Sec. 201.057. TEMPORARY EXEMPTION OR TAX REDUCTION FOR CERTAIN HIGH-COST GAS. (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.
(b) High-cost gas as defined in Subsection (a)(2)(A) of this section produced from a well that is spudded or completed between May 24, 1989, and September 1, 1996, is exempt from the tax imposed by this chapter during the period beginning September 1, 1991, and ending August 31, 2001. High-cost gas as defined in Subsection (a)(2)(B) of this section produced from any well regardless of spud date or completion date is eligible for refunds of tax paid and exemption from the tax imposed by this chapter for production occurring during the period beginning the first day of the month after commission approval of a co-production project and ending August 31, 2001; provided, however, in the event co-production ceases, the exemption shall also cease on the first day of the first calendar month that begins on or after the 91st day following the date of termination or co-production operations. Tax must be paid when due at the rate provided in Section 201.052 of this code for all high-cost gas, as defined in Subsection (a)(2)(B) of this section, produced on or before July 31, 1995. On or after September 1, 1995, the operator may apply to the comptroller for a refund and shall be entitled to receive a refund of all taxes paid on such high-cost gas produced on or after the first day of the calendar month after commission approval of the co-production project from which such gas was produced and that is otherwise eligible for the tax exemption.
(c) High-cost gas as defined in Subsection (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) spudded or completed during the previous state fiscal year, except that the effective rate of tax may not be reduced below zero.
(d) Taxes must be paid when due at the rate provided in Section 201.052 of this code on all high-cost gas, as defined in Subsection (a)(2)(A) of this section, for wells spudded or completed between September 1, 1996, and August 31, 1997. On or after September 1, 1997, the operator of a well that was spudded or completed and that produced high-cost gas between September 1, 1996, and August 31, 1997, may apply to the comptroller for a refund and shall be entitled to receive a refund of taxes paid in excess of the taxes that would have been due if calculated under Subsection (c). Wells spudded or completed between September 1, 1996, and August 31, 1997, shall also be eligible for the reduced tax under this section for a 120-consecutive-calendar-month period as provided for other wells qualifying under this section. The time period for which an operator is entitled to a refund under this section shall be included for purposes of the calculation of this 120-month period. The period of entitlement for reduced taxation and refund for any qualifying well shall not exceed 120 consecutive calendar months.
(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) 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) 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 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) for which application for exemption or reduced tax was made during the previous state fiscal year. Those median drilling and completion costs shall be used to compute the reduced tax under Subsection (c).
(h) Information regarding drilling and completion costs included on an application under Subsection (f) is confidential and may not be disclosed, except to the extent aggregated with other similar information to produce industry averages. Unauthorized disclosure is an offense subject to the same penalty as provided by Section 111.007 for unauthorized disclosure of federal tax return information.
(i) If, before the commission certifies that a well produces high-cost gas or before the comptroller approves an application for 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 producer or producers of the gas are entitled to a credit against other taxes imposed by this chapter in an amount equal to the amount of the tax paid on the gas that otherwise qualified for the exemption or tax reduction 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. If the application for certification is submitted to the commission after January 1, 2004, the total 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 credit, one or more of the producers must apply to the comptroller for the credit not later than the first anniversary after the date the comptroller approves the application for 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.
(j) An applicant for commission approval of a co-production project shall submit a written application for approval to the commission. Such application must be filed before January 1, 1994. The applicant shall provide the commission with any relevant information required to administer this section, including evidence demonstrating that the reservoir is eligible for the designation and demonstrating the minimum volumes of high-volume water withdrawal required to recover oil and/or gas from the reservoir that would not be produced by conventional production methods. A commission representative may administratively approve the application. If the commission representative denies administrative approval, the applicant shall have the right to a hearing upon the request.
Added by Acts 1989, 71st Leg., ch. 1197, Sec. 1, eff. Sept. 1, 1989. Amended by Acts 1993, 73rd Leg., ch. 958, Sec. 1, eff. Sept. 1, 1993; Acts 1995, 74th Leg., ch. 895, Sec. 1, eff. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1040, Sec. 52, 53, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 365, Sec. 1, eff. Aug. 30, 1999; Acts 2003, 78th Leg., ch. 209, Sec. 52, eff. Oct. 1, 2003; Acts 2003, 78th Leg., ch. 1310, Sec. 110, eff. Sept. 1, 2003.
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