1-1 By: Holzheauser, et al. (Senate Sponsor - Sims) H.B. No.
1-2 1892
1-3 (In the Senate - Received from the House May 15, 1995;
1-4 May 17, 1995, read first time and referred to Committee on Finance;
1-5 May 25, 1995, reported adversely, with favorable Committee
1-6 Substitute by the following vote: Yeas 7, Nays 0; May 25, 1995,
1-7 sent to printer.)
1-8 COMMITTEE SUBSTITUTE FOR H.B. No. 1892 By: Brown
1-9 A BILL TO BE ENTITLED
1-10 AN ACT
1-11 relating to an exemption from the oil and gas production taxes for
1-12 certain oil and gas wells and to the promotion of the drilling of
1-13 new oil and gas wells; providing civil penalties.
1-14 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-15 SECTION 1. Section 201.053, Tax Code, is amended to read as
1-16 follows:
1-17 Sec. 201.053. GAS NOT TAXED. The tax imposed by this
1-18 chapter does not apply to gas:
1-19 (1) injected into the earth in this state, unless sold
1-20 for that purpose;
1-21 (2) produced from oil wells with oil and lawfully
1-22 vented or flared; or
1-23 (3) used for lifting oil, unless sold for that
1-24 purpose<; or>
1-25 <(4) produced in this state from a well that qualifies
1-26 under Section 202.056>.
1-27 SECTION 2. Subchapter B, Chapter 201, Tax Code, is amended
1-28 by adding Section 201.056 to read as follows:
1-29 Sec. 201.056. TAX EXEMPTIONS. The exemptions described by
1-30 Section 202.056 and Chapters 205 and 206 apply to the taxes imposed
1-31 by this chapter as authorized by and subject to the certifications
1-32 and approvals required by those exemption provisions.
1-33 SECTION 3. Section 202.052(c), Tax Code, is amended to read
1-34 as follows:
1-35 (c) The exemptions described by Section 202.056 and Chapters
1-36 205 and 206 apply to <For> oil produced in this state from a well
1-37 that qualifies under Section 202.056 or Chapter 205 or 206 subject
1-38 to the certifications and approvals required by those exemption
1-39 provisions<, the rate of tax imposed by this chapter shall be
1-40 reduced to zero>.
1-41 SECTION 4. Subtitle I, Title 2, Tax Code, is amended by
1-42 adding Chapter 205 to read as follows:
1-43 CHAPTER 205. TAX EXEMPTION FOR CATEGORY TWO MARGINAL
1-44 OIL AND GAS LEASES
1-45 Sec. 205.001. DEFINITIONS. In this chapter:
1-46 (1) "Barrel" means 42 standard gallons.
1-47 (2) "BOE" means a barrel of oil equivalent and refers
1-48 to the sum of:
1-49 (A) oil, condensate, and other liquid
1-50 hydrocarbon production volumes in barrels; and
1-51 (B) gas production volumes, in mcf, divided by
1-52 six.
1-53 (3) "Category two marginal lease" means a lease
1-54 certified under Section 205.003.
1-55 (4) "Commission" means the Railroad Commission of
1-56 Texas.
1-57 (5) "Hydrocarbon" means any oil, gas, condensate, or
1-58 other liquid hydrocarbons produced from a well.
1-59 (6) "Lease" means one or more gas or oil wells for
1-60 which the commission has assigned the same lease or identification
1-61 number.
1-62 (7) "Lease production" means the total amount of
1-63 hydrocarbon production from a lease, divided by the product of the
1-64 number of producing wells on the lease and the number of days in
1-65 those months in which some hydrocarbon production was reported to
1-66 the commission.
1-67 (8) "Mcf" means 1,000 cubic feet of gas as measured
1-68 according to Section 91.052, Natural Resources Code.
2-1 (9) "New well chit" means the voucher issued by the
2-2 commission under Section 205.005 for each BOE of production
2-3 capacity of a new well.
2-4 (10) "New well" means an oil or gas well that:
2-5 (A) during the period beginning on September 1,
2-6 1995, and ending on August 31, 1997, is:
2-7 (i) spudded, sidetracked, horizontally
2-8 drilled, or deepened below the total depth of the wellbore and
2-9 completed in a different commission-designated field; or
2-10 (ii) a plugged oil or gas well and
2-11 reentered; and
2-12 (B) has not been granted any other tax exemption
2-13 for a new well, including a high-cost gas exemption under Section
2-14 201.057.
2-15 (11) "Posted price of West Texas intermediate oil"
2-16 means the volumetrically weighted price of crude petroleum oil, and
2-17 crude petroleum commonly known as "West Texas intermediate crude
2-18 oil," posted by the first purchaser of crude oil from the original
2-19 producer.
2-20 Sec. 205.002. TAX EXEMPTION. Hydrocarbon production from a
2-21 category two marginal lease is exempt from the taxes imposed by
2-22 Chapters 201 and 202 if the comptroller has approved the tax
2-23 exemption under Section 205.006.
2-24 Sec. 205.003. APPLICATION FOR CERTIFICATION. (a) The
2-25 operator of an eligible lease may apply to the commission for
2-26 certification of the lease as a category two marginal lease.
2-27 (b) In addition to other requirements of this chapter, the
2-28 operator must include with the application any relevant information
2-29 the commission requires.
2-30 (c) If the commission approves the application, the
2-31 commission shall issue a certificate to the operator. The
2-32 certificate must:
2-33 (1) include identification of the category two
2-34 marginal lease; and
2-35 (2) state the date on which the tax exemption takes
2-36 effect, subject to the comptroller's approval of the exemption
2-37 under Section 205.006.
2-38 (d) The tax exemption is effective on the later of:
2-39 (1) the first day of the first month after the
2-40 12-month production period required by Section 205.004; or
2-41 (2) September 1, 1997.
2-42 (e) Notwithstanding Subsections (c) and (d), the commission
2-43 may not issue a certificate under this section until the posted
2-44 price of West Texas intermediate oil is at or below:
2-45 (1) $16.50 a barrel for 60 consecutive days during the
2-46 state fiscal year beginning September 1, 1996; or
2-47 (2) $17.50 a barrel for any 60-consecutive-day period
2-48 between September 1, 1996, and August 31, 2003.
2-49 (f) The comptroller shall compute the posted daily price of
2-50 West Texas intermediate oil for the purposes of Subsection (e).
2-51 When the requirements of Subsection (e) are met, the comptroller
2-52 shall publish, one time, in the Texas Register, the posted price of
2-53 West Texas intermediate oil for each of the qualifying 60
2-54 consecutive days. Only the comptroller's computations of the
2-55 posted daily price may be used to determine when the commission may
2-56 issue a certification under this section.
2-57 Sec. 205.004. QUALIFICATION FOR CERTIFICATION. (a) A lease
2-58 is eligible for certification as a category two marginal lease if:
2-59 (1) during the most recent 12-consecutive-month
2-60 production report period preceding the month in which the
2-61 application for certification as a category two marginal lease is
2-62 filed with the commission, lease production is:
2-63 (A) beginning on or after September 1, 1997, 5
2-64 BOE or less for all other leases;
2-65 (B) beginning on or after September 1, 1999, 10
2-66 BOE or less for all other leases; and
2-67 (C) beginning on or after September 1, 2001, 15
2-68 BOE or less for all other leases; and
2-69 (2) the operator submits with the application new well
2-70 chits issued under Section 205.005 in an amount equal to the
3-1 hydrocarbon production from the lease as determined under this
3-2 section.
3-3 (b) The 12-consecutive-month production report period
3-4 required by Subsection (a) must begin with a month for which some
3-5 hydrocarbon production is reported to the commission.
3-6 (c) A 12-month period is ineligible under Subsection (a)
3-7 unless during at least seven calendar months of the period some
3-8 hydrocarbons have been produced and reported to the commission.
3-9 (d) Production is determined under this section by rounding
3-10 up to the nearest BOE produced.
3-11 Sec. 205.005. NEW WELL CHITS. (a) The operator of a new
3-12 well may apply to the commission for new well chits only after five
3-13 months of production is reported for the well.
3-14 (b) An operator must apply for new well chits before
3-15 September 1998.
3-16 (c) The commission shall issue to the operator one new well
3-17 chit for each BOE capacity from the new well. The operator shall
3-18 notify each person who owns a working interest in a new well of the
3-19 issuance of new well chits relating to that well and shall
3-20 distribute the appropriate number of chits to each person. The
3-21 number of chits each person is entitled to receive is determined by
3-22 that person's percentage of ownership interest in the well.
3-23 (d) For purposes of issuing new well chits, the BOE capacity
3-24 for a new oil well on a single-well oil lease or for a new gas well
3-25 is the lesser of:
3-26 (1) the daily average BOEs from the well during the
3-27 most recent five consecutive reported months preceding the
3-28 application for new well chits; or
3-29 (2) the daily average BOEs from the well in the most
3-30 recent month of production for which a production report has been
3-31 filed and shows some production.
3-32 (e) The BOE capacity for a new oil well on a multiwell oil
3-33 lease is the lesser of:
3-34 (1) the results of a BOE capacity test on the new
3-35 well; or
3-36 (2) the daily average BOEs from the new well during
3-37 the most recent five consecutive reported months preceding the date
3-38 of the BOE capacity test.
3-39 (f) In determining BOE capacity under Subsection (e)(2),
3-40 production from the lease is apportioned between the new well and
3-41 other producing oil wells on the lease according to the new well
3-42 BOE capacity test and the sum of the most recent BOE capacity tests
3-43 for all of the other oil wells on the lease.
3-44 (g) A BOE capacity test for a new well must be performed not
3-45 earlier than the 60th day before the date on which the operator
3-46 applies for the new well chits. BOE capacity tests for all other
3-47 wells must have been performed not earlier than one year before the
3-48 date on which the operator applies for the new well chits. All BOE
3-49 capacity tests must be performed in accordance with commission
3-50 rules.
3-51 (h) The commission may not consider hydrocarbons that are
3-52 vented or flared in determining the BOE capacity of a new well.
3-53 (i) An operator or owner of a working interest may sell or
3-54 transfer new well chits to another operator or owner or any other
3-55 person, but only an operator may use a new well chit to qualify a
3-56 lease for certification as a category two marginal lease under
3-57 Section 205.004. The sale or transfer of new well chits under this
3-58 subsection is exempted from the taxes imposed by Chapter 151, and
3-59 revenue from that sale or transfer is not included in computing a
3-60 corporation's net taxable capital or net taxable earned surplus
3-61 under Chapter 171.
3-62 Sec. 205.006. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
3-63 (a) To qualify for the tax exemption provided by this chapter, the
3-64 person responsible for paying the tax must apply to the comptroller
3-65 for the exemption and include with the application the certificate
3-66 issued under Section 205.003 by the commission.
3-67 (b) The comptroller may require a person applying for the
3-68 tax exemption to provide any information necessary to administer
3-69 this section.
3-70 (c) The comptroller shall approve a person's application if
4-1 the hydrocarbons are eligible for the tax exemption.
4-2 (d) The comptroller may establish procedures as necessary to
4-3 comply with this section and Section 205.009.
4-4 Sec. 205.007. REVOCATION OF CERTIFICATION. (a) The
4-5 commission may revoke a category two marginal lease certificate if
4-6 the commission finds that the lease was not eligible for that
4-7 designation at the time of certification.
4-8 (b) The commission shall notify the operator and the
4-9 comptroller that the certificate has been revoked.
4-10 (c) A tax exemption granted under this chapter is
4-11 automatically revoked on the date the category two marginal lease
4-12 certificate is revoked, and hydrocarbons produced from that lease
4-13 on or after the day after the date of revocation are not eligible
4-14 for the tax exemption.
4-15 Sec. 205.008. COMMISSION DISCRETION AND RULES. The
4-16 commission has broad discretion in administering this chapter and
4-17 may adopt and enforce any appropriate rules or orders that the
4-18 commission finds necessary to administer this chapter.
4-19 Sec. 205.009. TAX CREDIT. (a) If the tax is paid at the
4-20 full rate provided by Chapter 201 or 202 on hydrocarbons produced
4-21 on or after the effective date of the tax exemption contained in
4-22 the lease certificate, but before the date the comptroller approves
4-23 the application for the tax exemption, the operator is entitled to
4-24 a credit on taxes due under Chapter 201 or 202 in an amount equal
4-25 to the tax paid during that period.
4-26 (b) To receive a credit, the operator must apply to the
4-27 comptroller for the credit not later than the first anniversary of
4-28 the date the commission certifies the lease as a category two
4-29 marginal lease.
4-30 Sec. 205.010. PENALTIES. (a) A person is subject to the
4-31 penalties that may be imposed under Chapters 85 and 91, Natural
4-32 Resources Code, if the person makes and submits to the commission
4-33 or the comptroller an application, report, or other document that
4-34 is used or intended to be used for a certification, tax exemption,
4-35 or a tax credit under this chapter and the person knows that the
4-36 application, report, or other document contains a false or untrue
4-37 material fact.
4-38 (b) A person is liable to the state for a civil penalty if
4-39 the person, after receiving notice from the commission that the
4-40 person's certificate for a category two marginal lease has been
4-41 revoked, applies or attempts to apply for a tax exemption for that
4-42 lease using the revoked certificate. The amount of the penalty may
4-43 not exceed the sum of:
4-44 (1) $10,000; and
4-45 (2) the difference between the amount of taxes paid or
4-46 attempted to be paid and the amount of taxes due.
4-47 (c) The attorney general may recover a penalty under
4-48 Subsection (b) in a suit brought on behalf of the state. Venue for
4-49 the suit is in Travis County.
4-50 SECTION 5. Subtitle I, Title 2, Tax Code, is amended by
4-51 adding Chapter 206 to read as follows:
4-52 CHAPTER 206. TAX EXEMPTION FOR CERTAIN HYDROCARBONS PRODUCED
4-53 AS A RESULT OF PRODUCTION ENHANCEMENT PROJECT
4-54 Sec. 206.001. DEFINITIONS. In this chapter:
4-55 (1) "Commission" means the Railroad Commission of
4-56 Texas.
4-57 (2) "Hydrocarbons" means any gas, oil, condensate, or
4-58 other liquid hydrocarbons produced from a well.
4-59 (3) "New hydrocarbon recovery technique" means a
4-60 hydrocarbon recovery technique that the commission determines:
4-61 (A) is a previously unproven recovery,
4-62 completion, or drilling technique; and
4-63 (B) has a reasonable possibility of increasing
4-64 the ultimate recovery of hydrocarbons.
4-65 (4) "Project" means a well or group of wells in a
4-66 field for which an operator intends to employ a new hydrocarbon
4-67 recovery technique.
4-68 (5) "Successful project" means a well or group of
4-69 wells in a field for which the commission has determined that the
4-70 use of a new hydrocarbon recovery technique has increased the
5-1 ultimate recovery of hydrocarbons.
5-2 Sec. 206.002. TAX EXEMPTION FOR PROJECT AND SUCCESSFUL
5-3 PROJECT. (a) Hydrocarbons produced from a well that is included
5-4 in an approved project during the period specified by Section
5-5 206.003(d) are exempt from the taxes imposed by Chapters 201 and
5-6 202 in accordance with Section 206.003(d) if the comptroller has
5-7 approved the tax exemption under Section 206.006.
5-8 (b) Hydrocarbons produced from a well in a successful
5-9 project are exempt from the taxes imposed by Chapters 201 and 202
5-10 in accordance with Sections 206.004(d) and 206.005(c) if the
5-11 comptroller has approved the tax exemption under Section 206.006.
5-12 Sec. 206.003. APPLICATION FOR INITIAL PROJECT. (a) The
5-13 operator of one or more wells in a field in which the operator
5-14 intends to employ a new hydrocarbon technique must apply to the
5-15 commission for approval of the project to be eligible for the tax
5-16 exemption under Section 206.002.
5-17 (b) In addition to the other requirements of this chapter,
5-18 the operator must include with the application a statement of the
5-19 date on which the project begins and the date it will end, subject
5-20 to commission approval, and any other information the commission
5-21 requires.
5-22 (c) If the commission approves the project, the commission
5-23 shall issue a certificate to each operator of a well included in
5-24 the project. The certificate must:
5-25 (1) include identification of each well in the
5-26 project;
5-27 (2) state the length of the project; and
5-28 (3) state the date on which the tax exemption takes
5-29 effect and the date on which it expires.
5-30 (d) The tax exemption is effective on the first day the
5-31 project begins and expires on the 90th day after the date the
5-32 project ends.
5-33 (e) The operator shall report to the commission the
5-34 production results from the project not later than the 90th day
5-35 after the date on which the project ends.
5-36 Sec. 206.004. APPLICATION FOR SUCCESSFUL PROJECT. (a) The
5-37 operator of one or more wells included in a project approved under
5-38 Section 206.003 may apply to the commission for certification of
5-39 the project as a successful project.
5-40 (b) In addition to the other requirements of this chapter,
5-41 the operator must include with the application:
5-42 (1) a copy of the certification issued under Section
5-43 206.003 for that project;
5-44 (2) evidence in the form prescribed by the commission
5-45 demonstrating that the new hydrocarbon recovery technique approved
5-46 for that project actually increased the ultimate recovery of
5-47 hydrocarbons; and
5-48 (3) any other information the commission requires.
5-49 (c) If the commission finds that the use of the new
5-50 hydrocarbon recovery technique approved under Section 206.003
5-51 increases the ultimate recovery of hydrocarbons, the commission
5-52 shall issue a certificate to each operator of a well that
5-53 participated in the successful project using the same new
5-54 hydrocarbon recovery technique. The certificate must:
5-55 (1) include identification of each well qualifying
5-56 under this section; and
5-57 (2) state the date on which the tax exemption takes
5-58 effect.
5-59 (d) The tax exemption is effective on the first day of the
5-60 first month after the date on which the commission receives the
5-61 application for certification of the project as a successful
5-62 project.
5-63 Sec. 206.005. APPLICATION FOR ADDITIONAL WELLS. (a) An
5-64 operator of a well located in a field in which a successful project
5-65 has been certified under Section 206.004 may apply to the
5-66 commission for certification of the well under this section if the
5-67 operator uses the same new hydrocarbon recovery technique approved
5-68 by the commission for the successful project.
5-69 (b) The commission may not issue a certificate under this
5-70 section to more than 100 wells in a field, including the original
6-1 wells certified under Section 206.004, for using the same new
6-2 hydrocarbon recovery technique. The commission shall determine
6-3 which wells qualify for certification. The certificate must:
6-4 (1) include identification of each well qualifying
6-5 under this section; and
6-6 (2) state the date on which the tax exemption takes
6-7 effect.
6-8 (c) The tax exemption is effective on the first day of the
6-9 first month after the date on which the commission receives the
6-10 application under this section for certification of the well.
6-11 Sec. 206.006. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
6-12 (a) To qualify for a tax exemption provided under this chapter for
6-13 an initial project or a successful project, the person responsible
6-14 for paying the tax must apply to the comptroller for the
6-15 appropriate exemption and include with the application the
6-16 certificate issued under Section 206.003, 206.004, or 206.005, as
6-17 appropriate.
6-18 (b) The comptroller may require a person applying for the
6-19 tax exemption to provide any information necessary to administer
6-20 this section.
6-21 (c) The comptroller shall approve a person's application if
6-22 the hydrocarbons are eligible for the tax exemption.
6-23 Sec. 206.007. REVOCATION OF CERTIFICATION. (a) The
6-24 commission may revoke a certificate if the commission finds that
6-25 the well was not eligible for that designation at the time of
6-26 certification.
6-27 (b) The commission shall notify the operator and the
6-28 comptroller that the certificate has been revoked.
6-29 (c) A tax exemption granted under this chapter is
6-30 automatically revoked on the date the certificate is revoked, and
6-31 hydrocarbon production from that well on or after the day after the
6-32 date of revocation is not eligible for the tax exemption.
6-33 Sec. 206.008. COMMISSION DISCRETION AND RULES. The
6-34 commission has broad discretion in administering this chapter and
6-35 may adopt and enforce any appropriate rules or orders that the
6-36 commission finds necessary to administer this chapter.
6-37 Sec. 206.009. TAX CREDIT. (a) If the tax is paid under
6-38 Chapter 201 or 202 on hydrocarbon production on or after the
6-39 effective date of the tax exemption contained in the well
6-40 certificate but before the date the comptroller approves the
6-41 application for the tax exemption, the operator is entitled to a
6-42 credit on taxes due under Chapter 201 or 202 in an amount equal to
6-43 the tax paid on hydrocarbon production during that period.
6-44 (b) To receive a credit, the operator must apply to the
6-45 comptroller for the credit not later than the first anniversary of
6-46 the date the commission certifies the well.
6-47 Sec. 206.010. PENALTIES. (a) A person is subject to the
6-48 penalties that may be imposed under Chapters 85 and 91, Natural
6-49 Resources Code, if the person makes and submits to the commission
6-50 or the comptroller an application, report, or other document that
6-51 is used or intended to be used for a certification, tax exemption,
6-52 or a tax credit under this chapter and the person knows that the
6-53 application, report, or other document contains a false or untrue
6-54 material fact.
6-55 (b) A person is liable to the state for a civil penalty if
6-56 the person, after receiving notice from the commission that the
6-57 person's certificate has been revoked, applies or attempts to apply
6-58 for a tax exemption for that well using the revoked certificate.
6-59 The amount of the penalty may not exceed the sum of:
6-60 (1) $10,000; and
6-61 (2) the difference between the amount of taxes paid or
6-62 attempted to be paid and the amount of taxes due.
6-63 (c) The attorney general may recover a penalty under
6-64 Subsection (b) in a suit brought on behalf of the state. Venue for
6-65 the suit is in Travis County.
6-66 SECTION 6. This Act takes effect September 1, 1995.
6-67 SECTION 7. The importance of this legislation and the
6-68 crowded condition of the calendars in both houses create an
6-69 emergency and an imperative public necessity that the
6-70 constitutional rule requiring bills to be read on three several
7-1 days in each house be suspended, and this rule is hereby suspended.
7-2 * * * * *