From the Office of State Senator Troy Fraser

For Immediate Release
January 27, 1999
Contact: William A. Scott - (512) 463-0124


AUSTIN -- State Senator Troy Fraser, R-Horseshoe Bay, today filed legislation that would provide $44.5 million in emergency severance tax relief for Texas oil and gas producers with marginal wells.

Under the bill, a tax moratorium would be granted on the oil produced from a lease with daily production not exceeding 15 barrels per well, and on natural gas produced from a well with daily production not exceeding 90 Mcf, Fraser said.

"The oil patch is hurting, and hurting bad," Fraser said. "Small producers are the backbone of the Texas oil industry and we need to throw them a lifeline and provide an incentive for them to not shut-in their wells. This is an effort to stop further job loss in the energy sector."

"The West Central Texas producers in the Abilene area, and other places like Graham, Breckenridge and Albany are feeling a financial crunch worse than what occurred in 1985 when the market crashed," Fraser said. "Senate District 24 has been severely impacted, and several of the school districts in my Senate district depend on the oil and gas industry for property tax revenues."

The legislation, Senate Bill 290, is co-authored by Sens. Bill Ratliff, R-Mount Pleasant; Buster Brown, R-Lake Jackson; and Ken Armbrister, D-Victoria. A similar bill has been filed in the Texas House by Reps. Tom Craddick, R-Midland and Rob Junell, D-San Angelo.

The tax moratorium would be triggered when prices fall and stay below $15 per barrel for three months, based on the price of West Texas Intermediate crude as recorded by the New York Mercantile Exchange (NYMEX). For natural gas, the triggering price on the severance tax moratorium would be $1.80 per million BTUs, also based on the NYMEX closing price.

Qualification of an oil or natural gas lease for the tax moratorium would be determined by computing the average daily well production from a lease, using the P-1 monthly lease report required by the Texas Railroad Commission, Fraser said.

If the lease qualifies for the moratorium, the severance tax on oil and natural gas production would be suspended if the related index fell and stayed belong the trigger price for three months.

The indices would be constructed from the monthly average oil or natural gas prices as recorded on the NYMEX. The moratorium would end when the average price for a month was recorded to be above the trigger price.

Oil severance taxes in fiscal 1998 generated $303 million in state revenues, the lowest since 1973, according to the state Comptroller's Office.