LEGISLATIVE BUDGET BOARD
Austin, Texas
 
FISCAL NOTE, 84TH LEGISLATIVE REGULAR SESSION
 
May 5, 2015

TO:
Honorable Dennis Bonnen, Chair, House Committee on Ways & Means
 
FROM:
Ursula Parks, Director, Legislative Budget Board
 
IN RE:
HB4021 by Herrero (Relating to creating a tax severance credit for oil and gas operators for use of alternative fluids in place of fresh water solely in the process of hydraulic fracturing (fracking).), As Introduced



Estimated Two-year Net Impact to General Revenue Related Funds for HB4021, As Introduced: a negative impact of ($10,133,000) through the biennium ending August 31, 2017.



Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2016 ($5,333,000)
2017 ($4,800,000)
2018 ($3,520,000)
2019 ($5,566,000)
2020 ($9,867,000)




Fiscal Year Probable Savings from
General Revenue Fund
1
Probable Revenue (Loss) from
General Revenue Fund
1
Probable Revenue (Loss) from
Foundation School Fund
193
Probable (Cost) from
State Highway Fund
6
2016 $0 ($4,000,000) ($1,333,000) $0
2017 $4,000,000 ($6,600,000) ($2,200,000) ($2,000,000)
2018 $6,600,000 ($7,590,000) ($2,530,000) ($3,300,000)
2019 $7,590,000 ($9,867,000) ($3,289,000) ($3,795,000)
2020 $9,867,000 ($14,800,000) ($4,934,000) ($4,934,000)

Fiscal Year Probable (Cost) from
Economic Stabilization Fund
599
2016 $0
2017 ($2,000,000)
2018 ($3,300,000)
2019 ($3,795,000)
2020 ($4,934,000)

Fiscal Analysis

The bill would amend Chapters 201 and 202 of the Tax Code to provide a severance tax credit for using alternative fluids other than freshwater in hydraulic fracturing of an oil or natural gas well in its initial completion process.  The bill would define alternative fluids as brackish groundwater, desalinated, recycled, municipal treated water or any other technologies that may be developed.  The tax credit of $50,000 per oil or natural gas well against severance taxes paid on the production from the well would begin on January 1, 2016.
 
The operator of the well would apply to the Comptroller for the tax credit.  The Railroad Commission (RRC) would provide a list of qualified wells to the Comptroller on a quarterly basis.  The RRC would certify a well for the tax credit.  The RRC may conduct random inspections and collect and maintain the requisite tax credit data including the volume and location of the source of alternative fluids, and for groundwater the quality expressed in parts per million of total dissolved solids, and the GPS location of the source well.
 
The bill would authorize the RRC to impose a penalty for claiming this credit based on false information.
 
The bill would require the RRC to report by December 31, 2019, on the program's progress for further discussion of the extension of the program.
 
The bill would take effect 90 days after the 84th Legislature's Regular Session.

Methodology

Since the end of 2013, a small number of leading producers fracturing wells in the Permian Basin and the Eagle Ford shale play have, in some cases, used alternative fluids other than fresh water to fracture-stimulate wells.  As such, the fiscal implications were based on information publicly available concerning the use of alternative fluids and the assumption that the use would continue to grow.

Local Government Impact

No significant fiscal implication to units of local government is anticipated.


Source Agencies:
304 Comptroller of Public Accounts, 455 Railroad Commission
LBB Staff:
UP, KK, SD