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F I S C A L I M P A C T R E P O R T





SPONSOR: HTRC DATE TYPED: 3/12/99 HB 436/HTRCS
SHORT TITLE: Stripper Well Tax Incentive SB
ANALYST: Taylor


REVENUE



Estimated Revenue
 Subsequent

Years Impact

 Recurring

or Non-Rec

 Fund

Affected

FY99 FY2000
N.A. $ (1,690.0) $ (1,940.0) Recurring General Fund
N.A. $ (2,080.0) $ (2,480.0) Recurring Severance Tax Bonding Fund

(Parenthesis ( ) Indicate Revenue Decreases)



Relates to HTRC substitute for HB-280



SOURCES OF INFORMATION



Taxation and Revenue Department (TRD)

Energy Mineral and Natural Resources Department, Oil Conservation Division (OCD)



SUMMARY



Synopsis of Bill



The House Taxation and Revenue Committee substitute for House Bills 281 and 236 does the following:



  1. It changes the well workover credit so that the incentive rate applies to all production from workover projects and not just the incremental increase due to the workover.


  2. The workover incentive rate is increased from 1.875 percent to 2.45 percent. This has the effect of decreasing the incentive to compensate for the change making it applicable to all production.


  3. Stripper well oil production is provided a 50 percent tax rate reduction against the oil and gas emergency school and severance taxes when the average annual taxable price for oil falls below $15 dollars per barrel; stripper well gas production is provided the 50 percent cut when the annual taxable price of gas falls below $1.15 per million cubic feet (mcf).
  4. Stripper well oil production is provided a 25 percent tax rate reduction against the oil and gas emergency school and severance taxes when the average annual taxable price for oil is between $15 and $18 dollars per barrel; stripper well gas production is provided the 25 percent cut when the annual taxable price of gas is between $1.15 and $1.35 per million cubic feet (mcf).


The tax rates proposed in the bill are shown in the following table.





Prices Severance Tax Rate Oil and Gas School Tax Rate
Gas prices above $1.35 3.75 percent 4 percent
Gas prices between $1.15 and $1.35 2.81 percent 3 percent
Gas prices below $1.35 1.88 percent 2 percent
Oil prices above $18 per barrel 3.75 percent 3.15 percent
Oil prices between $15 and $18 per barrel 2.81 percent 2.36 percent
Oil prices below $15 per barrel 1.88 percent 1.58 percent


The provisions of the bill become effective on July 1, 1999.



FISCAL IMPLICATIONS



TRD estimated that the proposed legislation would cost the general fund $1.7 million in FY 2000. The cost to the severance tax bonding fund would be $2.1 million according to TRD. They say that nearly all the impact is due to the stripper well incentives as at today's prices the impact of the workover incentive is probably less than $100 thousand.



The assumptions used in making these estimate are:



ADMINISTRATIVE IMPLICATIONS



TRD reports that they will need one full time equivalent employee to coordinate with OCD. OCD reported no administrative burden for their agency.



SUBSTANTIVE ISSUES



The reduction in severance tax revenues will affect future severance tax bonding capacity.



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