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.