88R7943 CJD-F     By: King S.B. No. 1407       A BILL TO BE ENTITLED   AN ACT   relating to a severance tax exemption for oil and gas produced from   certain restimulation wells; providing a civil penalty.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Subchapter B, Chapter 202, Tax Code, is amended   by adding Section 202.062 to read as follows:          Sec. 202.062.  TAX EXEMPTION FOR OIL AND GAS PRODUCED FROM   RESTIMULATION WELLS. (a)  In this section:                (1)  "Commission" means the Railroad Commission of   Texas.                (2)  "Consecutive months" means months in consecutive   order, regardless of whether an oil or gas well produces   hydrocarbons during any or all of those months.                (3)  "Hydrocarbons" means the oil, gas, condensate, and   other hydrocarbons produced from an oil or gas well.                (4)  "Operator" means the person responsible for the   actual physical operation of an oil or gas well.                (5)  "Qualifying well" means a restimulation well that   has been certified by the commission under this section as a   qualifying well.                (6)  "Restimulation costs" means expenses that are   directly attributable to payment for the restimulation treatment   performed on a restimulation well.                (7)  "Restimulation treatment" means the treatment of   an oil or gas well with an application of fluid under pressure for   the purpose of initiating or propagating fractures in a target   geologic formation to enhance the production of hydrocarbons from   the well.                (8)  "Restimulation well" means a previously completed   oil or gas well that:                      (A)  is classified by the commission as a marginal   well, as described by Section 85.122, Natural Resources Code, or a   marginal gas well, as defined by Section 86.091, Natural Resources   Code; and                      (B)  following production of hydrocarbons,   received a restimulation treatment.          (b)  This section does not apply to an oil or gas well that:                (1)  has less than 60 months of production reported to   the commission before the date a restimulation treatment is   performed;                (2)  is part of an enhanced oil recovery project, as   defined by Section 89.002, Natural Resources Code; or                (3)  is drilled but not completed and that does not have   a record of hydrocarbon production reported to the commission.          (c)  Hydrocarbons produced from a qualifying well are exempt   from the taxes imposed by Chapter 201 and this chapter until the   earlier of:                (1)  the last day of the 60th consecutive month   following the month in which the well first produces hydrocarbons   after a restimulation treatment is completed; or                 (2)  the date on which the cumulative amount of taxes   exempted under Chapter 201 and this chapter and any credit under   Subsection (l) equals:                      (A)  if the qualifying well is a restimulation   well, 50 percent of the restimulation costs described by Subsection   (j); or                      (B)  if the qualifying well is a restimulation   well on which the restimulation treatment was performed using   hydraulic fracturing pumps powered exclusively by electricity or   natural gas, 75 percent of the restimulation costs described by   Subsection (j).          (d)  Notwithstanding Section 201.057, gas produced from a   qualifying well that was previously certified by the commission as   a well that produces or will produce high-cost gas is not eligible   for the tax reduction provided by that section during the period the   gas is exempt from tax under Subsection (c) of this section.          (e)  The operator of a restimulation well may apply to the   commission for certification that the well is a qualifying well.     The application may be made at any time after the first day the well   produces hydrocarbons following the date a restimulation treatment   is completed. The commission may require an applicant to provide   any relevant information required to administer this section.          (f)  If the commission approves an application submitted   under Subsection (e), the commission shall issue a certificate   designating the well as a qualifying well and specifying whether   the restimulation treatment was performed using hydraulic   fracturing pumps powered exclusively by electricity or natural gas.          (g)  The commission may revoke a certificate issued under   Subsection (f) if the commission determines that:                (1)  a well that was certified as a qualifying well is   not a restimulation well;                (2)  if the certificate specifies that the   restimulation treatment was performed on a qualifying well using   hydraulic fracturing pumps powered exclusively by electricity or   natural gas, the restimulation treatment was performed using a   method other than the method specified in the certificate; or                (3)  the operator is claiming or has claimed an   exemption under this section for hydrocarbons produced from a well   that is not a qualifying well.          (h)  The commission shall notify an operator that a   certificate issued under Subsection (f) has been revoked. An   exemption provided by this section is automatically revoked on the   date the commission revokes a certificate unless the commission   issues a new certificate for the well.  Hydrocarbons produced from   the well after the date a certificate is revoked are not eligible   for the exemption provided by this section.          (i)  To qualify for the exemption provided by this section,   the person responsible for paying the tax must apply to the   comptroller.  The comptroller shall determine the form and content   of the application, which must include:                (1)  the certificate issued by the commission under   Subsection (f); and                (2)  a report of the restimulation costs incurred to   perform the restimulation treatment on the qualifying well from   which the hydrocarbons that are the subject of the application are   produced.          (j)  For the purposes of Subsection (i)(2), restimulation   costs include only the current and contemporaneous restimulation   costs associated with performing the restimulation treatment.          (k)  The comptroller shall approve an application for an   exemption provided by this section if the application meets the   requirements of this section.  The comptroller may require the   person applying for the exemption to provide any relevant   information necessary to administer this section. The comptroller   by rule may establish procedures to comply with this section.          (l)  If the tax imposed under Chapter 201 or this chapter, as   applicable, is paid at the applicable rate on hydrocarbons produced   from a qualifying well on or after the date the commission issues a   certificate for the well under Subsection (f) but before the date   the comptroller approves an application for an exemption for   hydrocarbons produced from the well under Subsection (k), the   person responsible for paying the tax is entitled to a credit   against the taxes due under Chapter 201 or this chapter in an amount   equal to the amount of tax paid during that period on hydrocarbons   produced from the qualifying well. To receive the credit, the   person responsible for paying the tax must apply to the comptroller   before the expiration of the applicable period for filing a tax   refund claim under Section 111.104.          (m)  A person who makes or submits an application, report, or   other document or item of information to the commission or the   comptroller under this section that the person knows is false or   untrue in a material fact is subject to the penalties imposed by   Chapters 85 and 91, Natural Resources Code.          (n)  A person who applies or attempts to apply for an   exemption under this section for hydrocarbons produced from a well   the person knows is not a qualifying well is liable to the state for   a civil penalty. The amount of the penalty may not exceed the sum   of:                (1)  $10,000; and                (2)  the difference between the amount of taxes paid or   attempted to be paid and the amount of taxes due.          (o)  The attorney general may recover a penalty under   Subsection (n) in a suit brought on behalf of the state. Venue for   the suit is in Travis County.          (p)  The commission may adopt rules necessary to administer   this section.          SECTION 2.  Section 202.062, Tax Code, as added by this Act,   applies only to hydrocarbons produced on or after January 1, 2024.          SECTION 3.  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 4.  This Act takes effect January 1, 2024.