LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session April 3, 2001 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HB3099 by Counts (Relating to the extension of existing severance tax incentives to maintain existing levels of production of natural gas and crude oil.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB3099, As Introduced: negative impact of $(35,486,000) through * * the biennium ending August 31, 2003. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(16,796,000) * * 2003 (18,690,000) * * 2004 (73,412,000) * * 2005 (71,967,000) * * 2006 (50,435,000) * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Revenue Probable Revenue Probable Revenue * * Year Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from set * * General Revenue Fund Foundation School aside for the * * 0001 Fund Economic * * 0193 Stabilization Fund * * 599 * * 2002 $(264,000) $(16,532,000) $(49,331,000) * * 2003 (347,000) (18,343,000) (54,680,000) * * 2004 (55,059,000) (18,353,000) 0 * * 2005 (53,975,000) (17,992,000) 0 * * 2006 (37,826,000) (12,609,000) 0 * ************************************************************************** Fiscal Analysis The bill amends section 201.057 of the Tax Code, regarding the expiration dates for the "original" high-cost gas program and the co-production program. The bill extends the expiration dates for both programs from September 1, 2001 to September 1, 2005. The original high-cost gas program applied to tight sand gas wells spudded or completed between May 24, 1989 and August 31, 1996. Production from those qualified wells is exempt for a ten-year period from severance taxes beginning with September 1, 1991 through August 31, 2001. Application for a co-production project began September 1, 1993 through January 1, 1994. The production from those wells is exempt for the time period September 1, 1991 through September 1, 2001. This bill amends the "modified" high-cost gas program. The bill would establish a full exemption for all qualified wells spudded or completed after September 1, 2001 and before September 1, 2005. Production would be exempt for 120 calendar months from the date of first production. The program currently ties a gas well's tax rate reduction to the amount spent to drill and complete a well. Wells with two times the median drilling and completion cost determined in the prior fiscal year receive a zero tax rate, and all other wells receive a sliding scale reduction. The bill amends Section 202.054 of the Tax Code to provide an extension of expiration dates for enhanced oil recovery (EOR) projects and oil produced from a co-production project. The extension would be until August 31, 2005 or ten years from certification, whichever was greater. The extension would apply to EOR and co-production projects with expiration dates earlier than August 31, 2005. The bill sets the expiration date for the exemption on oil and gas production from three-year inactive wells as August 31, 2005. Under current law, the program expires on February 28, 2006. The bill takes effect September 1, 2001. Methodology This estimate is based on an analysis made by the Comptroller's Office from the historical production reports filed by taxpayers with the Office for each of the incentive categories. Local Government Impact No significant fiscal implication to units of local government is anticipated. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, SD, CT