HB4312ham001 97TH GENERAL ASSEMBLY

Rep. Naomi D. Jakobsson

Filed: 3/21/2012

09700HB4312ham001 LRB097 15303 HLH 67736 a

AMENDMENT TO HOUSE BILL 4312

AMENDMENT NO. ______. Amend House Bill 4312 by replacing everything after the enacting clause with the following:

"Section 5. The Illinois Oil and Gas Act is amended by changing Section 1 and by adding Section 29 as follows:

(225 ILCS 725/1) (from Ch. 96 1/2, par. 5401)

Sec. 1. Unless the context otherwise requires, the words defined in this Section have the following meanings as used in this Act.

"Person" means any natural person, corporation, association, partnership, governmental agency or other legal entity, receiver, trustee, guardian, executor, administrator, fiduciary or representative of any kind.

"Oil" means natural crude oil or petroleum and other hydrocarbons, regardless of gravity, which are produced at the well in liquid form by ordinary production methods or by the use of an oil and gas separator and which are not the result of condensation of gas after it leaves the underground reservoir.

"Gas" means all natural gas, including casinghead gas, and all other natural hydrocarbons not defined above as oil.

"Pool" means a natural, underground reservoir containing in whole or in part, a natural accumulation of oil or gas, or both. Each productive zone or stratum of a general structure, which is completely separated from any other zone or stratum in the structure, is deemed a separate "pool" as used herein.

"Field" means the same general surface area which is underlaid or appears to be underlaid by one or more pools.

"Permit" means the Department's written authorization allowing a well to be drilled, deepened, converted, or operated by an owner.

"Permittee" means the owner holding or required to hold the permit, and who is also responsible for paying assessments in accordance with Section 19.7 of this Act and, where applicable, executing and filing the bond associated with the well as principal and who is responsible for compliance with all statutory and regulatory requirements pertaining to the well.

When the right and responsibility for operating a well is vested in a receiver or trustee appointed by a court of competent jurisdiction, the permit shall be issued to the receiver or trustee.

"Orphan Well" means a well for which: (1) no fee assessment under Section 19.7 of this Act has been paid or no other bond coverage has been provided for 2 consecutive years; (2) no oil or gas has been produced from the well or from the lease or unit on which the well is located for 2 consecutive years; and (3) no permittee or owner can be identified or located by the Department. Orphaned wells include wells that may have been drilled for purposes other than those for which a permit is required under this Act if the well is a conduit for oil or salt water intrusions into fresh water zones or onto the surface which may be caused by oil and gas operations.

"Owner" means the person who has the right to drill into and produce from any pool, and to appropriate the production either for the person or for the person and another, or others, or solely for others, excluding the mineral owner's royalty if the right to drill and produce has been granted under an oil and gas lease. An owner may also be a person granted the right to drill and operate an injection (Class II UIC) well independent of the right to drill for and produce oil or gas. When the right to drill, produce, and appropriate production is held by more than one person, then all persons holding these rights may designate the owner by a written operating agreement or similar written agreement. In the absence of such an agreement, and subject to the provisions of Sections 22.2 and 23.1 through 23.16 of this Act, the owner shall be the person designated in writing by a majority in interest of the persons holding these rights.

"Department" means the Department of Natural Resources.

"Director" means the Director of Natural Resources.

"Mining Board" means the State Mining Board in the Department of Natural Resources, Office of Mines and Minerals.

"Mineral Owner's Royalty" means the share of oil and gas production reserved in an oil and gas lease free of all costs by an owner of the minerals whether denominated royalty or overriding royalty.

"Waste" means "physical waste" as that term is generally understood in the oil and gas industry, and further includes:

(1) the locating, drilling and producing of any oil or gas well or wells drilled contrary to the valid order, rules and regulations adopted by the Department under the provisions of this Act.

(2) permitting the migration of oil, gas, or water from the stratum in which it is found, into other strata, thereby ultimately resulting in the loss of recoverable oil, gas or both;

(3) the drowning with water of any stratum or part thereof capable of producing oil or gas, except for secondary recovery purposes;

(4) the unreasonable damage to underground, fresh or mineral water supply, workable coal seams, or other mineral deposits in the operations for the discovery, development, production, or handling of oil and gas;

(5) the unnecessary or excessive surface loss or destruction of oil or gas resulting from evaporation, seepage, leakage or fire, especially such loss or destruction incident to or resulting from the escape of gas into the open air in excessive or unreasonable amounts, provided, however, it shall not be unlawful for the operator or owner of any well producing both oil and gas to burn such gas in flares when such gas is, under the other provisions of this Act, lawfully produced, and where there is no market at the well for such escaping gas; and where the same is used for the extraction of casinghead gas, it shall not be unlawful for the operator of the plant after the process of extraction is completed, to burn such residue in flares when there is no market at such plant for such residue gas;

(6) permitting unnecessary fire hazards;

(7) permitting unnecessary damage to or destruction of the surface, soil, animal, fish or aquatic life or property from oil or gas operations.

"Drilling Unit" means the surface area allocated by an order or regulation of the Department to the drilling of a single well for the production of oil or gas from an individual pool.

"Enhanced Recovery Method" means any method used in an effort to recover hydrocarbons from a pool by injection of fluids, gases or other substances to maintain, restore or augment natural reservoir energy, or by introducing immiscible or miscible gases, chemicals, other substances or heat or by in-situ combustion, or by any combination thereof.

"Well-Site Equipment" means any production-related equipment or materials specific to the well, including motors, pumps, pump jacks, tanks, tank batteries, separators, compressors, casing, tubing, and rods.

"First purchaser" means any person who completes an initial purchase of oil or gas from a well in Illinois.

"Interest owner" means a person who owns or possesses an interest in the gross production of oil or gas produced from a well in Illinois.

(Source: P.A. 89-243, eff. 8-4-95; 89-445, eff. 2-7-96.)

(225 ILCS 725/29 new)

Sec. 29. Oil and gas production tax.

(a) On and after January 1, 2013, in addition to any other tax, fee, or levy imposed by the State or any unit of local government in this State, a tax is levied upon the privilege of producing oil and gas from the earth or water in this State for sale, transport, storage, profit, or commercial use.

(b) The tax levied under this Section on gas shall be equal to the greater of (i) 12% of the gross value of the gas at the point of production or (ii) $0.36 per 1,000 cubic feet of gas produced. The tax levied under this Section on oil shall be equal to the greater of (i) 12% of the gross value of the oil at the point of production or (ii) $2.88 per barrel of oil produced.

(c) The amount of the tax payable each month under this Section shall be due and payable on or before the 15th day of the month immediately following the end of the month of production.

The tax under this Section is imposed on interest owners in the proportion of their respective beneficial interests in the oil or gas at the time of severance. If the oil or gas is sold in the same month that it is produced, the first purchaser of the oil or gas shall collect the amount of the tax due from the interest owners by deducting and withholding such amount from any payments made for that oil or gas by the first purchaser to the interest owner, and shall pay the tax imposed by this Section. Money withheld by the first purchaser under this subsection is held in trust for the use and benefit of the State and may not be commingled with other funds of the first purchaser. If the oil or gas is not sold in the same month that it is produced, the interest owners shall pay the tax imposed by this Section as if the oil or gas were sold that month.

In no event shall an interest owner be relieved of responsibility for the tax until it has been paid. If the tax is withheld by a first purchaser and that first purchaser fails to make payment of the tax to the State as required herein, then the interest owners shall be entitled to bring an action against such purchaser to recover the amount of tax so withheld together with penalties and interest that may have accrued by failure to make such payment.

(d) The moneys collected from the taxes levied under this Section shall be remitted to the Department of Revenue along with a return provided by the Department of Revenue containing any information the Department of Revenue may require. The return shall be filed no later than the 15th day of the month following the end of the month of production. The moneys received by the Department of Revenue pursuant to this Section shall be deposited into the General Revenue Fund.

(e) The Department of Revenue shall have a lien for the tax herein imposed or any portion thereof, or for any penalty provided for in this Section, upon all oil and gas produced in this State, whether in possession of an interest owner, producer, operator, storage operator, first purchaser, or subsequent purchaser, to secure the payment of the tax required under this Section.

(f) Any tax which is not paid when due shall bear interest at the rate and in the manner specified in Sections 3-2 and 3-9 of the Uniform Penalty and Interest Act from the date when the tax becomes past due until the tax is paid or a judgment is obtained by the Department of Revenue. If the amount of the tax computed by the Department of Revenue is greater than the amount of the tax due under the return or returns as filed, or if the tax or any part of the tax that is admitted to be due by a return or returns, whether filed on time or not, is not paid, then the Department of Revenue shall issue to the interest owner a notice of tax liability for the amount of tax claimed by the Department to be due together with a penalty in an amount determined in accordance with Section 3-3 of the Uniform Penalty and Interest Act. If the incorrectness of any return or returns as determined by the Department is due to negligence or fraud, that penalty shall be in an amount determined in accordance with Section 3-5 or Section 3-6 of the Uniform Penalty and Interest Act, as the case may be. If the notice of tax liability is not based on a correction of the taxpayer's return or returns, but is based on the taxpayer's failure to pay all or a part of the tax admitted by his or her return or returns (whether filed on time or not) to be due, such notice of tax liability shall be prima facie correct and shall be prima facie evidence of the correctness of the amount of tax due, as shown therein.

(g) If any payment received by the Department under this Section exceeds the taxpayer's liabilities under this Section, the Department of Revenue shall, if requested by the taxpayer, issue to the taxpayer a credit memorandum no later than 30 days after the date of the request. If no such request is made, the taxpayer may credit such excess payment against the payment of any subsequent assessment under this Section, in accordance with reasonable rules and regulations prescribed by the Department of Revenue.

(h) Within 60 days after the issuance of a notice of tax liability, the taxpayer may file with the Department of Revenue a written protest against the proposed assessment in such form as the Department of Revenue may by regulation prescribe, setting forth the grounds on which such protest is based. If a taxpayer timely files a protest, then the Department of Revenue shall reconsider the proposed assessment and, if the taxpayer has so requested, shall grant the taxpayer or his authorized representative a hearing. Following that hearing, the Department of Revenue shall issue a final assessment to the taxpayer for the amount found to be due as a result of the hearing.

If a protest to the notice of tax liability and a request for a hearing thereon is not filed within 60 days after receipt of the notice, that notice of tax liability shall become final without the necessity of a final assessment being issued and shall be deemed to be a final assessment.

(i) The Circuit Court of the county in which the well is located shall have power to review all final administrative decisions of the Department of Revenue in administering the provisions of this Section. The provisions of the Administrative Review Law, and the rules adopted pursuant thereto, shall apply to and govern all proceedings for the judicial review of final administrative decisions of the Department hereunder. The term "administrative decision" is defined as in Section 3-101 of the Code of Civil Procedure.

After the expiration of the period within which the person assessed may file an action for judicial review under the Administrative Review Law without such an action being filed, a certified copy of the final assessment or revised final assessment of the Department may be filed with the Circuit Court of the county in which the well is located. The certified copy of the final assessment or revised final assessment shall be accompanied by a certification which recites facts that are sufficient to show that the Department of Revenue complied with the jurisdictional requirements of this Section in arriving at its final assessment or its revised final assessment and that the taxpayer had an opportunity for an administrative hearing and for judicial review. If the court is satisfied that the Department of Revenue complied with the jurisdictional requirements of this Section in arriving at its final assessment or its revised final assessment and that the taxpayer had an opportunity for an administrative hearing and for judicial review, the court shall render judgment in favor of the Department of Revenue and against the taxpayer for the amount shown to be due by the final assessment or the revised final assessment, plus any interest that may be due, and such judgment shall be entered in the judgment docket of the court. Such judgment shall bear the same rate of interest and shall have the same effect as other judgments. The judgment may be enforced, and all laws applicable to sales for the enforcement of a judgment shall be applicable to sales made under such judgments. The Department of Revenue shall file the certified copy of its assessment with the Circuit Court within 2 years after such assessment becomes final, except when the taxpayer consents in writing to an extension of the filing period, and except that the time limitation period on the Department of Revenue's right to file the certified copy of its assessment with the Circuit Court shall not run during any period of time in which the order of any court has the effect of enjoining or restraining the Department of Revenue from filing such certified copy of its assessment with the Circuit Court.

(j) Every interest owner, producer, operator, storage operator, and first purchaser shall keep such records, receipts, invoices and other pertinent books, documents, memoranda and papers as the Department of Revenue shall require, in such form as the Department of Revenue shall require in order to administer and enforce this Section. The Department of Revenue may adopt rules that establish requirements, including record forms and formats, for records required to be kept and maintained by taxpayers. For purposes of this Section, "records" means all data maintained by the taxpayer, including data on paper, microfilm, microfiche, or on any type of machine-sensible data compilation. For the purpose of administering and enforcing the provisions hereof, the Department of Revenue, or any officer or employee of the Department of Revenue designated, in writing, by the Director thereof, may hold investigations and hearings concerning any matters covered herein and may examine any relevant books, papers, records, documents, or memoranda of any serviceman or any taxable purchaser for use hereunder, and may require the attendance of such person or any officer or employee of such person, or of any person having knowledge of the facts, and may take testimony and require proof for its information.

(k) The Department of Revenue is authorized to make, promulgate, and enforce reasonable rules relating to the administration and enforcement of this Section.

Section 99. Effective date. This Act takes effect upon becoming law.".