By:  Ellis                                             S.B. No. 905
                                 A BILL TO BE ENTITLED
                                        AN ACT
    1-1  relating to royalty rates applicable to certain oil and gas
    1-2  properties on public lands.
    1-3        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-4        SECTION 1.  Subchapter C, Chapter 32, Natural Resources Code,
    1-5  is amended by adding Section 32.067 to read as follows:
    1-6        Sec. 32.067.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this
    1-7  section:
    1-8              (1)  "Barrel of oil equivalent" means 6,000 cubic feet
    1-9  of natural gas for each 42-gallon barrel of crude oil or a volume
   1-10  of gas with a minimum heating value of 6,000,000 British thermal
   1-11  units (6,000 Mbtu), whichever is greater.
   1-12              (2)  "Qualifying Gulf of Mexico property" means  land
   1-13  described in Section 52.011(2) that is subject to a lease issued
   1-14  under Subchapter B, Chapter 52.
   1-15              (3)  "Qualifying Gulf of Mexico reservoir" means a
   1-16  reservoir that:
   1-17                    (A)  during a period established by board rule
   1-18  has an average daily per well production equal to or less than 50
   1-19  barrels of oil or barrels of oil equivalent; and
   1-20                    (B)  underlies:
   1-21                          (i)  a qualifying Gulf of Mexico property;
   1-22  or
   1-23                          (ii)  a pooled unit that includes a
   1-24  qualifying Gulf of Mexico property.
    2-1              (4)  "Qualifying property" means land subject to a
    2-2  lease issued under this chapter, under Subchapter E, Chapter 51, or
    2-3  under Chapter 52.
    2-4              (5)  "Qualifying reservoir" means a reservoir that:
    2-5                    (A)  during a period established by board rule
    2-6  has an average daily per well production equal to or less than 15
    2-7  barrels of oil or barrels of oil equivalent; and
    2-8                    (B)  underlies:
    2-9                          (i)  a qualifying property; or
   2-10                          (ii)  a pooled unit that includes a
   2-11  qualifying property.
   2-12              (6)  "Reservoir" has the same meaning as "common
   2-13  reservoir" as that term is defined in Section 86.002.
   2-14        (b)  The board by rule may provide for the reduction of
   2-15  royalty rates as provided by this section.
   2-16        (c)  The royalty rate for oil and gas produced from a
   2-17  qualifying reservoir may be reduced to not less than one-sixteenth
   2-18  (6.25 percent).  In determining whether to grant a reduction in the
   2-19  royalty rate, the board may consider whether the qualifying
   2-20  property is being operated efficiently, including whether the
   2-21  property is pooled or has reasonable potential for the application
   2-22  of secondary or tertiary recovery techniques.
   2-23        (d)  The royalty rate for the state's share under a lease
   2-24  issued under Subchapter F, Chapter 52, or Sections 51.195(c)(2) and
   2-25  (d) may be reduced under this section to not less than
   2-26  one-thirty-second (3.125 percent).  The state's royalty rate may be
   2-27  reduced under this subsection only if the royalty rate for the
    3-1  owner of the soil is reduced in the same proportion.
    3-2        (e)  The royalty rate under a lease issued under Subchapter
    3-3  C, Chapter 52, may not be reduced to a rate that is lower than the
    3-4  rate under lease of land that:
    3-5              (1)  adjoins the land leased under Subchapter C; and
    3-6              (2)  is held or operated by, or under the significant
    3-7  control of, the state's lessee.
    3-8        (f)  The royalty rate under a lease issued under Subchapter F
    3-9  of this chapter may not be reduced to a rate that is lower than the
   3-10  rate under a lease of land that adjoins the land leased under
   3-11  Subchapter F.
   3-12        (g)  If a qualifying reservoir for which a royalty rate
   3-13  reduction is sought under this section is included in a unit
   3-14  subject to the board's authority, the board may modify the terms
   3-15  and conditions for the unit as a condition of approving the
   3-16  requested reduction in the royalty rate.
   3-17        (h)  This section does not apply to the free royalty reserved
   3-18  by the state under Section 51.054.
   3-19        SECTION 2.  Subchapter D, Chapter 66, Education Code, is
   3-20  amended by adding Section 66.84 to read as follows:
   3-21        Sec. 66.84.  MARGINAL PROPERTY ROYALTY RATES.  (a)  In this
   3-22  section:
   3-23              (1)  "Barrel of oil equivalent" means 6,000 cubic feet
   3-24  of natural gas per 42-gallon barrel of crude oil.
   3-25              (2)  "Lease" or "leases" means an oil and gas lease
   3-26  issued or approved by the state that is valid and in force on or
   3-27  after the effective date of this section.
    4-1              (3)  "Qualifying property" means land subject to a
    4-2  lease issued under this subchapter.
    4-3              (4)  "Qualifying reservoir" means a reservoir having an
    4-4  average daily per well production equal to or less than 15 barrels
    4-5  of oil equivalent during a period established by the board by rule
    4-6  and underlying either:
    4-7                    (A)  a qualifying property; or
    4-8                    (B)  a pooled unit including a qualifying
    4-9  property.
   4-10              (5)  "Reservoir" has the same meaning as "common
   4-11  reservoir" as defined in Section 86.002, Natural Resources Code.
   4-12        (b)  The board may provide by rule that the royalty rate for
   4-13  qualifying reservoirs may be reduced to not less than one-sixteenth
   4-14  (6.25 percent).
   4-15        (c)  If a qualifying reservoir for which royalty rate
   4-16  reduction is sought under this section is included in a unit
   4-17  subject to the authority of the board, the board may modify the
   4-18  terms and conditions of the unit as a condition of approving a
   4-19  reduction in the royalty rate.
   4-20        SECTION 3.  Section 32.067, Natural Resources Code, as added
   4-21  by this Act, applies to the royalty rate under a lease issued or
   4-22  approved by the state that is in effect on, or takes effect on or
   4-23  after, the effective date of this Act.
   4-24        SECTION 4.  The importance of this legislation and the
   4-25  crowded condition of the calendars in both houses create an
   4-26  emergency and an imperative public necessity that the
   4-27  constitutional rule requiring bills to be read on three several
    5-1  days in each house be suspended, and this rule is hereby suspended,
    5-2  and that this Act take effect and be in force from and after its
    5-3  passage, and it is so enacted.