Small gas producers might not see much if any benefit from aseverance tax relief bill passed by the Texas legislature lastweek. Oil producers, however, will get a break. Relief specified inthe bill is triggered by low commodity prices, and the trigger foroil producers already has been pulled. However, the statecomptroller’s office does not expect gas prices to dive low enough,long enough to enact relief.

The House last week approved SB 290 in a 128-to-8 vote. The billpreviously passed the Senate with a vote of 25 to 1. Gov. George W.Bush signed the bill into law last week. The legislation grants aseverance tax exemption to marginal gas and oil wells producing 90Mcf/d or less or 15 b/d or less. Relief kicks in when the averagedaily closing price for gas futures drops below $1.80/MMBtu and/oroil drops below $15/barrel for three consecutive months on the NewYork Mercantile Exchange.

Relief for oil producers takes effect retroactive to Feb. 1production. While the market has seen Nymex daily closing pricesfor gas below $1.80, prices have not stayed that low long enoughfor relief to kick in. The legislation only affects production fromFeb. 1 through July 31. While gas prices are currently down and theindustry is entering a shoulder month with a large storageoverhang, the clock is running on the available relief.

Lindsey Dingmore, Texas Independent Producers and Royalty Owners(TIPRO) vice president for public affairs, said the comptroller’soffice does not expect gas prices to go low enough long enough toenact relief for gas at all. Total relief to producers also iscapped at $45 million in severance tax exemptions. If only oilrelief is enacted, that amount likely will not be reached beforeJuly 31, when production no longer qualifies, Dingmore said. If gasrelief is granted, the cap may be reached, he said.

“There are some marginal [oil] well operators and producers whohave whole leases in which every well in the lease will qualify,”Dingmore said. “In those cases, this is substantial. This is aremoval of severance tax on an entire marginal lease for asix-month period. I’ve been told by some producers that’s enough toencourage them to hold on a little longer to see if we indeed havea price increase in the late spring or summer. For your mostmarginal producer this is a big impact.”

Joe Fisher, Houston

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