MARGINAL PROPERTY ROYALTY RATES.

(a) In this section:

(1) "Barrel of oil equivalent" means 6,000 cubic feet of natural gas for each 42-gallon barrel of crude oil or a volume of gas with a minimum heating value of 6,000,000 British thermal units (6,000 Mbtu), whichever is greater.

(2) "Qualifying Gulf of Mexico property" means land described in Section 52.011(2) that is subject to a lease issued under Subchapter B, Chapter 52.

(3) "Qualifying Gulf of Mexico reservoir" means a reservoir that:

(A) during a period established by board rule has an average daily per well production equal to or less than 50 barrels of oil or barrels of oil equivalent; and

(B) underlies:

(i) a qualifying Gulf of Mexico property; or

(ii) a pooled unit that includes a qualifying Gulf of Mexico property.

(4) "Qualifying property" means land subject to a lease issued under this chapter, under Subchapter E, Chapter 51, or under Chapter 52.

(5) "Qualifying reservoir" means a reservoir that:

(A) during a period established by board rule has an average daily per well production equal to or less than 15 barrels of oil or barrels of oil equivalent; and

(B) underlies:

(i) a qualifying property; or

(ii) a pooled unit that includes a qualifying property.

(6) "Reservoir" has the same meaning as "common reservoir" as that term is defined in Section 86.002.

(b) The board by rule may provide for the reduction of royalty rates as provided by this section.

(c) The royalty rate for oil and gas produced from a qualifying reservoir may be reduced to not less than one-sixteenth (6.25 percent) for a term prescribed by the board. In determining whether to grant a reduction in the royalty rate, the board may consider whether the qualifying property is being operated efficiently, including whether the property is pooled or has reasonable potential for the application of secondary or tertiary recovery techniques.

(d) The royalty rate for the state's share under a lease issued under Subchapter F, Chapter 52, or Sections 51.195(c)(2) and (d) may be reduced under this section to not less than one-thirty-second (3.125 percent) for a term prescribed by the board. The state's royalty rate may be reduced under this subsection only if the royalty rate for the owner of the soil is reduced in the same proportion.

(e) The royalty rate under a lease issued under Subchapter C, Chapter 52, may not be reduced to a rate that is lower than the rate under lease of land that:

(1) adjoins the land leased under Subchapter C; and

(2) is held or operated by, or under the significant control of, the state's lessee.

(f) The royalty rate under a lease issued under Subchapter F of this chapter may not be reduced to a rate that is lower than the rate under a lease of land that adjoins the land leased under Subchapter F.

(g) If a qualifying reservoir for which a royalty rate reduction is sought under this section is included in a unit subject to the board's authority, the board may modify the terms and conditions for the unit as a condition of approving the requested reduction in the royalty rate.

(h) This section does not apply to the free royalty reserved by the state under Section 51.054.