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HB3159

Regular Session

Relating to a severance tax exemption for oil and gas produced from certain previously inactive restimulation wells; providing a civil penalty.

Moderate
Low Cost
Effective:2026-01-01
HB3159
Relating to a severance tax exemption for oil and gas produced from certain previously inactive restimulation wells; providing a civil penalty.
Moderate Urgency
Heavily Contested
House Vote115 - 23
YEA
NAY
83% in favor138 voting
Senate Vote29 - 2
YEA
94% in favor31 voting
25
Total Opposition Votes
Cost Impact
Low
Effective
2026-01-01
Enforcing Agencies
Comptroller of Public AccountsOAGRailroad Commission of Texas
Primary Author: Rep. Drew Darby
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: January 1, 2026. (Exemption applies only to hydrocarbons produced on or after this date).
  • Compliance Deadline: Immediate Action Required. To qualify as "inactive" by the effective date, candidate wells must show no production for 12 consecutive months. Operators may need to shut in marginal wells now to ensure eligibility by Q1 2026.
  • Agency Rulemaking: Both the RRC and Comptroller are required to adopt rules and forms *prior* to January 1, 2026. Expect a "regulatory gray zone" in late 2025 where the statute is enacted but specific cost-reporting forms are not yet finalized.

Immediate Action Plan

  • 1. Screen Inventory: Immediately identify wells with >5 years of production history that are currently marginal or inactive.
  • 2. Strategic Shut-Ins: If a candidate well is producing marginally, evaluate shutting it in immediately to satisfy the 12-month "inactive" requirement by the January 1, 2026 effective date.
  • 3. Update Accounting Codes: Create specific General Ledger codes for "HB3159 Restimulation Costs" to ensure seamless extraction of data for Comptroller reporting.
  • 4. Vendor Notification: Notify fracturing service providers that 2026 invoicing must meet new itemization standards to support tax credit filings.
  • 5. Monitor Rulemaking: Assign regulatory counsel to comment on RRC/Comptroller proposed rules in late 2025, specifically advocating for a broad definition of "restimulation costs."

Operational Changes Required

Contracts

  • Master Service Agreements (MSAs): You must amend agreements with pressure pumping/fracturing vendors. Require itemized invoicing that explicitly separates "restimulation treatment" costs (fluids, proppant, pumping) from ancillary services (water hauling, general maintenance). The Comptroller will likely disallow generalized invoices during audits.
  • Joint Operating Agreements (JOAs): Clarify tax credit distribution mechanisms with non-operators. While the Operator bears the filing burden, the benefit applies to the hydrocarbons produced, impacting all working interest owners.

Hiring/Training

  • Cross-Functional Sign-Off: Establish a mandatory internal certification protocol. The VP of Operations must certify the well's "Inactive" status (12 months non-production) and "Mature" status (5 years production history) before the Tax Department submits any filing.
  • Technical Evidence: Engineering teams must be prepared to provide technical data (pressure charts, microseismic) proving the treatment actually "initiated or propagated fractures," distinguishing it from a standard wellbore cleanout.

Reporting & Record-Keeping

  • Dual-Agency Filing: Implement a sequential workflow:
  • 1. File for "Qualifying Well" certification with the RRC immediately upon first production.
  • 2. File for the Tax Exemption with the Comptroller, attaching the RRC certificate and cost reports.
  • Cost Segregation: You must create specific AFEs (Authorization for Expenditure) for restimulation projects. Commingling these costs with general lease operating expenses (LOE) puts the exemption at risk.

Fees & Costs

  • Civil Penalties: Strict liability applies. A $10,000 civil penalty (plus back taxes) applies per offense for applying for an exemption knowing a well does not qualify.
  • Audit Risk: The exemption is capped at the *lesser* of $750,000 or actual costs. Expect Comptroller audits to aggressively target "soft costs" to lower the exemption cap.

Strategic Ambiguities & Considerations

The statute leaves two critical definitions to agency rulemaking. Monitor the *Texas Register* closely for:

  • 1. "Restimulation Costs" (Comptroller): The law limits this to "current and contemporaneous" costs. It is unclear if mobilization, demobilization, or water disposal will be included. If the Comptroller adopts a narrow definition, your potential tax savings per well will decrease.
  • 2. "Inactive" Verification (RRC): The RRC must define how they verify the 12-month inactivity period. If your production reporting has been sporadic or corrected retroactively, you may face certification delays.

Need Help Understanding Implementation?

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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

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Legislative Timeline

This bill's path through the Texas Legislature

Filed
Feb 21, 2025
Passed House
May 15, 2025
Passed Senate
May 26, 2025
Signed
Jun 20, 2025
TopicsCivil Remedies & LiabilitiesOil & GasTaxationTaxation--energy ResourcesComptroller of Public AccountsRailroad CommissionTaxation--general
03

House Authors

Rep. Drew DarbyRepublican · Primary Author
Joint Authors

Bill Text(with markup)

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

Related Legislation

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More from Rep. Drew Darby

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Related by Topic

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Quick Reference

Frequently Asked Questions

Common questions about HB3159

Q

What does Texas HB3159 do?

HB3159 creates a severance tax exemption of up to $750,000 per well for operators who restimulate (refracture) previously inactive oil and gas assets, effective January 1, 2026. Upstream operators must immediately adjust asset development plans and implement a strict two-step certification workflow with the Railroad Commission (RRC) and Comptroller to capture this value without triggering significant civil penalties for non-compliance. Implementation Timeline Effective Date: January 1, 2026.

Q

Who authored HB3159?

HB3159 was authored by Texas Representative Drew Darby during the Regular Session.

Q

When was HB3159 signed into law?

HB3159 was signed into law by Governor Greg Abbott on June 20, 2025.

Q

Which agencies enforce HB3159?

HB3159 is enforced by Comptroller of Public Accounts (Tax Administration), Office of the Attorney General (OAG) and Railroad Commission of Texas (Certification).

Q

How urgent is compliance with HB3159?

The compliance urgency for HB3159 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

Q

What is the cost impact of HB3159?

The cost impact of HB3159 is estimated as "low". This may vary based on industry and implementation requirements.

Q

What topics does HB3159 address?

HB3159 addresses topics including civil remedies & liabilities, oil & gas, taxation, taxation--energy resources and comptroller of public accounts.

Legislative data provided by LegiScanLast updated: November 25, 2025

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