LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session April 19, 1995 TO: Honorable Steve Holzheauser, Chair IN RE: Committee Substitute Committee on Energy Resources forHouse Bill House of Representatives No. 2731 Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on House Bill No. 2731 (relating to oil and gas production research and information, including the Texas Experimental Research and Recovery Activity; providing administrative, civil, and criminal penalties) this office has determined the following: The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. The bill would create the Texas Research and Recovery Activity (TERRA) to collect and hold mechanically sound and non-polluting wellbores, to be licensed by the Railroad Commission for use in gathering data, performing production tests, and developing and testing enhanced or advanced recovery techniques. The bill would establish a TERRA fund as a special dedicated fund in the state treasury and would prescribe certain fees to be paid into the fund. Revenues would come from several sources, including: wellbores scheduled for state-funded plugging that are, instead, put in TERRA; payments for partial, avoided plugging costs from mineral interest owners placing wellbores in TERRA; fees/payments for wellbores removed from TERRA; proceeds from sales of salvage equipment from the Oil Field Cleanup Fund; interest on TERRA funds; and monies paid for violation. Under the bill, the fund could be used for the operation and administration of the TERRA program. In addition, if the TERRA fund balance exceeds the total estimated plugging cost of all TERRA wells, up to 75% of the fund's annual interest could be used for Commission administrative and program costs related to oil and gas activities. A wellbore could be licensed out for a specified duration of time while it is in TERRA for specified purposes. A license applicant would pay the Commission, for deposit into the fund, an administrative fee of $50/wellbore or $500/tract. A wellbore could be released from the TERRA upon plugging or when the possessory mineral interest owner of the tract applies for release and takes over plugging responsibility. In certain instances, a payment would have to accompany the release application. Any production during the license period would be exempt from severance tax liability as would be production from a wellbore that was in TERRA at least two years prior to release. The Railroad Commission estimates that 200 wellbores would be placed into TERRA in FY1996 and 400/year thereafter. Of the wells coming into the fund annually, about 10 % are assumed to be abandoned wells scheduled for state-funded plugging out of the Oil Field Cleanup Receipts account. The entire estimated cost of plugging these wells would be transferred from the Oil Field Cleanup Receipts account to the TERRA fund. Based on several assumptions, the Commission estimates net gains to the TERRA fund of approximately $1 million in FY 1996 and up to $2.1 million in subsequent years. The cost to the Oil Field Cleanup Fund could range from $350,000 to $580,000. No assumptions are made relative to revenues available from violations since there is no basis upon which to calculate them. The Commission estimates that the provisions of the bill could be implemented and administered without additional resources. Although the fees authorized by the bill would only recover the cost of issuing the licenses, other deposits into the fund would cover administrative costs. The Office of the Comptroller estimates administrative costs of $75,200 in FYs 1996 and 1997 for contract programmers to modify automated systems. Since the bill does not establish a fee schedule nor program operating procedures, it is not possible to accurately determine the revenues flowing into the TERRA fund. Neither is it possible to estimate the amount of production that would be exempt from severance taxes and the cost to the state from these exemptions. The fiscal implication to the State cannot be determined. No fiscal implication to units of local government is anticipated. Source: LBB Staff: JK, CT, DF