LEGISLATIVE BUDGET BOARD
                          Austin, Texas

                           FISCAL NOTE
                       74th Regular Session

                          April 18, 1995



 TO:     Honorable Steve Holzheauser, Chair     IN RE:  House Bill No. 2731
         Committee on Energy Resources                  By: Craddick
         House of Representatives
         Austin, Texas






FROM: John Keel, Director

In response to your request for a Fiscal Note on House Bill No.
2731 (Relating to the Texas Experimental Research and Recovery
Activity for oil and gas production research.) 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. 


No fiscal implication to units of local government is
anticipated.

The fiscal implication to  the State cannot be determined.


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