LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session February 14, 1997 TO: Honorable Tom Craddick, Chair IN RE: House Bill No. 655, Committee Report 1st House Committee on Ways & Means By: Craddick House Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB655 ( relating to a tax exemption for hydrocarbon production from certain inactive oil and gas leases returned to production) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB655-Committee Report 1st House No fiscal implication to the State is anticipated. FISCAL ANALYSIS The bill would amend the Tax Code to provide a severance tax exemption for hydrocarbons produced from oil or gas wells that have been inactive for at least two years. To qualify for the exemption, a well could not have had hydrocarbon production in more than one month in the 24-month period immediately preceding the application. The exemption would apply for a period of ten years. An application for a two-year inactive well certification could be filed from September 1, 1997 through August 31, 1999. The Railroad Commission (commission) would not be allowed to designate a two-year inactive well after February 29, 2000 and could not designate a well so unless the operator made application for a tax exemption during the period September 1, 1997 through August 31, 1999. To receive credit, the bill would require the operator to apply to the Comptroller before the expiration date, as stated in Section 111.104 of the Tax Code. The bill would change the filing deadline from one year to four years. This bill would take effect September 1, 1997. METHODOLOGY Oil or gas wells would have to have been out of production for at least two years prior to application in order to qualify for the severance tax exemption that would be provided in this bill. Production from such wells, therefore, would already have dropped out of the production stream that is the basis for estimates of future severance tax revenue. Consequently, this bill would not entail a loss of revenue to the State. The return to production of oil or gas wells, previously idled, would increase local government property values for mineral properties. The extent to which these values would be increased depend upon certain unknowns: (1) The number and location of wells returned to production; (2) the period of production for such wells made active; and, (3) future prices for crude oil and natural gas. Source: Agencies: 304 Comptroller of Public Accounts LBB Staff: JK ,RR ,CT