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