By: Darby H.B. No. 2277
A BILL TO BE ENTITLED
AN ACT
relating to fixing the median cost of high-cost gas wells.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 201.057, Tax Code, is amended by
amending subsections (a), (c), (e) through (g), and (i), and adding
subsection (g-1) to read as follows:
(a) In this section:
(1) "Commission" means the Railroad Commission of
Texas.
(2) "High-cost gas" means[:
[(A)] high-cost natural gas as described by
Section 107, Natural Gas Policy Act of 1978 (15 U.S.C. Section
3317), as that section exists on January 1, 1989, without regard to
whether that section is in effect or whether a determination has
been made that the gas is high-cost natural gas for purposes of that
Act[; or
[(B) all gas produced from oil wells or gas wells
within a commission approved co-production project].
[(3) "Commission approved co-production project"
means a reservoir development project in which the commission has
recognized that water withdrawals from an oil or gas reservoir in
excess of specified minimum volumes will result in recovery of
additional oil and/or gas from the reservoir that would not be
produced by conventional production methods and where operators of
wells completed in the reservoir have begun to implement commission
requirements to withdraw such volumes of water and dispose of such
water outside the subject reservoir. Reservoirs potentially
eligible for this designation shall be limited to those reservoirs
in which oil and/or gas has been bypassed by water encroachment
caused by production from the reservoir and such bypassed oil
and/or gas may be produced as a result of reservoir-wide
high-volume water withdrawals of natural formation water.]
[(4) "High-volume water withdrawals" means the
withdrawal of water from a reservoir in an amount sufficient to
dewater portions of the reservoir containing oil and/or gas
previously bypassed by water encroachment.]
[(5) "Co-production" means the permanent removal of
water from an oil and/or gas reservoir in an effort to lower the
gas-water contact or oil-water contact in the reservoir or to
reduce reservoir pressure to recover entrained hydrocarbons from
the reservoir that would not be produced by conventional primary or
secondary production methods.]
(6) "Operator" means the person responsible for the
actual physical operation of an oil or gas well.
(7) "Consecutive months" means months in consecutive
order, regardless of whether or not a well produces oil or gas
during any or all such months.
(c) High-cost gas as defined in Subsection (a)(2)
[(a)(2)[(A)] produced from a well that is spudded or completed
after August 31, 1996, is entitled to a reduction of the tax imposed
by this chapter for the first 120 consecutive calendar months
beginning on the first day of production, or until the cumulative
value of the tax reduction equals 50 percent of the drilling and
completion costs incurred for the well, whichever occurs first.
The amount of tax reduction shall be computed by subtracting from
the tax rate imposed by Section 201.052 the product of that tax rate
times the ratio of drilling and completion costs incurred for the
well to twice the median drilling and completion costs for
high-cost wells as defined in Subsection (a)(2) [(a)(2)[(A)]
spudded or completed during the previous state fiscal year, except
that the effective rate of tax may not be reduced below zero.
(e) The operator of a proposed or existing gas well,
including a gas well that has not been completed[, or the operator
of any proposed or existing oil or gas well within a commission
approved co-production project,] may apply to the commission for
certification that the well produces or will produce high-cost gas.
Such application [, if seeking certification as high-cost gas
according to Subsection (a)(2)(A),] may be made at any time after
the first day of production. The application may be made but is not
required to be made concurrently with a request for a determination
that gas produced from the well is high-cost natural gas for
purposes of the Natural Gas Policy Act of 1978 (15 U.S.C. Section
3301 et seq.) [or with a request for commission approval of a
co-production project]. The commission may require an applicant to
provide the commission with any relevant information required to
administer this section. For purposes of this section, a
determination that gas is high-cost natural gas according to
Subsection (a)(2) [(a)(2)(A) or a determination that gas is
produced from within a commission approved co-production project]
is a certification that the gas is high-cost gas for purposes of
this section, and in that event additional certification is not
required to qualify for the [exemption or] tax reduction provided
by this section.
(f) To qualify for the [exemption or] tax reduction
provided by this section, the person responsible for paying the tax
must apply to the comptroller. The application must contain the
certification of the commission that the well produces high-cost
gas and[, if the application is for a well spudded or completed
after September 1, 1995,] must contain a report of drilling and
completion costs incurred for each well on a form and in the detail
as determined by the comptroller. Drilling and completion costs
for a recompletion shall only include current and contemporaneous
costs associated with the recompletion. Notwithstanding any other
provision of this section, to obtain the maximum [tax exemption or]
tax deduction, an application to the comptroller for certification
according to Subsection (a)(2) [(a)(2)[(A)] must be filed with the
comptroller at the later of the 180th day after the date of first
production or the 45th day after the date of approval by the
commission. If the application is not filed by the applicable
deadline, the [tax exemption or] tax deduction is reduced by 10
percent for the period beginning on the 180th day after the first
day of production and ending on the date on which the application is
filed with the comptroller. [An application to the comptroller for
certification according to Subsection (a)(2)(B) may not be filed
before January 1, 1990, or after December 31, 1998.] The
comptroller shall approve the application of a person who
demonstrates that the gas is eligible for the [exemption or] tax
reduction. The comptroller may require a person applying for the
[exemption or] tax reduction to provide any relevant information in
the person's monthly report that the comptroller considers
necessary to administer this section. The commission shall notify
the comptroller in writing immediately if it determines that a [an
oil or gas] well previously certified as producing high-cost gas
does not produce high-cost gas or if it takes any action or
discovers any information that affects the eligibility of gas for
an exemption or tax reduction under this section.
(g) As soon as practicable after March 1 of each year, the
comptroller shall determine [from reports containing drilling and
completion cost data as required on applications to the comptroller
under Subsection (f),] the median drilling and completion cost for
all high-cost wells as defined in Subsection (a)(2) [(a)(2)[(A)]
for which an application for the [exemption or] reduced tax was made
during the previous state fiscal year. In making its
determination, the comptroller shall use the drilling and
completion cost data required under Subsection (f). The [Those]
median drilling and completion cost [costs] shall be fixed as of the
date of the comptroller's determination and shall be used to
compute the reduced tax under Subsection (c).
(g-1) The report of drilling and completion costs required
by subsection (f) may not be amended after March 1 of the year
following the state fiscal year in which the application required
by Subsection (f) was made.
(i) If, before the commission certifies that a well produces
high-cost gas or before the comptroller approves an application for
the [an exemption or] tax reduction under this section, the tax
imposed by this chapter is paid on high-cost gas that otherwise
qualifies for the [exemption or] tax reduction provided by this
section, the person who remitted the tax shall be [producer or
producers of the gas are] entitled to a refund credit against other
taxes imposed by this chapter] in an amount equal to the difference
between the amount of the tax paid and the amount of tax that would
have been paid on the high-cost gas if it had received the [on the
gas that otherwise qualified for the exemption or] tax reduction as
provided under this section. No refund shall be due under this
subsection unless the comptroller approves an application for an
exemption or tax reduction under this section [on or after the first
day of the next month after the month in which the application for
certification under this section was filed with the commission].
The [If the application for certification is submitted to the
commission after January 1, 2004, the] total allowable refund
[allowable credit] for taxes paid for reporting periods before the
date the application is filed may not exceed the total tax paid on
the gas that otherwise qualified for the [exemption or] tax
reduction and that was produced during the 24 consecutive calendar
months immediately preceding the month in which the application for
certification under this section was filed with the commission.
[The credit is allocated to each producer according to the
producer's proportionate share in the gas.] To receive a refund [a
credit], the person entitled to the refund [one or more of the
producers] must apply to the comptroller for the refund [credit]
not later than the first anniversary after the date the comptroller
approves the application for a [an exemption or] tax reduction
under this section. [If a producer demonstrates that the producer
does not have sufficient tax liability under this chapter to claim
the credit within five years from the date the application for the
credit is made, the producer is entitled to a refund in the amount
of any credit the comptroller determines may not be claimed within
that five years. Nothing in this subsection shall relieve the
obligation imposed by Subsection (b) to pay tax when due on
high-cost gas produced from co-production projects on or before
July 31, 1995.]
SECTION 2. Sections 201.057(b), (d), and (j), Tax Code, are
repealed.
SECTION 3. This Act takes effect September 1, 2017.