From the Office of State Senator Troy Fraser

For Immediate Release
February 9, 1999
Contact: William A. Scott - (512) 463-0124

Fraser Co-Authors Emergency Legislation to Help Independent Producers

AUSTIN -- A bill co-authored by state Senator Troy Fraser that will provide up to $45 million in tax relief to small independent oil and gas producers won approval of the Texas Senate today on an emergency vote.

The bill, approved by a 25-1 vote with four members abstaining, now goes to the Texas House for consideration.

The legislation would provide emergency severance tax relief for Texas oil and gas producers with marginal wells. About 80 percent of state's wells and one-third of the production would be affected.

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.

"By placing a moratorium on the production severance tax on marginal wells, we may be able to save a few more wells from being shut-in, a few more jobs and maybe -- if we are lucky -- buy a little more time for the people who for generations have given so much to Texas," Fraser said.

"This legislation, as well all know, is not going to end the suffering in the Texas oil patch, but it can help ease the pain by providing a little relief to those who have always carried the lion's share of the work -- the small, independent producers," Fraser said.

Fraser, R-Horseshoe Bay, told his colleagues that Senate District 24, which he represents, is among the areas hit hardest by the depressed market conditions and prices.

Fraser noted that the well-head value of Texas-produced crude drop from $10.1 billion in 1997 to $5.9 billion last year, for a one-year decline of $4.2 billion, and that 4,600 new unemployment claims were filed in December alone due to layoffs in the energy sector.

"The situation is dire in many of the towns like Graham, Breckenridge and Albany in my district that historically have been reliant on oil and gas not only for jobs, but for tax dollars to help fund our public schools," Fraser said. "But this problem reaches across the entire state, from the Permian Basin, across the Panhandle and North Central Texas and down to the Gulf Coast."

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 and P-2 monthly lease reports 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 below 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.