BILL ANALYSIS

C.S.H.B. 591

By: Capriglione

Ways & Means

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Oil producers across Texas struggle with stranded gas that naturally occurs as a by-product from drilling oil. Generally, oil producers prefer to sell the natural gas through a pipeline operator. However, when a pipeline connection does not exist or the pipeline does not have takeaway capacity, the oil producers will usually vent or flare the gas, which wastes gas and creates health risks for nearby residents. Multiple companies recently created systems that convert gas to electricity to power mobile Bitcoin mines that would have otherwise been vented or flared. While the program has achieved large-scale adoption, it remains uncertain whether gas purchases for such operations should be subject to the gas production tax. Furthermore, producers subject to the tax find it difficult to determine the market value of gas that would have otherwise been vented or flared. Additionally, since lawfully flared or vented gas is not subject to tax, state law provides an economic disincentive to find alternative uses for gas. C.S.H.B. 591 would clarify the circumstances under which gas from a qualifying well that would otherwise be lawfully vented or flared is not subject to the gas production tax when used for a productive purpose and provides for a certification of a qualifying well from the Railroad Commission of Texas.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Railroad Commission of Texas and the comptroller of public accounts in SECTION 1 of this bill.

ANALYSIS

C.S.H.B. 591 amends the Tax Code to exempt from the gas production tax gas produced from a qualifying well that is consumed on the well site and would otherwise have been lawfully vented or flared. The bill defines "qualifying well" as a well that meets one of the following criteria:

·         it is connected to a pipeline on which pipeline takeaway capacity is not expected to meet the demand for gas produced from the well;

·         it is not connected to a pipeline and for which connection to a pipeline is technically or commercially unfeasible but is operated by a well operator who has contractually dedicated the well, the gas produced from the well, or the land or lease on which the well is located to a pipeline operator; or

·         it is not connected to a pipeline and is operated by a well operator who has not made such a contractual dedication.

The bill authorizes a well operator and a pipeline operator, as applicable, to apply to the Railroad Commission of Texas (RRC) for certification that a well is a qualifying well and sets out application requirements for each type of qualifying well. The bill authorizes the RRC to require an applicant to provide the RRC with any information it determines is relevant to determining whether a well is a qualifying well and, if the RRC approves an application, requires the RRC to issue a certificate, which expires one year after the date of issue, designating the well as a qualifying well. The bill requires a qualifying well for which the RRC issues a certificate to use all available pipeline takeaway capacity before consuming gas on the well site and receiving the exemption provided by the bill.

C.S.H.B. 591 requires the person responsible for paying the gas production tax to apply to the comptroller of public accounts for the exemption. The application must contain the qualified well certificate issued by the RRC, and the comptroller may require the person to provide any additional information the comptroller determines is relevant to determining exemption eligibility. The bill requires the RRC, well operator, or pipeline operator to notify the comptroller in writing immediately if a certified well is no longer a qualifying well. The bill authorizes the RRC and the comptroller to adopt rules necessary to implement and administer the bill's provisions. The bill expressly does not affect tax liability accruing before the bill's effective date.  

EFFECTIVE DATE

September 1, 2023.

COMPARISON OF INTRODUCED AND SUBSTITUTE

C.S.H.B. 591 differs from the introduced in minor or nonsubstantive ways by conforming to certain bill drafting conventions.