By Holzheauser H.B. No. 3491 Line and page numbers may not match official copy. Bill not drafted by TLC or Senate E&E. 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 flared for 12 months or more 1-12 pursuant to the rules of the commission shall be entitled to an 1-13 exemption from the tax imposed by this chapter on the production 1-14 resulting from the marketing of such gas for the life of the well 1-15 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 production from January 1995 through December 1995. 1-22 (2) "Commission" means Railroad Commission of Texas. 2-1 (3) "Incremental production" means production from a 2-2 qualifying lease in excess of the baseline production. 2-3 (4) "Incremental production techniques" means any 2-4 primary, secondary or tertiary production enhancement technique 2-5 which causes incremental production from an existing oil lease or 2-6 from a newly drilled single completion well on an existing lease. 2-7 (5) "Incremental ratio" means the amount of a 2-8 qualifying lease's average incremental production divided by its 2-9 average total production for the four (4) months utilized to meet 2-10 the definition of a qualifying lease. 2-11 (6) "Qualifying lease" means a commission designated 2-12 oil lease whose baseline production is no more than seven (7) 2-13 barrel-of-oil equivalents (BOE) per day per well (excluding gas 2-14 flared pursuant to the rules of the commission) that has shown 2-15 incremental production for four (4) of five (5) months following 2-16 baseline production determination. 2-17 (7) "Qualified incremental production" means the 2-18 lease's monthly total production multiplied by the incremental 2-19 ratio. 2-20 (b) An operator of a qualifying lease is entitled to a fifty 2-21 percent (50%) tax exemption on that lease's qualified incremental 2-22 production for 5 years provided that: 2-23 (1) the incremental production required to define a 2-24 qualifying lease occurred after the effective date of this bill and 2-25 before December 31, 1998; and 2-26 (2) the operator of a qualifying lease applies to the 2-27 Commission for a determination of a lease's incremental ratio 3-1 before February 11, 1999; and 3-2 (3) the operator provides to the Comptroller of Public 3-3 Accounts a commission-certified incremental ratio. 3-4 (c) If the Comptroller of Public Account's average taxable 3-5 price of crude oil reaches $25.00 per barrel, adjusted to 1997 3-6 dollars, for three consecutive months, then the tax credit under 3-7 this section shall be suspended until the price drops below $25.00 3-8 per barrel, adjusted to 1997 dollars, for three consecutive months. 3-9 (d) If the tax is paid at the full rate provided by Section 3-10 201.052(a), 201.052(b), 202.052(a), or 202.052(b) before the 3-11 comptroller approves an application for an exemption provided in 3-12 this chapter, the operator is entitled to a credit against taxes 3-13 imposed by this chapter in an amount equal to the fifty percent 3-14 (50%) of the tax paid on the incremental production. To receive a 3-15 credit, the operator must apply to the comptroller for the credit 3-16 not later that the first anniversary after the date the commission 3-17 certifies the incremental ratio for a qualifying lease. 3-18 (e) The commission may enact rules necessary to administer 3-19 the provisions of this section. 3-20 SECTION 3. This Act takes effect September 1, 1997. 3-21 SECTION 4. The importance of this legislation and the 3-22 crowded condition of the calendars in both houses create an 3-23 emergency and an imperative public necessity that the 3-24 constitutional rule requiring bills to be read on three several 3-25 days in each house be suspended, and this rule is hereby suspended.