SEB S.B. 1731 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1731 By: Brown Energy Resources 4/22/1999 Engrossed BACKGROUND AND PURPOSE Currently, with the low prices for oil and gas, the economic viability of marginally producing wells has been reduced. Texas has approximately 4,000 marginal wells on state land that have the potential to produce as much as 4.7 million barrels of oil or the gas equivalent. The 75th Legislature enacted legislation which allows for the reduction of royalty rates. Reducing royalty rates may help to postpone the abandonment of marginal wells and thereby ensure the continued payment of royalties related to such wells into the Permanent School Fund. It also may promote additional investment in rework operations to enhance production. S.B. 1731 removes the two-year limit imposed upon the School Land Board with respect to authorizing reduced royalty rates on state leases, and allows it to prescribe the duration that such a royalty rate reduction may be allowed. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Sections 32.067(c) and (d), Natural Resources Code, to authorize the reduction of the royalty rate for oil and gas produced from a qualifying reservoir to not less than onesixteenth (6.25 percent) for a term prescribed by the board, rather than not to exceed two years unless extended at the reduced rate for additional periods not to exceed two years on approval by the School Land Board (board). Authorizes the reduction of the royalty rate for the state's share under a lease issued under Subchapter F (Relinquishment), Chapter 52, or Sections 51.195(c)(2) and (d) (Conditions of Sale; Mineral Awards) to not less than one-thirty-second (3.125 percent) for a term prescribed by the board, rather than not to exceed two years unless extended at the reduced rate for additional periods not to exceed two years on approval by the board. SECTION 2. Effective date: September 1, 1999. SECTION 3. Emergency clause.