I

106TH CONGRESS

1ST SESSION H. R. 53

To amend the Internal Revenue Code of 1986 to provide a tax credit for

marginal oil and natural gas well production.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. WATKINS (for himself, Mr. THOMAS, Mr. ISTOOK, Mr. MORAN of Kansas,

Mr. BRADY of Texas, Mr. SKEEN, Mr. THORNBERRY, Mr. MCCRERY, Mr.

LARGENT, Mr. WATTS of Oklahoma, Mr. LUCAS of Oklahoma, Mr.

SMITH of Texas, and Mr. STENHOLM) introduced the following bill; which

was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

a tax credit for marginal oil and natural gas well production.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. TAX CREDIT FOR MARGINAL DOMESTIC OIL

4 AND NATURAL GAS WELL PRODUCTION.

5 (a) CREDIT FOR PRODUCING OIL AND GAS FROM

6 MARGINAL WELLS.—Subpart D of part IV of subchapter

7 A of chapter 1 of the Internal Revenue Code of 1986 (re8 lating to business credits) is amended by adding at the

9 end the following new section:
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1 ‘‘SEC. 45D. CREDIT FOR PRODUCING OIL AND GAS FROM

2 MARGINAL WELLS.

3 ‘‘(a) GENERAL RULE.—For purposes of section 38,

4 the marginal well production credit for any taxable year

5 is an amount equal to the product of—

6 ‘‘(1) the credit amount, and

7 ‘‘(2) the qualified crude oil production and the

8 qualified natural gas production which is attrib9 utable to the taxpayer.

10 ‘‘(b) CREDIT AMOUNT.—For purposes of this

11 section—

12 ‘‘(1) IN GENERAL.—The credit amount is—

13 ‘‘(A) $3 per barrel of qualified crude oil

14 production, and

15 ‘‘(B) 50 cents per 1,000 cubic feet of

16 qualified natural gas production.

17 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN18 CREASE.—

19 ‘‘(A) IN GENERAL.—The $3 and 50 cents

20 amounts under paragraph (1) shall each be re21 duced (but not below zero) by an amount which

22 bears the same ratio to such amount (deter23 mined without regard to this paragraph) as—

24 ‘‘(i) the excess (if any) of the applica25 ble reference price over $14 ($1.56 for

26 qualified natural gas production), bears to
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1 ‘‘(ii) $3 ($0.33 for qualified natural

2 gas production).

3 The applicable reference price for a taxable

4 year is the reference price for the calendar year

5 preceding the calendar year in which the tax6 able year begins.

7 ‘‘(B) INFLATION ADJUSTMENT.—In the

8 case of any taxable year beginning in a calendar

9 year after 1999, each of the dollar amounts

10 contained in subparagraph (A) shall be in11 creased to an amount equal to such dollar

12 amount multiplied by the inflation adjustment

13 factor for such calendar year (determined under

14 section 43(b)(3)(B) by substituting ‘1998’ for

15 ‘1990’).

16 ‘‘(C) REFERENCE PRICE.—For purposes of

17 this paragraph, the term ‘reference price’

18 means, with respect to any calendar year—

19 ‘‘(i) in the case of qualified crude oil

20 production, the reference price determined

21 under section 29(d)(2)(C), and

22 ‘‘(ii) in the case of qualified natural

23 gas production, the Secretary’s estimate of

24 the annual average wellhead price per
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1 1,000 cubic feet for all domestic natural

2 gas.

3 ‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS

4 PRODUCTION.—For purposes of this section—

5 ‘‘(1) IN GENERAL.—The terms ‘qualified crude

6 oil production’ and ‘qualified natural gas production’

7 mean domestic crude oil or natural gas which is pro8 duced from a marginal well.

9 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

10 WHICH MAY QUALIFY.—

11 ‘‘(A) IN GENERAL.—Crude oil or natural

12 gas produced during any taxable year from any

13 well shall not be treated as qualified crude oil

14 production or qualified natural gas production

15 to the extent production from the well during

16 the taxable year exceeds 1,095 barrels or barrel

17 equivalents.

18 ‘‘(B) PROPORTIONATE REDUCTIONS.—

19 ‘‘(i) SHORT TAXABLE YEARS.—In the

20 case of a short taxable year, the limitations

21 under this paragraph shall be proportion22 ately reduced to reflect the ratio which the

23 number of days in such taxable year bears

24 to 365.
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1 ‘‘(ii) WELLS NOT IN PRODUCTION EN2 TIRE YEAR.—In the case of a well which is

3 not capable of production during each day

4 of a taxable year, the limitations under

5 this paragraph applicable to the well shall

6 be proportionately reduced to reflect the

7 ratio which the number of days of produc8 tion bears to the total number of days in

9 the taxable year.

10 ‘‘(3) DEFINITIONS.—

11 ‘‘(A) MARGINAL WELL.—The term ‘mar12 ginal well’ means a domestic well which during

13 the taxable year has marginal production (as

14 defined in section 613A(c)(6)).

15 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude

16 oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have

17 the meanings given such terms by section

18 613A(e).

19 ‘‘(C) BARREL EQUIVALENT.—The term

20 ‘barrel equivalent’ means, with respect to natu21 ral gas, a conversion ratio of 6,000 cubic feet

22 of natural gas to 1 barrel of crude oil.

23 ‘‘(d) OTHER RULES.—

24 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX25 PAYER.—In the case of a marginal well in which
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1 there is more than one owner of operating interests

2 in the well and the crude oil or natural gas produc3 tion exceeds the limitation under subsection (c)(2),

4 qualifying crude oil production or qualifying natural

5 gas production attributable to the taxpayer shall be

6 determined on the basis of the ratio which tax7 payer’s revenue interest in the production bears to

8 the aggregate of the revenue interests of all operat9 ing interest owners in the production.

10 ‘‘(2) OPERATING INTEREST REQUIRED.—Any

11 credit under this section may be claimed only on

12 production which is attributable to the holder of an

13 operating interest.

14 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

15 SOURCES EXCLUDED.—In the case of production

16 from a marginal well which is eligible for the credit

17 allowed under section 29 for the taxable year, no

18 credit shall be allowable under this section unless

19 the taxpayer elects not to claim the credit under sec20 tion 29 with respect to the well.’’.

21 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec22 tion 38(b) of such Code is amended by striking ‘‘plus’’

23 at the end of paragraph (11), by striking the period at

24 the end of paragraph (12) and inserting ‘‘, plus’’, and by

25 adding at the end the following new paragraph:
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1 ‘‘(13) the marginal oil and gas well production

2 credit determined under section 45D(a).’’.

3 (c) CREDIT ALLOWED AGAINST REGULAR AND MINI4 MUM TAX.—

5 (1) IN GENERAL.—Subsection (c) of section 38

6 of such Code (relating to limitation based on amount

7 of tax) is amended by redesignating paragraph (3)

8 as paragraph (4) and by inserting after paragraph

9 (2) the following new paragraph:

10 ‘‘(3) SPECIAL RULES FOR MARGINAL OIL AND

11 GAS WELL PRODUCTION CREDIT.—

12 ‘‘(A) IN GENERAL.—In the case of the

13 marginal oil and gas well production credit—

14 ‘‘(i) this section and section 39 shall

15 be applied separately with respect to the

16 credit, and

17 ‘‘(ii) in applying paragraph (1) to the

18 credit—

19 ‘‘(I) subparagraphs (A) and (B)

20 thereof shall not apply, and

21 ‘‘(II) the limitation under para22 graph (1) (as modified by subclause

23 (I)) shall be reduced by the credit al24 lowed under subsection (a) for the
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1 taxable year (other than the marginal

2 oil and gas well production credit).

3 ‘‘(B) MARGINAL OIL AND GAS WELL PRO4 DUCTION CREDIT.—For purposes of this sub5 section, the term ‘marginal oil and gas well pro6 duction credit’ means the credit allowable under

7 subsection (a) by reason of section 45D(a).’’.

8 (2) CONFORMING AMENDMENT.—Subclause (II)

9 of section 38(c)(2)(A)(ii) of such Code is amended

10 by inserting ‘‘or the marginal oil and gas well pro11 duction credit’’ after ‘‘employment credit’’.

12 (d) CARRYBACK.—Subsection (a) of section 39 of

13 such Code (relating to carryback and carryforward of un14 used credits generally) is amended by adding at the end

15 the following new paragraph:

16 ‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL

17 AND GAS WELL PRODUCTION CREDIT.—In the case

18 of the marginal oil and gas well production credit—

19 ‘‘(A) this section shall be applied sepa20 rately from the business credit (other than the

21 marginal oil and gas well production credit),

22 and

23 ‘‘(B) paragraph (1) shall be applied by

24 substituting ‘10 taxable years’ for ‘1 taxable

25 years’ in subparagraph (A) thereof.’’.
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1 (e) COORDINATION WITH SECTION 29.—Section

2 29(a) of such Code is amended by striking ‘‘There’’ and

3 inserting ‘‘At the election of the taxpayer, there’’.

4 (f) CLERICAL AMENDMENT.—The table of sections

5 for subpart D of part IV of subchapter A of chapter 1

6 of such Code is amended by adding at the end the follow7 ing item:

‘‘45D. Credit for producing oil and gas from marginal wells.’’.

8 (g) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to production after the date of the

10 enactment of this Act.

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