79R17758 SMH-F
By: Armbrister S.B. No. 1166
Substitute the following for S.B. No. 1166:
By: Farabee C.S.S.B. No. 1166
A BILL TO BE ENTITLED
AN ACT
relating to the enforcement of the laws governing plugging of
abandoned oil and gas wells and preventing, controlling, or
cleaning up oil and gas wastes or other substances or materials
regulated by the Railroad Commission of Texas and to incentives for
continued production from certain oil and gas wells; providing
penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 81.116(d), Natural Resources Code, is
amended to read as follows:
(d) The comptroller shall suspend collection of the fee in
the manner provided by Section 91.111 [of this code]. The
exemptions and reductions set out in Sections 202.052, 202.054,
202.056, 202.057, [and] 202.059, and 202.060, Tax Code, do not
affect the fee imposed by this section.
SECTION 2. Section 89.043, Natural Resources Code, is
amended by amending Subsections (c) and (f) and adding Subsection
(g) to read as follows:
(c) Not later than the 30th day before the date the
commission enters into a contract to plug a delinquent inactive
well, the commission shall send a notice by certified mail to the
operator of the well at the address last reported to the commission
as required by Section 91.142 and commission rules. The notice
shall direct the operator to plug the well and shall state that:
(1) the commission may plug the well and foreclose its
statutory lien under Section 89.083 or 89.089 unless the operator
requests a hearing not later than the 10th day after the date the
operator receives the notice;
(2) if the commission forecloses its statutory lien
under Section 89.083, all well-site equipment will be presumed to
have been abandoned and the commission may dispose of the equipment
and hydrocarbons from the well as provided by Section 89.085;
(3) if the commission forecloses its statutory lien
under Section 89.089, the commission may dispose of the interest of
the operator in any hydrocarbons produced in this state and the
proceeds from the sale of those hydrocarbons;
(4) if the commission plugs the well, the commission:
(A) by order may require the operator to
reimburse the commission for the plugging costs; or
(B) may request the attorney general to file suit
against the operator to recover those costs;
(5) [(4)] the commission has a statutory lien on all
well-site equipment under Section 89.083 and on the interest of the
operator in any hydrocarbons produced in this state and the
proceeds from the sale of those hydrocarbons under Section 89.089;
and
(6) [(5)] the lien described by Subdivision
(5) [(4)] is foreclosed by operation of law if the commission does
not receive a valid and timely request for a hearing before the 15th
day after the date the notice is mailed.
(f) At the request of the commission, the attorney general
may file suit to enforce an order issued by the commission under
Subsection (c)(4)(A) [(c)(3)(A)].
(g) The provisions of this section and Section 91.115 shall
not apply to proceeds from the sale of hydrocarbons that would
otherwise be directed to the permanent school fund or the permanent
university fund.
SECTION 3. Section 89.044, Natural Resources Code, is
amended to read as follows:
Sec. 89.044. RIGHT TO ENTER ON LAND. (a) The commission or
its employees or agents, the operator, or the nonoperator, on
proper identification, may enter the land of another for the
purpose of plugging or replugging a well that has not been properly
plugged.
(b) A prospective operator who has been authorized under
Section 89.047 to conduct a surface inspection of a well, on proper
identification, may enter the land of another for the sole purpose
of conducting the inspection.
SECTION 4. Subchapter C, Chapter 89, Natural Resources
Code, is amended by adding Sections 89.047 and 89.048 to read as
follows:
Sec. 89.047. ORPHANED WELL REDUCTION PROGRAM. (a) In this
section:
(1) "Depth of the well" means the vertical depth of a
well as measured in linear feet from the surface to the lowest
perforation of the casing of the well that is within the
commission-designated correlative interval for the field for which
the well is issued a permit.
(2) "Operator in good standing" means an operator who:
(A) has a commission-approved organization
report;
(B) is the designated operator of at least one
well within the jurisdiction of the commission;
(C) has filed with the commission under Section
91.104 a bond, letter of credit, or cash deposit in an amount
sufficient to qualify to operate one or more additional wells; and
(D) is not the subject of a commission or court
order regarding a violation of a commission rule with which the
operator has not complied or a complaint that has been docketed by
the commission alleging a violation of a commission rule.
(3) "Orphaned well" means a well:
(A) for which the commission has issued a permit;
(B) for which production of oil or gas or another
activity under the jurisdiction of the commission has not been
reported to the commission for the preceding 12 months; and
(C) whose operator's commission-approved
organization report has lapsed.
(4) "Producing well" means a well classified by the
commission as an oil or gas well in accordance with commission
rules.
(5) "Service well" means a well for which the
commission has issued a permit that is not a producing well. The
term includes an injection, disposal, or brine mining well.
(b) A person who is considering assumption of operatorship
and regulatory responsibility for an orphaned well may nominate the
well under consideration by filing a request on a form prescribed by
the commission notifying the commission that the person seeks
authority to conduct a surface inspection of the well to determine
whether the person desires to be designated by the commission as the
operator of the well.
(c) If the person is an operator in good standing and the
well is not already subject to a nomination, the commission shall
accept the nomination and issue a written confirmation to the
person of the person's authority to conduct a surface inspection of
the nominated well for a stated period not to exceed 30 days.
(d) A person to whom a confirmation is issued under
Subsection (c) may conduct a surface inspection of the well. The
person must deliver written notice to the owner of record of the
surface estate and any occupant of the tract on which the well is
located at least three days before the date of the inspection. The
notice must:
(1) identify the orphaned well;
(2) state the name, address, and telephone number of
the person;
(3) state the date the person intends to conduct the
surface inspection;
(4) state the name of at least one representative of
the person who will participate in the surface inspection; and
(5) state that the person intends to inspect the
orphaned well in accordance with this section for the purpose of
assessing the current status and viability of the well.
(e) In conducting a surface inspection of the orphaned well,
the person may visually inspect the well and all related equipment,
tanks, and other facilities and may conduct noninvasive testing
such as using a gauge to determine the pressure present at the
wellhead but may not produce oil or gas from the well, reenter the
well, pull tubing from or perform any other type of downhole work on
the well, conduct a salvage operation on the well, or remove any
tangible item from the wellsite.
(f) The commission shall designate the person as the
operator of the well if the person files with the commission:
(1) a factually supported claim based on a recognized
legal theory to a continuing possessory right in the mineral estate
accessed by the well, such as evidence of a current oil and gas
lease or a recorded deed conveying a fee interest in the mineral
estate;
(2) a completed certificate of compliance; and
(3) a nonrefundable fee in the amount of $250.
(g) A fee collected under Subsection (f) shall be deposited
to the credit of the general revenue fund and may be appropriated
only to the commission to be used to enforce the laws and rules
concerning oil and gas conservation and waste and pollution
prevention.
(h) A person who is designated as the operator of an
orphaned well on or after January 1, 2006, and not later than
December 31, 2007, is entitled to receive:
(1) a nontransferable exemption from severance taxes
for all future production from the well as provided by Section
202.060, Tax Code;
(2) a nontransferable exemption from the fees provided
by Sections 81.116 and 81.117 for all future production from the
well; and
(3) a payment from the commission in an amount equal to
the depth of the well multiplied by 50 cents for each foot of well
depth if, not later than the third anniversary of the date the
commission designates the person as the operator of the well, the
person brings the well back into continuous active operation or
plugs the well in accordance with commission rules.
(i) A well is considered to be in continuous active
operation for purposes of Subsection (h)(3) if:
(1) the well is a producing well and the well has
produced at least 10 barrels of oil or 100 mcf of gas per month for
at least three consecutive months as shown in the records of the
commission and as authorized by a permit issued by the commission;
or
(2) the well is a service well and the well has been
used for the disposal or injection of oil and gas wastes or another
purpose related to the production of oil or gas for at least three
consecutive months as shown in the records of the commission and as
authorized by a permit issued by the commission.
(j) The commission shall make payments to operators under
Subsection (h)(3) annually in the same order the commission
determines the operators to be entitled to the payments. The
aggregate amount of payments in a state fiscal year under that
subsection may not exceed $500,000. An operator may not receive:
(1) more than one payment under that subsection for
the same well; or
(2) cumulative payments in an amount that exceeds the
amount of the bond, letter of credit, or cash deposit the operator
has filed with the commission under Section 91.104.
Sec. 89.048. PLUGGING OF WELL BY SURFACE ESTATE OWNER. (a)
In this section, "orphaned well" has the meaning assigned by
Section 89.047.
(b) The owner of an interest in the surface estate of a tract
of land on which an orphaned well is located may contract with a
commission-approved well plugger to plug the well.
(c) If the surface estate owner enters into a contract under
Subsection (b), the well plugger shall:
(1) not later than the 30th day before the date the
well is plugged, mail notice of its intent to plug the well to the
operator of the well at the operator's address as shown by the
records of the commission;
(2) assume responsibility for the physical operation
and control of the well as shown by a form the person files with the
commission and the commission approves;
(3) file a bond, letter of credit, or cash deposit
covering the well as required by Section 91.107; and
(4) plug the well in accordance with commission rules.
(d) On successful plugging of the well by the well plugger,
the surface estate owner may submit documentation to the commission
of the cost of the well-plugging operation. The commission shall
reimburse the surface estate owner from money in the oil-field
cleanup fund in an amount not to exceed 50 percent of the lesser of:
(1) the documented well-plugging costs; or
(2) the average cost incurred by the commission in the
preceding 24 months in plugging similar wells located in the same
general area.
(e) The commission shall adopt any rules reasonably
necessary to implement this section.
SECTION 5. Section 89.083, Natural Resources Code, is
amended by amending Subsection (g) and adding Subsection (g-1) to
read as follows:
(g) The cause of action is:
(1) first, against the operator, to be secured by a
first lien, superior to all preexisting and subsequent liens and
security interests, on the operator's interest in:
(A) the oil and gas in the land;
(B) [and] the fixtures, machinery, and equipment
found or used on the land where the well is located; and
(C) any hydrocarbons produced in this state and
the proceeds from the sale of those hydrocarbons; and
(2) second, against a nonoperator at the time the well
should have been plugged, to be secured by a first lien, superior to
all preexisting and subsequent liens and security interests, on the
nonoperator's interest in the oil and gas in the land.
(g-1) A nonoperator may be made a party defendant in the
suit against the operator.
SECTION 6. Subchapter D, Chapter 89, Natural Resources
Code, is amended by adding Section 89.089 to read as follows:
Sec. 89.089. LIEN ON OPERATOR'S INTERESTS IN HYDROCARBON
PRODUCTION AND PROCEEDS. (a) To secure the recovery of
well-plugging costs paid with state money, the state has a first
lien, superior to all preexisting and subsequent liens and security
interests, on the interests of each operator in any hydrocarbons
produced in this state and the proceeds from the sale of those
hydrocarbons.
(b) The commission may foreclose the lien in the manner
provided by Section 89.083.
(c) The commission may dispose of the property subject to
the lien in the manner provided by Section 89.085.
(d) Section 89.086 applies to a claim of a person with a
legal or equitable ownership or security interest in property that
is described by this section and is disposed of under Section
89.085.
(e) The liens provided in this section and Section 91.115 as
they relate to hydrocarbons in this state and the proceeds from the
sale of those hydrocarbons shall be subject to and inferior to any
lien in favor of the state to secure royalty payments.
SECTION 7. Subchapter A, Chapter 91, Natural Resources
Code, is amended by adding Section 91.004 to read as follows:
Sec. 91.004. RECOVERY OF ESTIMATED PLUGGING COSTS.
(a) The commission, in an enforcement action brought by the
commission to compel an operator to plug or replug a well, may order
the operator to pay the estimated plugging costs for the well if the
operator has not plugged or replugged the well or commenced
operations at the well site to plug or replug the well within 60
days after the date the commission's order requiring the well to be
plugged or replugged becomes final.
(b) The estimate of the plugging costs must be based on:
(1) the amount of the bond required for the well under
Section 91.1041; or
(2) proof of average plugging costs incurred by the
commission in the district in which the well is located and any
special conditions applicable to the well that is the subject of the
proceeding.
(c) The proceeds recovered as estimated plugging costs for
any particular well shall be deposited to the credit of the
oil-field cleanup fund.
(d) If the actual costs to the commission of plugging the
well are more than the proceeds received for the estimated plugging
costs, the commission may recover its costs in an action brought
under Section 89.083. If the actual costs to the commission of
plugging the well are less than the proceeds received for the
estimated plugging costs, the commission shall remit to the
operator the amount by which the proceeds received exceed the
actual costs. The commission is not required to pay interest on a
refund under this subsection.
(e) If the operator does not pay the estimated plugging
costs within 75 days after the date of the order requiring the well
to be plugged, the attorney general, on request of the commission,
shall file suit to collect the amount of the estimated plugging
costs from the operator. Venue for the action lies in the district
court for Travis County.
SECTION 8. Section 91.112(a), Natural Resources Code, is
amended to read as follows:
(a) Money in the fund may be used by the commission or its
employees or agents for:
(1) conducting a site investigation or environmental
assessment to determine:
(A) the nature and extent of contamination caused
by oil and gas wastes or other substances or materials regulated by
the commission under Section 91.101; and
(B) the measures that should be taken to control
or clean up the wastes, substances, or materials described in
Paragraph (A);
(2) controlling or cleaning up oil and gas wastes or
other substances or materials regulated by the commission under
Section 91.101 that are causing or are likely to cause the pollution
of surface or subsurface water, consistent with Section 91.113;
(3) plugging abandoned wells and administering or
enforcing permits, orders, and rules relating to the commission's
authority to prevent pollution under this chapter, Chapter 89, or
any other law administered or enforced by the commission under
Title 3;
(4) implementing Subchapter N and enforcing rules,
orders, and permits adopted or issued under that subchapter;
(5) implementing the voluntary cleanup program under
Subchapter O; [and]
(6) preparing the report required under Subsection
(b);
(7) making payments to eligible operators under
Section 89.047; and
(8) making payments to eligible surface estate owners
under Section 89.048.
SECTION 9. The heading to Section 91.113, Natural Resources
Code, is amended to read as follows:
Sec. 91.113. INVESTIGATION, ASSESSMENT, PREVENTION,
CONTROL, OR CLEANUP OF POLLUTION BY COMMISSION.
SECTION 10. Sections 91.113(a)-(d) and (f), Natural
Resources Code, are amended to read as follows:
(a) If oil and gas wastes or other substances or materials
regulated by the commission under Section 91.101 are causing or are
likely to cause the pollution of surface or subsurface water, the
commission, through its employees or agents, may use money in the
oil-field cleanup fund to conduct a site investigation or
environmental assessment or to take measures necessary to prevent
the unauthorized discharge of, to control, or to clean up the oil
and gas wastes or other substances or materials if:
(1) the responsible person has failed or refused to
take measures necessary to prevent the unauthorized discharge of,
to control, or to clean up the oil and gas wastes or other
substances or materials [after notice and opportunity for hearing];
(2) the responsible person is unknown, cannot be
found, or has no assets with which to take measures necessary to
prevent the unauthorized discharge of, to control, or to clean up
the oil and gas wastes or other substances or materials; or
(3) the oil and gas wastes or other substances or
materials are causing, or are likely to cause, the pollution of
surface or subsurface water.
(b) For purposes of this section, "responsible person"
means any operator or other person required by law, rules adopted by
the commission, or a valid order of the commission to take measures
necessary to prevent the unauthorized discharge of, to control, or
to clean up the oil and gas wastes or other substances or materials.
(c) The commission or its employees or agents, on proper
identification, may enter the land of another to conduct [for the
purpose of conducting] a site investigation or environmental
assessment or to take measures necessary to prevent the
unauthorized discharge of, to control, [controlling] or to clean
[cleaning] up oil and gas wastes or other substances or materials
under this section.
(d) The conducting of a site investigation or environmental
assessment or the taking of measures necessary to prevent the
unauthorized discharge of, to control, or to clean up [cleanup of]
oil and gas wastes or other substances or materials by the
commission under this section does not prevent the commission from
seeking penalties or other relief provided by law from any person
who is required by law, rules adopted by the commission, or a valid
order of the commission to control or clean up the oil and gas
wastes or other substances or materials.
(f) If the commission conducts a site investigation or
environmental assessment or takes measures necessary to prevent the
unauthorized discharge of, to control, or to clean [controls or
cleans] up oil and gas wastes or other substances or materials under
this section, the commission may recover all costs incurred by the
commission from any person who was required by law, rules adopted by
the commission, or a valid order of the commission to take measures
necessary to prevent the unauthorized discharge of, to control, or
to clean up the oil and gas wastes or other substances or materials.
The commission by order may require the person to reimburse the
commission for those costs or may request the attorney general to
file suit against the person to recover those costs. The commission
has a first lien on the responsible person's equipment and
hydrocarbons as provided by Section 91.115 to secure the recovery
of the commission's costs. At the request of the commission, the
attorney general may file suit to enforce an order issued by the
commission under this subsection. A suit under this subsection may
be filed in any court of competent jurisdiction in Travis County.
Costs recovered under this subsection shall be deposited to the
oil-field cleanup fund.
SECTION 11. Section 91.114(d), Natural Resources Code, is
amended to read as follows:
(d) The commission shall accept the report or application or
approve the certificate if:
(1) the conditions that constituted the violation are
corrected or are being corrected in accordance with a schedule to
which the commission and the organization have agreed;
(2) as applicable:
(A) all administrative, civil, and criminal
penalties and all cleanup and plugging costs incurred by the state
relating to those conditions are paid or are being paid in
accordance with a payment schedule to which the commission and the
organization have agreed; or
(B) the estimated plugging costs have been paid
in accordance with a commission order; and
(3) the report, application, or certificate is in
compliance with all other requirements of law and commission rules.
SECTION 12. The heading to Section 91.115, Natural
Resources Code, is amended to read as follows:
Sec. 91.115. FIRST LIEN ON EQUIPMENT, [AND] STORED
HYDROCARBONS, OIL AND GAS, AND PRODUCED HYDROCARBONS.
SECTION 13. Sections 91.115(a)-(f) and (h), Natural
Resources Code, are amended to read as follows:
(a) If a responsible person fails to clean up a site or
facility [that has ceased oil and gas operations] under the
commission's jurisdiction on or before the date the site or
facility is required to be cleaned up by law or by a rule adopted or
order issued by the commission or fails to take measures necessary
to prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials as required by law or by a
rule adopted or order issued by the commission, the state has a
first lien, superior to all preexisting and subsequent liens and
security interests, on the responsible person's interest in:
(1) any hydrocarbons stored at the site or facility;
(2) [and in] any equipment that is[:
[(1)] located at the site or facility; and
(3) any hydrocarbons produced in this state and the
proceeds from the sale of those hydrocarbons [(2) used by the
responsible person in connection with the activity that generated
the pollution].
(b) The lien is in the amount of the total costs of taking
measures necessary to prevent the unauthorized discharge of, to
control, or to clean [cleaning] up the oil and gas wastes or other
substances from the site or facility and arises on the date the
measures are [site or facility is] required by law or by a rule or
order of the commission [to be cleaned up].
(c) The commission may foreclose on the lien by entering
into a contract to take measures necessary to prevent the
unauthorized discharge of or to control oil and gas wastes or other
substances or materials or a contract to clean up the site or
facility. The commission is not required to give notice or an
opportunity for a hearing to subordinate lienholders before
entering into a contract for the taking of measures necessary to
prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials or a contract to clean up
the site or facility.
(d) The lien is extinguished if necessary measures are taken
to prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials or the site or facility is
cleaned up in accordance with commission rules by any person before
the commission enters into a contract to take measures necessary to
prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials or a contract to clean up
the site or facility.
(e) The lien is extinguished as to any stored hydrocarbons
or items of equipment that are lawfully removed by any person other
than the operator or a nonoperator according to a lien, lease,
judgment, written contract, or security agreement before the
commission enters into a contract to take measures necessary to
prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials or a cleanup contract. An
item of equipment may not be removed from a [an abandoned] site or
facility if the removal will cause the release of a substance that
may cause pollution unless the substance is lawfully disposed of.
(f) Equipment or stored hydrocarbons subject to a lien under
this section are presumed to have been abandoned on the date the
commission enters into a contract to take measures necessary to
prevent the unauthorized discharge of or to control oil and gas
wastes or other substances or materials from the site or facility or
a contract to clean up the site or facility on which the equipment
or hydrocarbons are located. The commission may dispose of the
equipment or [stored] hydrocarbons in accordance with the
provisions of Sections 89.085, 89.086, and 89.087 [of this code]
for the disposition of well-site equipment and hydrocarbons.
(h) The lien provided by this section, as it relates to
stored hydrocarbons, the responsible person's interest in oil and
gas in the land where the prevention, control, or cleanup measures
are required, and the responsible person's interest in any
hydrocarbons produced in this state and the proceeds from the sale
of those hydrocarbons shall be subject to and inferior to any lien
in favor of the State of Texas to secure royalty payments.
SECTION 14. Section 201.053, Tax Code, is amended to read as
follows:
Sec. 201.053. GAS NOT TAXED. The tax imposed by this
chapter does not apply to gas:
(1) injected into the earth in this state, unless sold
for that purpose;
(2) produced from oil wells with oil and lawfully
vented or flared;
(3) used for lifting oil, unless sold for that
purpose; or
(4) produced in this state from a well that qualifies
under Section 202.056 or 202.060.
SECTION 15. Section 201.058(a), Tax Code, is amended to
read as follows:
(a) The exemptions described by Sections 202.056, 202.057,
[and] 202.059, and 202.060 apply to the taxes imposed by this
chapter as authorized by and subject to the certifications and
approvals required by those sections.
SECTION 16. Subchapter B, Chapter 201, Tax Code, is amended
by adding Section 201.059 to read as follows:
Sec. 201.059. CREDITS FOR QUALIFYING LOW-PRODUCING WELLS.
(a) In this section:
(1) "Commission" means the Railroad Commission of
Texas.
(2) "Mcf" means 1,000 cubic feet of gas as measured in
accordance with Section 91.052, Natural Resources Code.
(3) "Qualifying low-producing well" means a gas well
whose production during a three-month period is no more than 90 mcf
per day, excluding gas flared pursuant to the rules of the
commission. For purposes of qualifying a gas well, production per
well per day is determined by computing the average daily
production from the well using the monthly well production report
made to the commission.
(b) Each month, the comptroller shall certify the average
taxable price of gas, adjusted to 2005 dollars, during the previous
three months based on various price indices available to producers,
including prices reported by Henry Hub, Houston Ship Channel,
Mississippi Barge Transport, New York Mercantile Exchange, or other
spot prices, as applicable. The comptroller shall publish
certifications under this subsection in the Texas Register.
(c) An operator of a qualifying low-producing well is
entitled to a 25 percent credit on the tax otherwise due on gas
produced and saved from that well during a month if the average
taxable price of gas certified by the comptroller under Subsection
(b) for the previous three-month period is more than $3 per mcf but
not more than $3.50 per mcf.
(d) An operator of a qualifying low-producing well is
entitled to a 50 percent credit on the tax otherwise due on gas
produced and saved from that well during a month if the average
taxable price of gas certified by the comptroller under Subsection
(b) for the previous three-month period is more than $2.50 per mcf
but not more than $3 per mcf.
(e) An operator of a qualifying low-producing well is
entitled to a 100 percent credit on the tax otherwise due on gas
produced and saved from that well during a month if the average
taxable price of gas certified by the comptroller under Subsection
(b) for the previous three-month period is not more than $2.50 per
mcf.
(f) If the tax is paid on gas at the full rate provided by
Section 201.052, the person paying the tax is entitled to a credit
against taxes imposed by this chapter or Chapter 202 on the amount
overpaid. To receive the credit, the person must apply to the
comptroller for the credit not later than the expiration of the
applicable period for filing a tax refund under Section 111.104.
SECTION 17. Section 202.052(c), Tax Code, is amended to
read as follows:
(c) The exemptions described by Sections 202.056, [and]
202.059, and 202.060 apply to oil produced in this state from a well
that qualifies under Section 202.056, [or] 202.059, or 202.060,
subject to the certifications and approvals required by those
sections.
SECTION 18. Subchapter B, Chapter 202, Tax Code, is amended
by adding Sections 202.058, 202.060, and 202.061 to read as
follows:
Sec. 202.058. CREDITS FOR QUALIFYING LOW-PRODUCING OIL
LEASES. (a) In this section:
(1) "Commission" means the Railroad Commission of
Texas.
(2) "Qualifying low-producing oil lease" means a well
classified as an oil well that is part of a lease whose production
during a 90-day period is less than:
(A) 15 barrels of oil per day of production; or
(B) five percent recoverable oil per barrel of
produced water.
(b) For purposes of qualifying a lease, production per well
per day is determined by computing the average daily per well
production from the lease using the monthly lease production report
made to the commission. For purposes of qualifying a lease,
production per well per day is measured by dividing the sum of lease
production during the three-month period by the sum of the number of
well-days, where a well-day is one well producing for one day. The
operator of a lease that is eligible for a credit under this section
only on the basis of Subsection (a)(2)(B) must pay to the
comptroller a filing fee of $100 before the comptroller may
authorize the credit.
(c) Each month, the comptroller shall certify the average
taxable price of oil, adjusted to 2005 dollars, during the previous
three months based on various price indices available to producers,
including the reported Texas Panhandle Spot Price, West Texas
Intermediate Crude Spot Price, New York Mercantile Exchange, or
other spot prices, as applicable. The comptroller shall publish
certifications under this subsection in the Texas Register.
(d) An operator of a qualifying low-producing lease is
entitled to a 25 percent credit on the tax otherwise due on oil
produced from that lease during a month if the average taxable price
of oil certified by the comptroller under Subsection (c) for the
previous three-month period is more than $25 per barrel but not more
than $30 per barrel.
(e) An operator of a qualifying low-producing lease is
entitled to a 50 percent credit on the tax otherwise due on oil
produced from that lease during a month if the average taxable price
of oil certified by the comptroller under Subsection (c) for the
previous three-month period is more than $22 per barrel but not more
than $25 per barrel.
(f) An operator of a qualifying low-producing lease is
entitled to a 100 percent credit on the tax otherwise due on oil
produced from that lease during a month if the average taxable price
of oil certified by the comptroller under Subsection (c) for the
previous three-month period is not more than $22 per barrel.
(g) If the tax is paid on oil at the full rate provided by
Section 202.052, the person paying the tax is entitled to a credit
against taxes imposed by this chapter or Chapter 201 on the amount
overpaid. To receive the credit, the person must apply to the
comptroller for the credit not later than the expiration of the
applicable period for filing a tax refund under Section 111.104.
Sec. 202.060. EXEMPTION FOR OIL AND GAS FROM REACTIVATED
ORPHANED WELLS. (a) In this section:
(1) "Commission" means the Railroad Commission of
Texas.
(2) "Orphaned well" has the meaning assigned by
Section 89.047, Natural Resources Code.
(b) The commission shall issue a certificate to a person who
is designated by the commission under Section 89.047, Natural
Resources Code, as the operator of an orphaned well. The
certificate must identify the operator to whom and the well for
which the certificate is issued.
(c) Hydrocarbons produced from the well identified in the
certificate qualify for a severance tax exemption.
(d) The commission shall adopt all rules necessary to
administer this section.
(e) To qualify for the tax exemption provided by this
section, the person responsible for paying the tax must apply to the
comptroller. The application must include a copy of the
certificate issued by the commission. The comptroller shall
approve the application if the person demonstrates that the
hydrocarbon production is eligible for a tax exemption. The
comptroller may require a person applying for the tax exemption to
provide any relevant information necessary to administer this
section. The comptroller may establish procedures to comply with
this section.
(f) The exemption takes effect on the first day of the month
following the month in which the comptroller approves the
application.
(g) If the person to whom the certificate is issued ceases
to be the operator of the well as shown by the records of the
commission, the commission shall notify the comptroller. The
exemption expires on the date the notice is received.
(h) A person who makes or subscribes an application, report,
or other document and submits it to the commission to form the basis
for an application for a tax exemption under this section, knowing
that the application, report, or other document is untrue in a
material fact, is subject to the penalties imposed by Chapters 85
and 91, Natural Resources Code.
(i) A person is liable to the state for a civil penalty if
the person applies or attempts to apply the tax exemption
authorized by this section for a well after the person to whom the
certificate for the well was issued ceases to be the operator of the
well as shown by the records of the commission. The amount of the
penalty may not exceed the sum of:
(1) $10,000; and
(2) the difference between the amount of taxes paid or
attempted to be paid and the amount of taxes due.
(j) The attorney general may recover a penalty under
Subsection (i) in a suit brought on behalf of the state. Venue for
the suit is in Travis County.
Sec. 202.061. TAX CREDIT FOR ENHANCED EFFICIENCY EQUIPMENT.
(a) In this section, "enhanced efficiency equipment" means
equipment used in the production of oil that reduces the energy used
to produce a barrel of fluid by 10 percent or more when compared to
commonly available alternative equipment. The term does not
include a motor or downhole pump. Equipment does not qualify as
enhanced efficiency equipment unless an institution of higher
education approved by the comptroller that is located in this state
and that has an accredited petroleum engineering program evaluated
the equipment and determined that the equipment does produce the
required energy reduction.
(b) The taxpayer responsible for the payment of severance
taxes on the production from a well in this state on which enhanced
efficiency equipment is installed and used is entitled to a credit
in an amount equal to 20 percent of the cost of the equipment,
provided that:
(1) the cumulative total of all severance tax credits
authorized by this section may not exceed $2,000 for any well;
(2) the enhanced efficiency equipment installed in a
qualifying well must have been purchased and installed not earlier
than September 1, 2005, or later than September 1, 2009;
(3) the taxpayer must file an application with the
comptroller for the credit and must demonstrate to the comptroller
that the enhanced efficiency equipment has been purchased and
installed in the well within the period prescribed by Subdivision
(2);
(4) the number of applications the comptroller may
approve each state fiscal year may not exceed a number equal to two
percent of the producing wells in this state on September 1 of that
state fiscal year, as determined by the comptroller; and
(5) the manufacturer of the enhanced efficiency
equipment must obtain an evaluation of the product under Subsection
(a).
(c) The taxpayer may carry any unused credit forward until
the credit is used.
SECTION 19. Sections 89.043, 89.083, 91.113, 91.114, and
91.115, Natural Resources Code, as amended by this Act, and
Sections 89.089 and 91.004, Natural Resources Code, as added by
this Act, apply only to an administrative proceeding that is
initiated on or after the effective date of this Act or a cause of
action that is filed in connection with an administrative
proceeding that is initiated on or after the effective date of this
Act. An administrative proceeding that was initiated before the
effective date of this Act or a cause of action that is filed in
connection with an administrative proceeding that was initiated
before the effective date of this Act is governed by the law in
effect on the date the administrative proceeding was initiated, and
the former law is continued in effect for that purpose.
SECTION 20. (a) Sections 201.059 and 202.058, Tax Code, as
added by this Act, apply to gas and oil produced on or after the
effective date of this Act. Gas and oil produced before the
effective date of this Act are governed by the law in effect on the
date the gas and oil were produced, and that law is continued in
effect for that purpose.
(b) As soon as practicable after the effective date of this
Act, the comptroller shall perform the initial certification
determination required by Sections 201.059 and 202.058, Tax Code,
as added by this Act. The initial certification determination must
cover the three-month period beginning on June 1, 2005.
(c) Sections 201.059 and 202.058, Tax Code, as added by this
Act, do not affect tax liability accruing before the effective date
of this Act. That liability continues in effect as if this Act had
not been enacted, and the former law is continued in effect for the
collection of tax due and for civil and criminal enforcement of the
liability for those taxes.
SECTION 21. (a) Except as provided by Subsection (b) of this
section, this Act takes effect September 1, 2005.
(b) The following provisions take effect January 1, 2006:
(1) Sections 81.116(d), 89.044, and 91.112(a),
Natural Resources Code, as amended by this Act;
(2) Sections 89.047 and 89.048, Natural Resources
Code, as added by this Act;
(3) Sections 201.053, 201.058(a), and 202.052(c), Tax
Code, as amended by this Act; and
(4) Section 202.060, Tax Code, as added by this Act.