LEGISLATIVE BUDGET BOARD
                          Austin, Texas

                           FISCAL NOTE
                       74th Regular Session

                           May 20, 1995



 TO:     Honorable John T. Montford, Chair      IN RE: Committee Substitute
         Committee on Finance                                for House Bill
         Senate                                 No. 398
         Austin, Texas                                  By: Lucio









FROM: John Keel, Director

In response to your request for a Fiscal Note on House Bill No.
398 (relating to the eligibility of certain high-cost gas for a
reduction of the gas production tax) this office has determined
the following:

Under current law, natural gas produced from certain "high cost
gas wells" is exempt from the natural gas production tax. 
Current law applies to wells drilled within the period May 24,
1989 and September 1, 1996.  The exemption applies to production
from certified wells during the period September 1, 1991 and
August 31,  2001.

This bill extends the present gas production tax exemption for
high cost gas wells to those spudded or completed after September
1, 1996 and before September  1, 2002.   Such wells would be
subject to a reduced production tax for the first 120 consecutive
months of production or until the cumulative value of the tax
reduction equals 50 percent of the well drilling and completion
costs.

The gas production tax applicable to a qualified well  would be
computed by subtracting from the standard tax levy (7.5% of the
market value of gas produced) the product of that tax rate times
the ratio of drilling and completion costs incurred for that
qualified well to twice the median drilling completion costs for
all high-cost wells drilled during the previous state fiscal
year.  The relevant tax rate would range from just below the    




standard rate of 7.5% down to a zero levy.

 The bill would require the Comptroller to calculate and publish
as soon as practicable after March 1 of each year the median
drilling and completion cost for all high cost gas wells.  The
first such publication would be due after March 1, 1997.

The bill requires production from high cost gas wells spudded or
completed between September 1, 1996 and August 31, 1997 to pay
the standard tax rate on such production.  However, on or after
September 1, 1997, eligible producers could request of the
Comptroller a refund of any excess taxes paid.

The probable fiscal implication of implementing the provisions of
the bill during each of the first  five years following passage
is estimated as follows:


          The probable fiscal implication of  implementing the provisions of
          the bill during each of the first   five years following passage  
          is estimated as follows:                                          
                                                                            
                                                                            
                                                                            
          Fiscal     Probable Revenue
           Year      Loss to  General
                     Revenue Fund 001

        1996
        1997

        1998                16,237,117

        1999                15,915,501
        2000                14,570,283



       Similar annual fiscal implications would continue as long as the
provisions of the bill are in effect.

The fiscal implication to  units of local government cannot be
determined.


Source:   Comptroller of Public Accounts, Railroad Commission
          LBB Staff: JK, CT, DF