88R1627 CJC/JXC-F
By: Hancock S.B. No. 1564
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.