1-1 By: Wentworth S.B. No. 1440 1-2 (In the Senate - Filed March 13, 1997; March 19, 1997, read 1-3 first time and referred to Committee on Finance; May 6, 1997, 1-4 reported adversely, with favorable Committee Substitute by the 1-5 following vote: Yeas 7, Nays 0; May 6, 1997, sent to printer.) 1-6 COMMITTEE SUBSTITUTE FOR S.B. No. 1440 By: Wentworth A BILL TO BE ENTITLED 1-7 AN ACT 1-8 relating to tax exemptions on oil and gas production. 1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-10 SECTION 1. Section 201.058, Tax Code, is amended to read as 1-11 follows: 1-12 Sec. 201.058. TAX EXEMPTIONS. (a) The exemptions described 1-13 by Sections 202.056, 202.057, and 202.059 apply to the taxes 1-14 imposed by this chapter as authorized by and subject to the 1-15 certifications and approvals required by those sections. 1-16 (b) Operators increasing production by marketing gas from an 1-17 oil well or lease that has been released into the air for 12 months 1-18 or more pursuant to the rules of the commission shall be entitled 1-19 to an exemption from the tax imposed by this chapter on the 1-20 production resulting from the marketing of such gas for the life of 1-21 the well or lease. 1-22 SECTION 2. Subchapter B, Chapter 202, Tax Code, is amended 1-23 by adding Section 202.057 to read as follows: 1-24 Sec. 202.057. TAX CREDIT FOR INCREMENTAL PRODUCTION 1-25 TECHNIQUES. (a) In this section: 1-26 (1) "Baseline production" means a lease's average 1-27 monthly production during the four highest months of production in 1-28 the time period from January 1, 1996, through December 31, 1996. 1-29 (2) "Commission" means the Railroad Commission of 1-30 Texas. 1-31 (3) "Incremental production" means production from a 1-32 qualifying lease in excess of the baseline production. 1-33 (4) "Incremental production technique" means any 1-34 secondary or tertiary production enhancement technique. For wells 1-35 in primary production, the use of incremental production techniques 1-36 means that an expenditure of at least $5,000 must have been made to 1-37 cause increased production. Operators must certify to the 1-38 commission that such expenditure has been made to qualify for the 1-39 tax exemption. The incremental production techniques listed in 1-40 this subdivision must cause incremental production from an existing 1-41 oil lease or from a newly drilled single-completion well on an 1-42 existing lease. 1-43 (5) "Incremental ratio" means the amount of a 1-44 qualifying lease's average monthly incremental production during 1-45 the four-month period used to meet the definition of a qualifying 1-46 lease divided by its average monthly total production during the 1-47 same four-month period. 1-48 (6) "Qualifying lease" means a commission-designated 1-49 oil lease whose production during the four-month period used in 1-50 computing the baseline is no more than seven barrels of oil 1-51 equivalents per day per well, excluding gas flared pursuant to the 1-52 rules of the commission, and which has shown incremental production 1-53 for four of five consecutive months during the effective period of 1-54 this bill and after performing an incremental production technique 1-55 within the lease. For purposes of qualifying a lease, production 1-56 per well per day is measured by dividing the sum of lease 1-57 production during the four highest months of production in the 1-58 baseline period by the sum of the number of well-days, where a 1-59 well-day is one well producing for one day. 1-60 (7) "Qualified incremental production" means the 1-61 lease's monthly total production multiplied by the incremental 1-62 ratio. 1-63 (b) An operator of a qualifying lease is entitled to a 50 1-64 percent tax exemption on that lease's qualified incremental 2-1 production for five years provided that: 2-2 (1) the incremental production required to define a 2-3 qualifying lease occurred after September 1, 1997, and before 2-4 December 31, 1998; 2-5 (2) the operator of a qualifying lease applies to the 2-6 commission for a determination of a lease's incremental ratio 2-7 before February 11, 1999; and 2-8 (3) the operator provides to the comptroller a 2-9 commission-certified incremental ratio. 2-10 (c) If the comptroller's average taxable price of crude oil 2-11 reaches $25 per barrel, adjusted to 1997 dollars, for three 2-12 consecutive months, the tax credit under this section shall be 2-13 suspended until the price drops below $25 per barrel, adjusted to 2-14 1997 dollars, for three consecutive months. 2-15 (d) If the tax is paid at the full rate provided by Section 2-16 201.052(a) or (b) or Section 202.052(a) or (b) before the 2-17 comptroller approves an application for an exemption provided in 2-18 this chapter, the operator is entitled to a credit against taxes 2-19 imposed by this chapter in an amount equal to 50 percent of the tax 2-20 paid on the incremental production. To receive the credit, the 2-21 operator must apply to the comptroller for the credit not later 2-22 than the first anniversary after the date the commission certifies 2-23 the incremental ratio for a qualifying lease. 2-24 (e) The commission may enact rules necessary to administer 2-25 the provisions of this section. 2-26 SECTION 3. This Act takes effect September 1, 1997. 2-27 SECTION 4. The importance of this legislation and the 2-28 crowded condition of the calendars in both houses create an 2-29 emergency and an imperative public necessity that the 2-30 constitutional rule requiring bills to be read on three several 2-31 days in each house be suspended, and this rule is hereby suspended. 2-32 * * * * *