JWB S.B. 1440 75(R)BILL ANALYSIS WAYS & MEANS S.B. 1440 By: Wentworth (Holzheauser) 5-16-97 Committee Report (Amended) BACKGROUND According to the Railroad Commission, there are over 72,000 wells producing less than seven barrel-of-oil equivalents (BOE) per well per day. Lower production wells have high production costs and smaller profits. Providing a tax break to those leases which show a sustained increase in production could create an incentive for those operators to invest in production-enhancing activity. PURPOSE The bill exempts oil and gas that is produced (from qualified leases) that are the result of an incremental production technique from 50% of the severance taxes for a period of 5 years. RULEMAKING AUTHORITY Rulemaking authority is granted to the Railroad Commission of Texas in SECTION 2 of this bill (Section 202.057(e), Tax Code [as added by this bill]), and references those rules in SECTION 1. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 201.058, Tax Code (Tax Exemptions), to require certain operators increasing production by marketing gas from an oil well or lease that has been released for 12 months or more, pursuant to the rules of the Railroad Commission of Texas, to be entitled to an exemption from tax imposed by this chapter. Makes a conforming change. SECTION 2. Amends Subchapter B, Chapter 202, Tax Code (Tax Imposed), by adding Section 202.057, TAX CREDIT FOR INCREMENTAL PRODUCTION TECHNIQUES. Defines "baseline production," "commission," "incremental production," "incremental production techniques," "incremental ratio," "qualifying lease," and "qualified incremental production." Provides that an operator of a qualifying lease is entitled to a 50 percent tax exemption on that lease's qualified incremental production for five years provided that certain provisions are met. Requires this section to be suspended if the price of oil reaches $25 per barrel for three months. Sets forth requirements for receiving a credit against taxes imposed by this chapter. Requires the Railroad Commission of Texas to adopt rules necessary to administer this section. SECTION 3. Amends Subchapter H, Chapter 202, Tax Code (Classification of Tax and Allocation of Revenue), by adding Section 202.354, DEDICATION TO TEXAS TUITION ASSISTANCE GRANT PROGRAM. Provides that revenue collected from incremental production from a qualifying lease, as defined by Section 202.057, and deposited to the general revenue fund may only be spent to fund the Texas tuition assistance grant program under Subchapter G, Chapter 56, Education Code. SECTION 4. Effective date: September 1, 1997. SECTION 5. Emergency clause. EXPLANATION OF AMENDMENTS Committee amendment No. 1 strikes SECTION 3 of the bill, referring to the dedication of funds collected benefitting the Texas Tuition Assistance Grant Program.