By: Wentworth S.B. No. 1440 A BILL TO BE ENTITLED AN ACT 1-1 relating to tax exemptions on, and the use of certain revenues from 1-2 taxes on, oil and gas production. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Section 201.058, Tax Code, is amended to read as 1-5 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 certifications 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 as follows: 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 31, 1996. 1-23 (2) "Commission" means the Railroad Commission of 2-1 Texas. 2-2 (3) "Incremental production" means production from a 2-3 qualifying lease in excess of the baseline production. 2-4 (4) "Incremental production technique" means any 2-5 secondary or tertiary production enhancement technique. For wells 2-6 in primary production, the use of incremental production techniques 2-7 means that an expenditure of at least $5,000 must have been made to 2-8 cause increased production. Operators must certify to the 2-9 commission that such expenditure has been made to qualify for the 2-10 tax exemption. The incremental production techniques listed in 2-11 this subdivision must cause incremental production from an existing 2-12 oil lease or from a newly drilled single-completion well on an 2-13 existing lease. 2-14 (5) "Incremental ratio" means the amount of a 2-15 qualifying lease's average monthly incremental production during 2-16 the four-month period used to meet the definition of a qualifying 2-17 lease divided by its average monthly total production during the 2-18 same four-month period. 2-19 (6) "Qualifying lease" means a commission-designated 2-20 oil lease whose production during the four-month period used in 2-21 computing the baseline is no more than seven barrels of oil 2-22 equivalents per day per well, excluding gas flared pursuant to the 2-23 rules of the commission, and which has shown incremental production 2-24 for four of five consecutive months during the effective period of 2-25 this bill and after performing an incremental production technique 3-1 within the lease. For purposes of qualifying a lease, production 3-2 per well per day is measured by dividing the sum of lease 3-3 production during the four highest months of production in the 3-4 baseline period by the sum of the number of well-days, where a 3-5 well-day is one well producing for one day. 3-6 (7) "Qualified incremental production" means the 3-7 lease's monthly total production multiplied by the incremental 3-8 ratio. 3-9 (b) An operator of a qualifying lease is entitled to a 50 3-10 percent tax exemption on that lease's qualified incremental 3-11 production for five years provided that: 3-12 (1) the incremental production required to define a 3-13 qualifying lease occurred after September 1, 1997, and before 3-14 December 31, 1998; 3-15 (2) the operator of a qualifying lease applies to the 3-16 commission for a determination of a lease's incremental ratio 3-17 before February 11, 1999; and 3-18 (3) the operator provides to the comptroller a 3-19 commission-certified incremental ratio. 3-20 (c) If the comptroller's average taxable price of crude oil 3-21 reaches $25 per barrel, adjusted to 1997 dollars, for three 3-22 consecutive months, the tax credit under this section shall be 3-23 suspended until the price drops below $25 per barrel, adjusted to 3-24 1997 dollars, for three consecutive months. 3-25 (d) If the tax is paid at the full rate provided by Section 4-1 201.052(a) or (b) or Section 202.052(a) or (b) before the 4-2 comptroller approves an application for an exemption provided in 4-3 this chapter, the operator is entitled to a credit against taxes 4-4 imposed by this chapter in an amount equal to 50 percent of the tax 4-5 paid on the incremental production. To receive the credit, the 4-6 operator must apply to the comptroller for the credit not later 4-7 than the first anniversary after the date the commission certifies 4-8 the incremental ratio for a qualifying lease. 4-9 (e) The commission may enact rules necessary to administer 4-10 the provisions of this section. 4-11 SECTION 3. Subchapter H, Chapter 202, Tax Code, is amended 4-12 by adding Section 202.354 to read as follows: 4-13 Sec. 202.354. DEDICATION TO TEXAS TUITION ASSISTANCE GRANT 4-14 PROGRAM. The revenue collected from any incremental production 4-15 from a qualifying lease, as those terms are defined by Section 4-16 202.057, and deposited to the general revenue fund may only be 4-17 spent to fund the Texas tuition assistance grant program under 4-18 Subchapter G, Chapter 56, Education Code. 4-19 SECTION 4. This Act takes effect September 1, 1997. 4-20 SECTION 5. The importance of this legislation and the 4-21 crowded condition of the calendars in both houses create an 4-22 emergency and an imperative public necessity that the 4-23 constitutional rule requiring bills to be read on three several 4-24 days in each house be suspended, and this rule is hereby suspended. 4-25 COMMITTEE AMENDMENT NO. 1 5-1 Amend SB 1440 as follows: 5-2 Strike Section 3 of the bill and re-number remaining sections 5-3 accordingly. 5-4 Holzheauser