88R1627 CJC/JXC-F
 
  By: Geren H.B. No. 3321
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to a severance tax credit for gas produced from certain
  wells that use an onsite flare mitigation system.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter B, Chapter 201, Tax Code, is amended
  by adding Section 201.061 to read as follows:
         Sec. 201.061.  TAX CREDIT FOR GAS PRODUCED FROM WELL USING
  ONSITE FLARE MITIGATION SYSTEM. (a) In this section:
               (1)  "Commission" means the Railroad Commission of
  Texas.
               (2)  "Flare mitigation" means the quantity of British
  thermal units of heat content of gas used by a qualifying onsite
  flare mitigation system. The term does not include the heat content
  of any gas flared from a well before, during, or after intake by an
  onsite flare mitigation system.
               (3)  "Marginal well" has the meaning assigned by
  Section 85.121, Natural Resources Code.
               (4)  "Qualifying onsite flare mitigation system" means
  a system that:
                     (A)  is installed at a well site on or after May
  29, 2023;
                     (B)  takes in gas and natural gas liquids from the
  well; 
                     (C)  separates and collects or uses over 50
  percent of the propane and heavier hydrocarbons taken in from the
  well;
                     (D)  reduces flared thermal intensity:
                           (i)  by compressing or liquefying gas for
  use as fuel or for transport to a processing facility; or
                           (ii)  as a result of gas or natural gas
  liquids being:
                                 (a)  used to produce petrochemicals or
  fertilizer;
                                 (b)  converted into liquid fuels;
                                 (c)  used to generate electricity for
  onsite use or supply to the electrical grid;
                                 (d)  used to produce computational
  power; or
                                 (e)  used in another beneficial
  process approved by the commission;
                     (E)  is not installed on:
                           (i)  a marginal well; or
                           (ii)  a well that is connected to a pipeline
  with available takeaway capacity or that may be connected to such a
  pipeline in a technically and commercially feasible manner; and
                     (F)  is not a:
                           (i)  system that supports the normal
  production operations of a well;
                           (ii)  system that consumes gas as part of the
  normal production operations of a well, such as a heater treater, a
  separator, or a method of electrical dissipation through a load
  bank; or 
                           (iii)  system or application traditionally
  considered an on-pad use.
               (5)  "Qualifying well" means a well:
                     (A)  that is:
                           (i)  connected to a pipeline on which
  pipeline takeaway capacity is unavailable;
                           (ii)  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
                           (iii)  not connected to a pipeline and is
  operated by a well operator who has not 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; and
                     (B)  on which a qualifying onsite flare mitigation
  system is installed.
               (6)  "Sour gas" has the meaning assigned by Section
  86.002, Natural Resources Code.
         (b)  The person responsible for paying the tax imposed by
  this chapter on gas produced from a qualifying well is entitled to a
  credit against that tax. Subject to Subsection (i), the amount of
  the credit to which the person is entitled is:
               (1)  $1 per million British thermal units of flare
  mitigation that results from the operation of the qualifying onsite
  flare mitigation system installed on the qualifying well; or
               (2)  if the qualifying well produces sour gas, $2 per
  million British thermal units of flare mitigation that results from
  the operation of the qualifying onsite flare mitigation system
  installed on the qualifying well.
         (c)  A well operator and a pipeline operator, as applicable,
  may apply to the commission in the manner provided by Subsection
  (d), (e), or (f) for certification that a well is a qualifying well
  and, if applicable, that the well produces sour gas.
         (d)  An application that relates to a well described by
  Subsection (a)(5)(A)(i) must:
               (1)  attest to the lack of pipeline takeaway capacity;
               (2)  if applicable, attest that the well produces sour
  gas; and
               (3)  be submitted jointly by the well operator and the
  pipeline operator.
         (e)  An application that relates to a well described by
  Subsection (a)(5)(A)(ii) must:
               (1)  attest that:
                     (A)  the well is not connected to a pipeline; and
                     (B)  it is technically or commercially unfeasible
  to connect the well to a pipeline;
               (2)  if applicable, attest that the well produces sour
  gas; and
               (3)  be submitted jointly by the well operator and the
  pipeline operator.
         (f)  An application that relates to a well described by
  Subsection (a)(5)(A)(iii) must:
               (1)  attest that the well:
                     (A)  is not connected to a pipeline; and
                     (B)  is operated by a well operator who has not
  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;
               (2)  if applicable, attest that the well produces sour
  gas; and 
               (3)  be submitted by the well operator.
         (g)  The commission may require an applicant described by
  Subsection (c) to provide the commission with any information the
  commission determines is relevant to determining whether a well is
  a qualifying well and, if applicable, whether the well produces
  sour gas. If the commission approves an application submitted
  under Subsection (c), the commission shall issue a certificate
  designating the well as a qualifying well and, if applicable,
  indicate on the certificate that the well produces sour gas.
         (h)  To qualify for the credit provided by this section, the
  person responsible for paying the tax imposed by this chapter must
  apply to the comptroller. The application must contain the
  certificate issued by the commission under Subsection (g). The
  comptroller may require a person applying for the credit to provide
  any additional information the comptroller determines is relevant
  to determining whether the person is eligible to receive the
  credit.
         (i)  A person may not claim an amount of credit on a report
  that exceeds the amount of tax due on the report.
         (j)  The commission, well operator, or pipeline operator
  shall notify the comptroller in writing immediately if a well
  certified under this section is no longer a qualifying well.
         (k)  The commission and the comptroller may adopt rules
  necessary to implement and administer this section.
         SECTION 2.  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 3.  This Act takes effect September 1, 2023.