84R27699 CJC-F

By: Dale H.B. No. 3554

Substitute the following for H.B. No. 3554:

By: Dale C.S.H.B. No. 3554

A BILL TO BE ENTITLED

AN ACT

relating to an oil and gas severance tax credit for the use of incremental production increase techniques.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle I, Title 2, Tax Code, is amended by adding Chapter 205 to read as follows:

CHAPTER 205. TAX CREDIT FOR OIL AND GAS PRODUCED USING INCREMENTAL

PRODUCTION INCREASE TECHNIQUE

Sec. 205.001. DEFINITIONS. In this chapter:

(1) "Baseline production" means:

(A) for an existing gas well, the average monthly production from that well for the four highest months of production during the calendar year preceding the year in which an incremental production increase technique is implemented; and

(B) for an oil well, the average monthly production from the lease on which that well is located for the four highest months of production during the calendar year preceding the year in which an incremental production increase technique is implemented.

(2) "Commission" means the Railroad Commission of Texas.

(3) "Enhanced incremental production increase" means an incremental production increase from an oil or gas well or lease that constitutes an increase in production of at least 25 percent over baseline production from that well or lease each month for a period of at least four months and that results from the implementation of an incremental production increase technique.

(4) "Incremental production increase" means production from an oil or gas well or lease in excess of baseline production.

(5) "Incremental production increase technique" means a chemical, mechanical, or operational addition to a fracture stimulation, acidization, or any other recognized well completion process that has a cost of at least $50,000, as determined by the commission, and that results in an incremental production increase from an oil or gas well or lease.

(6) "Operator" means the person responsible for the actual physical operation of an oil or gas well or lease.

Sec. 205.002. CERTIFICATION OF ENHANCED INCREMENTAL PRODUCTION INCREASE BY COMMISSION. (a) Subject to Subsection (d), an operator may request that the commission certify:

(1) that an incremental production increase technique implemented by the operator has resulted in an enhanced incremental production increase from the oil or gas well or lease; and

(2) the cost to the operator to implement the incremental production increase technique described by Subdivision (1).

(b) The commission may require an operator seeking certification by the commission under this section to provide to the commission any information the commission considers necessary to make the certification under Subsection (a).

(c) Subject to Subsection (e), the commission shall issue a certificate to the operator of an oil or gas well or lease if the commission determines that an incremental production increase technique implemented by the operator has resulted in an enhanced incremental production increase from the oil or gas well or lease. The certificate must state the amount of the enhanced incremental production increase attributable to the incremental production increase technique and the cost to the operator to implement the incremental production increase technique.

(d) An operator may not request a certificate under this section before the first anniversary of the date on which the period of the enhanced incremental production increase for which the operator is seeking certification ends.

(e) The commission may not issue a certificate under this section until 18 months have elapsed after the date on which the period of the enhanced incremental production increase for which the operator is seeking certification ends.

(f) A determination made by the commission under this section is final and not appealable.

Sec. 205.003. TAX CREDIT. (a) Subject to Subsection (d), the operator of an oil or gas well who is issued a certificate under Section 205.002 is entitled to a credit against the tax imposed under Chapter 201 or 202, as applicable, on oil or gas produced from that well.

(b) Subject to Subsection (c), the total amount of the credit to which an operator is entitled under this chapter is equal to the lesser of:

(1) an amount equal to 50 percent of the taxes paid by the operator on the amount of the enhanced incremental production increase stated in the certificate issued to the operator by the commission, at the rate provided by Section 201.052 or 202.052, as applicable;

(2) $100,000; or

(3) the operator's total cost of implementation of an incremental production increase technique for which the operator has been issued a certificate under Section 205.002.

(c) An operator may not claim an amount of the credit on a report that exceeds the amount of tax due on the report. Any unused amount of the credit may be carried forward and claimed on subsequent reports until the credit amount is exhausted.

(d) The total amount of tax credits that the comptroller may award under this section in a state fiscal year is $10 million. The comptroller by rule shall prescribe procedures by which the comptroller may allocate credits under this chapter. The procedures must provide that credits are allocated on a first-come, first-served basis, based on the date of an operator's certification under Section 205.002.

Sec. 205.004. APPLICATION. (a) To qualify for the credit provided under this chapter, the person responsible for paying the tax must apply to the comptroller. The application must be filed not later than the first anniversary of the date the commission issues a certificate to an operator under Section 205.002.

(b) The application must include a copy of the certificate issued by the commission under Section 205.002 and any other information required by the comptroller.

SECTION 2. The comptroller of public accounts and the Railroad Commission of Texas shall adopt rules necessary to administer Chapter 205, Tax Code, as added by this Act, not later than December 31, 2015.

SECTION 3. The credit authorized by Chapter 205, Tax Code, as added by this Act, applies only to oil or gas produced on or after the effective date of this Act. Oil or gas produced before the effective date of this Act is subject to the law in effect when the oil or gas was produced, and that law is continued in effect for that purpose.

SECTION 4. The change in law made by this Act does 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 taxes due and for civil and criminal enforcement of the liability for those taxes.

SECTION 5. (a) Except as provided by Subsection (b) of this section, this Act takes effect January 1, 2016.

(b) Section 2 of this Act takes effect immediately if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, Section 2 of this Act takes effect September 1, 2015.