LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
February 12, 1997
TO: Honorable Tom Craddick, Chair IN RE: House Bill No. 655
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-As Introduced
Implementing the provisions of the bill would result in a net
negative impact of $(2,379,000) to General Revenue Related Funds
through the biennium ending August 31, 1999.
The bill would make no appropriation but could provide the legal
basis for an appropriation of funds to implement the provisions
of the bill.
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 would not be allowed to designate a
two-year inactive well after February 29, 2000.
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.
The provisions of the bill indicate
that the wells eligible for the exemption must have been without
production for a two-year period before application. The bill
does not specify, however, whether the initiating application
would have to be filed with the Railroad Commission or with
the Comptroller.
To qualify for the new exemption, subsection
(b) requires an operator to obtain a designation as a two-year
inactive well from the Railroad Commission. The bill carries
forward language from the existing statute and allows the Railroad
Commission to designate a well with or without an application.
Subsection (g), however, requires an application to the Comptroller
to qualify for the exemption. Before this application could
be filed, a well must have certification from the Railroad Commission
that it qualifies. It is not clear as to which action establishes
the date that tolling begins for the two-year dormancy period.
Although
the bill would allow a 10-year exemption from severance taxes
for hydrocarbons produced from a well that has received Railroad
Commission designation, it does not specify when or under what
condition this 10-year period for exemption would begin.
Methodolgy
The following assumptions are made:
(1) Signature of the
bill by early June, 1997 (3 months before the first date of
application specified in the bill);
(2) The ability of the
Railroad Commission to designate a well as a two-year inactive
well until February 29, 2000 (6 months beyond the last specified
date for application); and,
(3) The ability of the Railroad
Commission to designate a well as inactive without an application
being filed.
A nine-month window would exist during which
an active well could be idled and still would later qualify
for a tax exemption. The potential revenue loss arising from
the opportunity to intentionally idle active wells and thereby
qualify for the severance tax exemption was estimated by considering
only a small portion of wells that now produce three or fewer
barrels-of-oil equivalent per day.
The probable fiscal implications of implementing the provisions
of the bill during each of the first five years following passage
is estimated as follows:
Five Year Impact:
Fiscal Year Probable Revenue
Gain/(Loss) from
General Revenue
Fund
0001
1998 ($1,200,000)
1998 (1,179,000)
2000 (1,135,000)
2001 (1,056,000)
2002 (952,000)
Net Impact on General Revenue Related Funds:
The probable fiscal implication to General Revenue related funds
during each of the first five years is estimated as follows:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 ($1,200,000)
1999 (1,179,000)
2000 (1,135,000)
2001 (1,056,000)
2002 (952,000)
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect.
The return to production of oil and gas wells previously idled
would increase local government property values for mineral
properties. The extent to which these values would be increased
depends on:
(1) The number of wells returned to production,
(2)
The period of production for wells made active; and
(3) Future
prices of crude oil and natural gas.
Source: Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK ,RR ,CT