By Holzheauser H.B. No. 3491 Substitute the following for H.B. No. 3491: By Craddick C.S.H.B. No. 3491 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to tax exemptions on oil and gas production: 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Subchapter B, Chapter 201, Section 201.058 Tax 1-5 Code, is amended to read as follows: 1-6 Sec. 201.058. Tax Exemptions. (a) The exemptions described 1-7 by Sections 202.056, 202.057, and 202.059 apply to the taxes 1-8 imposed by this chapter as authorized by and subject to the 1-9 certification and approvals required by those sections. 1-10 (b) Operators increasing production by marketing gas from an 1-11 oil well or lease that has been released into the air for 12 months 1-12 or more pursuant to the rules of the commission shall be entitled 1-13 to an exemption from the tax imposed by this chapter on the 1-14 production resulting from the marketing of such gas for the life of 1-15 the well or lease. 1-16 SECTION 2. Subchapter B, Chapter 202, Tax Code, is amended 1-17 by adding Section 202.057 to read: 1-18 Sec. 202.057. TAX CREDIT FOR INCREMENTAL PRODUCTION 1-19 TECHNIQUES. (a) In this section: 1-20 (1) "Baseline production" means a lease's average 1-21 monthly production during the four highest months of production in 1-22 the time period from January 1, 1996 through December 1996. 1-23 (2) "Commission" means Railroad Commission of Texas. 1-24 (3) "Incremental production" means production from a 2-1 qualifying lease in excess of the baseline production. 2-2 (4) "Incremental production techniques" means any 2-3 primary, secondary or tertiary production enhancement technique 2-4 which causes incremental production from an existing oil lease or 2-5 from a newly drilled single completion well on an existing lease. 2-6 (5) "Incremental ratio" means the amount of a 2-7 qualifying lease's average monthly incremental production during 2-8 the four-month period utilized to meet the definition of a 2-9 qualifying lease divided by its average monthly total production 2-10 during the same four month period. 2-11 (6) "Qualifying lease" means a commission designated 2-12 oil lease whose production during the four-month period used in 2-13 computing the baseline is no more than seven (7) barrels-of-oil 2-14 equivalents (BOE) per day per well (excluding gas flared pursuant 2-15 to the rules of the commission) that has shown incremental 2-16 production for four (4) of five (5) consecutive months during the 2-17 effective period of this bill and after performing an incremental 2-18 production technique within the lease. For purposes of qualifying 2-19 a lease, production per well per day is measured by dividing the 2-20 sum of lease production during the four highest months of 2-21 production in the baseline period by the sum of the number of 2-22 well-days, where a well day is one well producing for one day. 2-23 (7) "Qualified incremental production" means the 2-24 lease's monthly total production multiplied by the incremental 2-25 ratio. 2-26 (b) An operator of a qualifying lease is entitled to a fifty 2-27 percent (50%) tax exemption on that lease's qualified incremental 3-1 production for 5 years provided that: 3-2 (1) the incremental production required to define a 3-3 qualifying lease occurred after the effective date of this bill and 3-4 before December 31, 1998; and 3-5 (2) the operator of a qualifying lease applies to the 3-6 Commission for a determination of a lease's incremental ratio 3-7 before February 11, 1999; and 3-8 (3) the operator provides to the Comptroller of Public 3-9 Accounts a commission-certified incremental ratio. 3-10 (c) If the Comptroller of Public Account's average taxable 3-11 price of crude oil reaches $25.00 per barrel, adjusted to 1997 3-12 dollars, for three consecutive months, then the tax credit under 3-13 this section shall be suspended until the price drops below $25.00 3-14 per barrel, adjusted to 1997 dollars, for three consecutive months. 3-15 (d) If the tax is paid at the full rate provided by Section 3-16 201.052(a), 201.052(b), 202.052(a), or 202.052(b) before the 3-17 comptroller approves an application for an exemption provided in 3-18 this chapter, the operator is entitled to a credit against taxes 3-19 imposed by this chapter in an amount equal to the fifty percent 3-20 (50%) of the tax paid on the incremental production. To receive a 3-21 credit, the operator must apply to the comptroller for the credit 3-22 not later that the first anniversary after the date the commission 3-23 certifies the incremental ratio for a qualifying lease. 3-24 (e) The commission may enact rules necessary to administer 3-25 the provisions of this section. 3-26 SECTION 3. This Act takes effect September 1, 1997. 3-27 SECTION 4. The importance of this legislation and the 4-1 crowded condition of the calendars in both houses create an 4-2 emergency and an imperative public necessity that the 4-3 constitutional rule requiring bills to be read on three several 4-4 days in each house be suspended, and this rule is hereby suspended.