21 (h) The commission may not consider hydrocarbons that are
6-22 vented or flared in determining the BOE capacity of a new well.
6-23 (i) An operator may transfer new well chits to another
6-24 operator or any other person, but only an operator may use a new
6-25 well chit to qualify a lease for certification as a category two
6-26 marginal lease under Section 205.004.
6-27 Sec. 205.006. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
7-1 (a) To qualify for the tax exemption provided by this chapter, the
7-2 person responsible for paying the tax must apply to the comptroller
7-3 for the exemption and include with the application the certificate
7-4 issued under Section 205.003 by the commission.
7-5 (b) The comptroller may require a person applying for the
7-6 tax exemption to provide any information necessary to administer
7-7 this section.
7-8 (c) The comptroller shall approve a person's application if
7-9 the hydrocarbons are eligible for the tax exemption.
7-10 (d) The comptroller may establish procedures as necessary to
7-11 comply with this section and Section 205.009.
7-12 Sec. 205.007. REVOCATION OF CERTIFICATION. (a) The
7-13 commission may revoke a category two marginal lease certificate if
7-14 the commission finds that the lease was not eligible for that
7-15 designation at the time of certification.
7-16 (b) The commission shall notify the operator and the
7-17 comptroller that the certificate has been revoked.
7-18 (c) A tax exemption granted under this chapter is
7-19 automatically revoked on the date the category two marginal lease
7-20 certificate is revoked, and hydrocarbons produced from that lease
7-21 on or after the day after the date of revocation are not eligible
7-22 for the tax exemption.
7-23 Sec. 205.008. COMMISSION DISCRETION AND RULES. The
7-24 commission has broad discretion in administering this chapter and
7-25 may adopt and enforce any appropriate rules or orders that the
7-26 commission finds necessary to administer this chapter.
7-27 Sec. 205.009. TAX CREDIT. (a) If the tax is paid at the
8-1 full rate provided by Chapter 201 or 202 on hydrocarbons produced
8-2 on or after the effective date of the tax exemption contained in
8-3 the lease certificate, but before the date the comptroller approves
8-4 the application for the tax exemption, the operator is entitled to
8-5 a credit on taxes due under Chapter 201 or 202 in an amount equal
8-6 to the tax paid during that period.
8-7 (b) To receive a credit, the operator must apply to the
8-8 comptroller for the credit not later than the first anniversary of
8-9 the date the commission certifies the well as a category two
8-10 marginal lease.
8-11 Sec. 205.010. PENALTIES. (a) A person is subject to the
8-12 penalties that may be imposed under Chapters 85 and 91, Natural
8-13 Resources Code, if the person makes and submits to the commission
8-14 or the comptroller an application, report, or other document that
8-15 is used or intended to be used for a certification, tax exemption,
8-16 or a tax credit under this chapter and the person knows that the
8-17 application, report, or other document contains a false or untrue
8-18 material fact.
8-19 (b) A person is liable to the state for a civil penalty if
8-20 the person, after receiving notice from the commission that the
8-21 person's certificate for a category two marginal lease has been
8-22 revoked, applies or attempts to apply for a tax exemption for that
8-23 lease using the revoked certificate. The amount of the penalty may
8-24 not exceed the sum of:
8-25 (1) $10,000; and
8-26 (2) the difference between the amount of taxes paid or
8-27 attempted to be paid and the amount of taxes due.
9-1 (c) The attorney general may recover a penalty under
9-2 Subsection (b) in a suit brought on behalf of the state. Venue for
9-3 the suit is in Travis County.
9-4 SECTION 5. This Act takes effect September 1, 1995.
9-5 SECTION 6. The importance of this legislation and the
9-6 crowded condition of the calendars in both houses create an
9-7 emergency and an imperative public necessity that the
9-8 constitutional rule requiring bills to be read on three several
9-9 days in each house be suspended, and this rule is hereby suspended.