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