Relating to a severance tax exemption for oil and gas produced from certain previously inactive restimulation wells; providing a civil penalty.
ModeratePlan for compliance
Low Cost
Effective:2026-01-01
Enforcing Agencies
Railroad Commission of Texas (Certification) • Comptroller of Public Accounts (Tax Administration) • Attorney General (Suit for Civil Penalties)
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.
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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.
The bill author has informed the committee that oil and gas wells, particularly horizontal shale wells developed through hydraulic fracturing, experience a rapid decline in production after initial extraction which stems from the inherent challenges of extracting hydrocarbons from extremely tight shale rock formations. However, the bill author has also informed the committee that large quantities of oil and gas often remain trapped within these existing well sites and that these resources can be extracted using a specialized technique known as restimulation. C.S.H.B. 3159 seeks to capitalize on this opportunity and revitalize existing oil and gas infrastructure in Texas by creating a strategic incentive framework for oil and gas operators to reinvest in previously completed wells.
CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is expressly granted to the Railroad Commission of Texas and the comptroller of public accounts in SECTION 1 of this bill.
ANALYSIS
C.S.H.B. 3159 amends the Tax Code to exempt hydrocarbons produced from a restimulation well that has been certified as a qualifying well by the Railroad Commission of Texas (RRC) from oil and gas production taxes until the earlier of the following dates:
·the last day of the 36th consecutive month following the month in which the well first produces hydrocarbons after a restimulation treatment is completed; or
·the date on which the cumulative amount of taxes exempted and any amount credited back under the bill's provisions equals the lesser of the restimulation costs or $750,000.
This exemption does not apply with respect to an oil or gas well that:
·has less than 60 months of production reported to the RRC before the date a restimulation treatment is performed;
·is part of an enhanced oil recovery project, as defined by Natural Resources Code provisions relating to abandoned wells;
·is drilled but not completed and that does not have a record of hydrocarbon production reported to the RRC; or
·is not an inactive well, as defined by Natural Resources Code provisions relating to abandoned wells, immediately before the restimulation treatment is performed.
The bill establishes that gas produced from a qualifying well that was previously certified by the RRC as a well that produces or will produce high-cost gas is not eligible for the gas production tax reduction for certain high-cost gas provided by applicable state law during the period the gas is exempt from oil and gas production taxes under the bill's provisions.
C.S.H.B. 3159 authorizes the operator of a restimulation well to apply to the RRC for certification that the well is a qualifying well at any time after the first day the well produces hydrocarbons following the date a restimulation treatment is completed. The bill authorizes the RRC to require an applicant to provide any relevant information required to administer the bill's provisions and requires the RRC, after approving an application, to issue a certificate designating the well as a qualifying well. The RRC may revoke such a certificate if it determines any of the following:
·a well that was certified as a qualifying well is not a restimulation well; or
·the operator is claiming or has claimed an exemption for hydrocarbons produced from a well that is not a qualifying well.
The bill requires the RRC to notify an operator that a certificate designating a well as a qualifying well has been revoked and establishes that the tax exemption provided by the bill is automatically revoked on the date the RRC revokes the certificate unless the RRC issues a new certificate for the well. Hydrocarbons produced from the well after the date a certificate is revoked are not eligible for the exemption.
C.S.H.B. 3159 requires the person responsible for paying an applicable oil or gas production tax to apply to the comptroller of public accounts to qualify for the exemption and requires the comptroller to determine the form and content of the application, which must include the certificate designating a well as a qualifying well issued by the RRC and a report of the restimulation costs incurred to perform the restimulation treatment on the qualifying well from which the hydrocarbons that are the subject of the application are produced. For this purpose, restimulation costs include only the current and contemporaneous restimulation costs associated with performing the restimulation treatment.
C.S.H.B. 3159 requires the comptroller to approve an exemption application if the application meets all applicable requirements and authorizes the comptroller to require the person applying for the exemption to provide any relevant information necessary to administer the bill's provisions. The bill also authorizes the comptroller by rule to establish procedures to comply with the bill's provisions.
C.S.H.B. 3159 establishes that, if the oil or gas production tax, as applicable, is paid at the applicable rate on hydrocarbons produced from a qualifying well on or after the date the RRC issues a certificate designating the well as a qualifying well but before the date the comptroller approves an application for an exemption for hydrocarbons produced from the well, the person responsible for paying the applicable tax is entitled to a credit against the oil or gas production taxes due in an amount equal to the amount of the tax paid during that period on hydrocarbons produced from the qualifying well. The bill requires the person responsible for paying the applicable tax to apply to the comptroller before the expiration of the applicable period for filing a tax refund claim under applicable state law to receive the credit.
C.S.H.B. 3159 subjects a person who makes or submits an application, report, or other document or item of information to the RRC or the comptroller under the bill's provisions that the person knows is false or untrue in a material fact to the applicable penalties imposed by Natural Resources Code provisions relating to the conservation and regulation of oil and gas. The bill makes a person who applies or attempts to apply for an exemption for hydrocarbons produced from a well the person knows is not a qualifying well liable to the state for a civil penalty capped at the sum of $10,000 and the difference between the amount of taxes paid or attempted to be paid and the amount of taxes due. The bill authorizes the attorney general to recover such a penalty in a suit brought on the state's behalf and establishes that venue for such a suit is in Travis County.
C.S.H.B. 3159 authorizes the RRC to adopt rules necessary to administer the bill's provisions.
C.S.H.B. 3159 defines the following terms:
·"consecutive months" as months in consecutive order, regardless of whether an oil or gas well produces hydrocarbons during any or all of those months;
·"hydrocarbons" as the oil, gas, condensate, and other hydrocarbons produced from an oil or gas well;
·"operator" as the person responsible for the actual physical operation of an oil or gas well;
·"restimulation costs" as expenses that are directly attributable to payment for the restimulation treatment performed on a restimulation well;
·"restimulation treatment" as the treatment of an oil or gas well with an application of fluid under pressure for the purpose of initiating or propagating fractures in a target geologic formation to enhance the production of hydrocarbons from the well; and
·"restimulation well" as a previously completed oil or gas well that, following production of hydrocarbons, became an inactive well and subsequently received a restimulation treatment.
C.S.H.B. 3159 applies only to hydrocarbons produced on or after January 1, 2026.
C.S.H.B. 3159 does not affect tax liability accruing before the bill's effective date. That liability continues in effect as if the bill had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes.
EFFECTIVE DATE
January 1, 2026.
COMPARISON OF INTRODUCED AND SUBSTITUTE
While C.S.H.B. 3159 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.
The substitute narrows the applicability of the exemption from oil and gas production taxes for hydrocarbons produced from a certified restimulation well by including a provision absent from the introduced establishing that the exemption does not apply with respect to an oil or gas well that is not an inactive well immediately before the restimulation treatment is performed. Accordingly, while both the introduced and the substitute define "restimulation well" as a previously completed oil or gas well that, following production of hydrocarbons, received a restimulation treatment, the substitute includes a specification absent from the introduced that an applicable well became an inactive well and subsequently received such treatment following production of hydrocarbons.
Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB3159 by Darby (Relating to a severance tax exemption for oil and gas produced from certain restimulation wells; providing a civil penalty.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB3159, As Introduced: a negative impact of ($66,383,000) through the biennium ending August 31, 2027.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2026
($10,455,000)
2027
($55,928,000)
2028
($86,815,000)
2029
($97,526,000)
2030
($96,541,000)
All Funds, Five-Year Impact:
Fiscal Year
Probable Revenue (Loss) from General Revenue Fund 1
Probable (Cost) from General Revenue Fund 1
Probable Revenue (Loss) from Foundation School Fund 193
Probable Revenue (Loss) from State Highway Fund 6
2026
($6,229,000)
($73,000)
($4,153,000)
$0
2027
($33,513,000)
($73,000)
($22,342,000)
($6,229,000)
2028
($52,045,000)
($73,000)
($34,697,000)
($33,513,000)
2029
($58,472,000)
($73,000)
($38,981,000)
($52,045,000)
2030
($57,881,000)
($73,000)
($38,587,000)
($58,472,000)
Fiscal Year
Change in Number of State Employees from FY 2025
2026
1.0
2027
1.0
2028
1.0
2029
1.0
2030
1.0
Fiscal Analysis
The bill would provide a severance tax exemption for hydrocarbons produced from both oil and gas restimulation wells on or after January 1, 2026. The bill would define a restimulation well as a well that has at least 5 years of production and would not be part an enhanced oil recovery project or an uncompleted well without a record of production prior to the hydraulic fracture treatment to enhance the well's production.
Oil, gas, and condensate produced from a qualified well would be exempt from severance taxes ending on the last day of the 36th consecutive month following the restimulation treatment or the date on which the cumulative amount of taxes exempted equals the lesser of restimulation costs or $750,000, whichever occurs first. The exemption on gas would override the qualified wells' concurrent high-cost gas tax reduction while the restimulation exemption is in effect.
The Railroad Commission (RRC) would review an application by the operator and issue a certificate for the qualifying well. RRC may revoke the certificate under certain circumstances and the exemption would automatically expire concurrently. RRC would adopt rules necessary to administer the certification and associated penalty provisions of the bill.
To qualify for the exemption, the taxpayer must apply to the Comptroller with the issued RRC certificate and a report of the actual restimulation costs incurred. The Comptroller by rule would establish forms and procedures to implement those provisions of the bill.
A civil penalty would be assessed against a person applying or attempting to apply for an exemption knowing the well is not a qualifying well in an amount not to exceed $10,000 plus the difference in taxes paid and taxes due.
The bill would take effect January 1, 2026.
Methodology
According to the Comptroller, based on industry information, refracturing an existing well can increase production greatly and result in the recovery of cumulatively more oil and gas than a comparable new well's recoverable reserves, at a lesser cost than drilling a new well. Although historically only representing a few percent of all wells drilled, refracturing is approaching an inflection point with more wells identified and committed capital allocated for refracturing. This analysis assumes, refracturing activities remain stable for the forecast period but are expected to increase in the future given the cost advantage, additional recoverable reserves, better understanding of well drainage areas and recovery factor, improving fracturing technology with available tools designed for refracturing, diminishing core drilling locations in maturing shale basins, and declining refracturing costs associated with economies of scale.
The fiscal impact analysis is based on industry data and the Comptroller's 2026-27 Biennial Revenue Estimate. Oil wells are expected to be the primary focus of refracturing activities. The time required for the accumulated exempt taxes to reach the limit of $750,000 would likely occur within the first 18 months for an oil well. However, for a gas well, reaching the limit would unlikely occur within the exempt period of 36 months. This analysis assumes negligible impact of the exemption provided by the bill with respect to refracturing existing certified high-cost gas wells with marginal production since the high-cost well tax rates are already low or at zero.
With regard to the civil penalty; as the number assessed, for how much, and the differential value of taxes is unknown, the fiscal implications cannot be determined. The fiscal impacts, consequently, does not include any impact from the civil penalty.
The natural gas and oil production taxes are occupation taxes and, as such, are allocated three-fourths to undedicated GR and one-fourth to GR Dedicated Account 0193 – Foundation School.
Of the amount equal (calculated separately for the oil and natural gas production tax) to annual total revenue above 1987 collections, 75 percent is reserved for the constitutional transfer from undedicated GR to the Economic Stabilization Fund – 0599 (ESF) and State Highway Fund – 0006 (SHF), in equal portions, the following year. However, the transfers to ESF are not expected to occur since the balance of the fund will be above its allowable cap from the start of fiscal 2026; transfers to the SHF continue. Net Loss to GR is net amount of decreased severance taxes revenue that was further adjusted for a reduced reserve for transfers to the ESF.
The administrative cost estimate includes the funds necessary to hire one (1) Accounts Examiner III FTE to process the applications and handle the influx of refund requests that will generate from the amended credits and reduced tax rates.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies:
304 Comptroller of Public Accounts
LBB Staff:
JMc, KK, SD
Related Legislation
Explore more bills from this author and on related topics
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 Railroad Commission of Texas (Certification), Comptroller of Public Accounts (Tax Administration) and Attorney General (Suit for Civil Penalties).
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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