| TO: | Honorable Steve Ogden, Chair, Senate Committee on Finance |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB4433 by Rodriguez (Relating to an exemption from the severance tax for certain gas and oil produced.), As Engrossed |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2010 | ($474,000) |
| 2011 | ($930,000) |
| 2012 | ($993,000) |
| 2013 | ($1,009,000) |
| 2014 | ($1,015,000) |
| Fiscal Year | Probable Revenue (Loss) from Foundation School Fund 193 |
Probable Revenue (Loss) from Economic Stabilization Fund 599 |
|---|---|---|
| 2010 | ($474,000) | ($1,422,000) |
| 2011 | ($930,000) | ($2,790,000) |
| 2012 | ($993,000) | ($2,979,000) |
| 2013 | ($1,009,000) | ($3,027,000) |
| 2014 | ($1,015,000) | ($3,046,000) |
The bill would amend Section 202.056 of the Tax Code, relating to the two-year inactive well exemption from oil and natural gas severance taxes.
The bill would extend the two-year inactive well exemption program for an additional ten years by moving the application and certification deadlines to August 31, 2019 and February 28, 2020, respectively. The bill would subject the tax incentive to a three month average price condition described by Section 171.1011(s) of the Tax Code as certified by the Comptroller. Applications for incentive certification would have to be received by the Railroad Commission (RRC) by the 90th day after the date the Comptroller certifies the price condition has been met. For purposes of this certification, the Comptroller could not consider the price of crude oil on or before October 1, 2009.
The bill would add new Sections 201.060 and 202.062 to the Tax Code, to exempt oil and natural gas incidentally produced in the production of geothermal energy from taxation.
The bill would take effect on September 1, 2009.
The price of oil must be at or below $40 per barrel for West Texas Intermediate (WTI) crude oil, or the price of natural gas must be at or below $5 per million British thermal units (MMBtu), for three consecutive months in order to activate the 90 day application period for RRC certification. WTI crude oil prices are forecasted to remain above $40 per barrel through the forecast period. The price of natural gas, however, is expected to be below the $5 threshold for three consecutive months, as measured immediately after the bill's effective date. Shortly thereafter, there is not expected to be any blocks of three consecutive months below the $5 threshold through the end of the forecast period.
The estimated revenue loss was based on information extracted from the Comptroller's oil and natural gas tax data and the 2010-11 Biennial Revenue Estimate. The fiscal impact reflects the growing loss of tax revenues to the state as qualified inactive oil and natural gas wells continue to populate for the next ten years beginning March 2010.
According to Southern Methodist University's Geothermal Laboratory, although Texas has five major potential geothermal energy production regions associated with oil and natural gas wells, there are no commercial projects in Texas, and the timeline of any potential operations is unknown at this time. Therefore, the fiscal impact from the Section of the bill relating to the severance tax exemption for gas and oil incidentally produced in association with geothermal energy production cannot be determined.
| Source Agencies: | 304 Comptroller of Public Accounts, 455 Railroad Commission
|
| LBB Staff: | JOB, MN, SD, KK
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