I

103D CONGRESS

1ST SESSION H. R. 1024

To amend the Internal Revenue Code of 1986 to provide incentives for

domestic oil and natural gas exploration and production, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 22, 1993

Mr. ANDREWS of Texas (for himself and Mr. BREWSTER) 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

incentives for domestic oil and natural gas exploration

and production, and for other purposes.

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

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Energy Independence, Infrastructure, and Investment

6 Act of 1993’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 TITLE I—ENERGY

5 INDEPENDENCE INCENTIVES

6 SEC. 101. FEE ON IMPORTED CRUDE OIL AND REFINED PE7 TROLEUM PRODUCTS.

8 (a) IN GENERAL.—Subtitle E (relating to alcohol, to9 bacco, and certain other excise taxes) is amended by add10 ing at the end thereof the following new chapter:

11 ‘‘CHAPTER 55—IMPORTED CRUDE OIL AND

12 REFINED PETROLEUM PRODUCTS

‘‘Sec. 5891. Imposition of tax.

‘‘Sec. 5892. Definitions.

‘‘Sec. 5893. Registration.

‘‘Sec. 5894. Procedures; returns; penalties.

‘‘Sec. 5895. Adjustment for inflation.

13 ‘‘SEC. 5891. IMPOSITION OF TAX.

14 ‘‘(a) IMPOSITION OF TAX.—In addition to any other

15 tax imposed under this title, an excise tax is hereby im16 posed on—

17 ‘‘(1) the first sale within the United States of

18 each barrel (or its equivalent) of—

19 ‘‘(A) any crude oil, or

20 ‘‘(B) any refined petroleum product,

21 that has been imported into the United States, and

22 ‘‘(2) the use within the United States of each

23 barrel (or its equivalent) of—
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1 ‘‘(A) any crude oil, or

2 ‘‘(B) any refined petroleum product,

3 that has been imported into the United States if no

4 tax has been imposed with respect to such crude oil

5 or refined petroleum product prior to such use.

6 ‘‘(b) RATE OF TAX.—

7 ‘‘(1) CRUDE OIL.—For purposes of paragraphs

8 (1)(A) and (2)(A) of subsection (a) the rate of tax

9 on any barrel (or its equivalent) shall be the excess,

10 if any, of—

11 ‘‘(A) $25, over

12 ‘‘(B) the energy policy price per barrel of

13 crude oil.

14 ‘‘(2) REFINED PETROLEUM PRODUCT.—For

15 purposes of paragraphs (1)(B) and (2)(B) of sub16 section (a), the rate of tax on any barrel (or its

17 equivalent) shall be equal to—

18 ‘‘(A) $3, plus

19 ‘‘(B) the tax determined under paragraph

20 (1) of this subsection.

21 ‘‘(3) FRACTIONAL PARTS OF BARRELS.—In the

22 case of a fraction of a barrel, the tax imposed by

23 subsection (a) shall be the same fraction of the

24 amount of such tax imposed on the whole barrel.

25 ‘‘(c) DETERMINATION OF ENERGY POLICY PRICE.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the energy policy price with respect to any

3 week during which the tax under subsection (a) is

4 imposed shall be determined by the Secretary and

5 published in the Federal Register on the first day of

6 such week.

7 ‘‘(2) BASIS OF DETERMINATION.—For purposes

8 of paragraph (1), the energy policy price for any

9 week is the weighted average international price of

10 a barrel of crude oil for the preceding 4 weeks as

11 determined by the Secretary, after consultation with

12 the Administrator of the Energy Information Ad13 ministration of the Department of Energy, pursuant

14 to the formula for determining such international

15 price as used in publishing the Weekly Petroleum

16 Status Report and as in effect on the date of the en17 actment of this section.

18 ‘‘(d) LIABILITY FOR PAYMENT OF TAX.—

19 ‘‘(1) SALES.—The taxes imposed by subsection

20 (a)(1) shall be paid by the first person who sells the

21 crude oil or refined petroleum product within the

22 United States.

23 ‘‘(2) USE.—The taxes imposed by subsection

24 (a)(2) shall be paid by the person who uses the

25 crude oil or refined petroleum product.
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1 ‘‘(3) TAX-FREE EXPORTS.—

2 ‘‘(A) IN GENERAL.—Under regulations

3 prescribed by the Secretary, no tax shall be im4 posed under this chapter on the sale of crude

5 oil or refined petroleum product for export or

6 for resale by the purchaser to a second pur7 chaser for export.

8 ‘‘(B) PROOF OF EXPORT.—Where any

9 crude oil or refined petroleum product has been

10 sold free of tax under subparagraph (A), such

11 subparagraph shall cease to apply with respect

12 to the sale of such crude oil or refined petro13 leum product, unless, within the 6-month period

14 which begins on the date of the sale, the seller

15 receives proof that the crude oil or refined pe16 troleum product has been exported.

17 ‘‘SEC. 5892. DEFINITIONS.

18 ‘‘For purposes of this chapter—

19 ‘‘(1) CRUDE OIL.—The term ‘crude oil’ means

20 crude oil other than crude oil produced from a well

21 located in the United States (within the meaning of

22 section 638(2)) or a possession of the United States.

23 ‘‘(2) BARREL.—The term ‘barrel’ means 42

24 United States gallons.
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1 ‘‘(3) REFINED PETROLEUM PRODUCT.—The

2 term ‘refined petroleum product’ shall have the same

3 meaning given to such term by section 3(5) of the

4 Emergency Petroleum Allocation Act of 1973 (15

5 U.S.C. 752(5)).

6 ‘‘(4) EXPORT.—The term ‘export’ includes ship7 ment to a possession of the United States; and the

8 term ‘exported’ includes shipment to a possession of

9 the United States.

10 ‘‘SEC. 5893. REGISTRATION.

11 ‘‘Every person subject to tax under section 5891

12 shall, before incurring any liability for tax under such sec13 tion, register with the Secretary.

14 ‘‘SEC. 5894. PROCEDURES; RETURNS; PENALTIES.

15 ‘‘For purposes of this title, the tax imposed by section

16 5891 shall be treated in the same manner as the tax im17 posed by section 4986 (as in effect before its repeal).

18 ‘‘SEC. 5895. ADJUSTMENT FOR INFLATION.

19 ‘‘In the case of any calendar year beginning after

20 1993, the dollar amount referred to in section

21 5891(b)(1)(A) and section 5891(b)(2)(A) shall be in22 creased by an amount equal to—

23 ‘‘(A) such dollar amount, multiplied by

24 ‘‘(B) the cost-of-living adjustment deter25 mined under section 1(f)(3) for the calendar
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1 year, by substituting ‘calendar year 1992’ for

2 ‘calendar year 1989’ in subparagraph (B)

3 thereof.’’.

4 (b) CONFORMING AMENDMENT.—The table of chap5 ters for subtitle E is amended by adding at the end thereof

6 the following new item:

‘‘Chapter 55. Imported crude oil and refined petroleum products.’’.

7 (c) DEDUCTIBILITY OF IMPORTED OIL TAX.—The

8 first sentence of section 164(a) (relating to deductions for

9 taxes) is amended by inserting after paragraph (5) the fol10 lowing new paragraph:

11 ‘‘(6) The imported oil taxes imposed by section

12 5891.’’.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply with respect to sales and use of

15 imported crude oil or refined petroleum products on or

16 after the date of the enactment of this Act.

17 TITLE II—INFRASTRUCTURE

18 INCENTIVES

19 SEC. 201. INCREASE IN PERCENTAGE DEPLETION FOR

20 STRIPPER WELLS.

21 (a) IN GENERAL.—Subparagraph (C) of section

22 613A(c)(6) (relating to oil and natural gas produced from

23 marginal properties) is amended—
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1 (1) by striking ‘‘25 percent’’ and inserting

2 ‘‘27.5 percent’’ in the matter preceding clause (i),

3 and

4 (2) by striking ‘‘$20’’ and inserting ‘‘$28’’ in

5 clause (ii).

6 (b) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to taxable years beginning after

8 December 31, 1992.

9 SEC. 202. NET INCOME LIMITATION ON PERCENTAGE DE10 PLETION REPEALED FOR OIL AND GAS PROP11 ERTIES.

12 (a) IN GENERAL.—Section 613(a) (relating to per13 centage depletion) is amended by striking the second sen14 tence and inserting: ‘‘Except in the case of oil and gas

15 properties, such allowance shall not exceed 50 percent of

16 the taxpayer’s taxable income from the property (com17 puted without allowances for depletion).’’.

18 (b) CONFORMING AMENDMENT.—Section 613A(c)(7)

19 (relating to special rules) is amended by striking subpara20 graph (C) and redesignating subparagraph (D) as sub21 paragraph (C).

22 (c) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to taxable years beginning after

24 December 31, 1992.
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1 SEC. 203. CRUDE OIL AND NATURAL GAS EXPLORATION

2 AND DEVELOPMENT CREDIT.

3 (a) CRUDE OIL AND NATURAL GAS EXPLORATION

4 AND DEVELOPMENT CREDIT.—Subpart B of part IV of

5 subchapter A of chapter 1 (relating to foreign tax credit,

6 etc.) is amended by adding the following new section:

7 ‘‘SEC. 30A. CRUDE OIL AND NATURAL GAS EXPLORATION

8 AND DEVELOPMENT CREDIT.

9 ‘‘(a) GENERAL RULE.—There shall be allowed as a

10 credit against the tax imposed by this chapter for the tax11 able year an amount equal to the sum of—

12 ‘‘(1) 20 percent of so much of the taxpayer’s

13 qualified investment for the taxable year as does not

14 exceed $1,000,000, plus

15 ‘‘(2) 10 percent of so much of such qualified in16 vestment for the taxable year as exceeds $1,000,000.

17 ‘‘(b) QUALIFIED INVESTMENT.—For purposes of this

18 section, the term ‘qualified investment’ means amounts

19 paid or incurred—

20 ‘‘(1) for geological and geophysical expenditures

21 incurred for the purpose of ascertaining the exist22 ence, location, extent, or quality of any crude oil or

23 natural gas deposit, including core testing and drill24 ing test wells,

25 ‘‘(2) for the purpose of drilling and equipping

26 crude oil and natural gas wells (including pollution
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1 control equipment used in connection with such

2 wells), or

3 ‘‘(3) for the purpose of performing secondary or

4 tertiary recovery techniques,

5 on properties located in the United States or in a posses6 sion of the United States as defined in section 638 (relat7 ing to Continental Shelf areas), but only to the extent that

8 the expenditure is not a qualified cost under section 30B.

9 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—

10 ‘‘(1) LIABILITY FOR TAX.—The credit allowable

11 under subsection (a) for any taxable year shall not

12 exceed—

13 ‘‘(A) the sum of—

14 ‘‘(i) the taxpayer’s minimum tax li15 ability under section 55(a) for such taxable

16 year, plus

17 ‘‘(ii) the taxpayer’s regular tax liabil18 ity for such taxable year (as defined in sec19 tion 26(b)), over

20 ‘‘(B) the sum of the credits allowable

21 against the taxpayer’s regular tax liability

22 under subparts A and D of this part and sec23 tions 27, 28, 29, and 30.

24 ‘‘(2) CARRYBACK AND CARRYFORWARD OF UN25 USED CREDIT.—
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1 ‘‘(A) IN GENERAL.—If the amount of the

2 credit allowed under subsection (a) for any tax3 able year exceeds the limitation under para4 graph (1) for such taxable year (hereinafter in

5 this paragraph referred to as the ‘unused credit

6 year’), such excess shall be—

7 ‘‘(i) an oil and gas exploration and de8 velopment credit carryback to each of the

9 3 taxable years preceding the unused cred10 it year, and

11 ‘‘(ii) an oil and gas exploration and

12 development credit carryforward to each of

13 the 15 taxable years following the unused

14 credit year,

15 and shall be added to the amount allowable as

16 a credit under subsection (a) for such years. If

17 any portion of such excess is a carryback to a

18 taxable year beginning on or before the date of

19 the enactment of this section, this section shall

20 be deemed to have been in effect for such tax21 able year for purposes of allowing such

22 carryback as a credit under this section. The

23 entire amount of the unused credit shall be car24 ried to the earliest of the 18 taxable years to

25 which such credit may be carried, and then to
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1 each of the other 17 taxable years to the extent

2 that, because of the limitation contained in

3 paragraph (1), such unused credit may not be

4 added for a prior taxable year to which such

5 unused credit may be carried.

6 ‘‘(B) LIMITATIONS.—The amount of the

7 unused credit which may be taken into account

8 under subparagraph (A) for any succeeding tax9 able year shall not exceed the amount by which

10 the limitation provided by paragraph (1) for

11 such taxable year exceeds the sum of—

12 ‘‘(i) the credit allowable under sub13 section (a) for such taxable year, and

14 ‘‘(ii) the amounts which, by reason of

15 this paragraph, are added to the amount

16 allowable for such taxable year and which

17 are attributable to taxable years preceding

18 the unused credit year.

19 ‘‘(d) SPECIAL RULES.—For purposes of this sec20 tion—

21 ‘‘(1) AGGREGATION OF QUALIFIED INVESTMENT

22 EXPENSES.—

23 ‘‘(A) CONTROLLED GROUPS; COMMON CON24 TROL.—In determining the amount of the cred25 it under this section, all members of the same
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1 controlled group of corporations (within the

2 meaning of section 52(a)) and all persons under

3 common control (within the meaning of section

4 52(b)) shall be treated as a single taxpayer for

5 purposes of this section.

6 ‘‘(B) APPORTIONMENT OF CREDIT.—The

7 credit (if any) allowable by this section to mem8 bers of any group (or to any person) described

9 in subparagraph (A) shall be such member’s or

10 person’s proportionate share of the qualified in11 vestment expenses giving rise to the credit de12 termined under regulations prescribed by the

13 Secretary.

14 ‘‘(2) PARTNERSHIPS, S CORPORATIONS, ES15 TATES AND TRUSTS.—

16 ‘‘(A) PARTNERSHIPS AND S CORPORA17 TIONS.—In the case of a partnership, the credit

18 shall be allocated among partners under regula19 tions prescribed by the Secretary. A similar rule

20 shall apply in the case of an S corporation and

21 its shareholders.

22 ‘‘(B) PASS-THRU IN THE CASE OF ES23 TATES AND TRUSTS.—Under regulations pre24 scribed by the Secretary, rules similar to the

25 rules of subsection (d) of section 52 shall apply.
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1 ‘‘(3) ADJUSTMENTS FOR CERTAIN ACQUISI2 TIONS AND DISPOSITIONS.—Under regulations pre3 scribed by the Secretary, rules similar to the rules

4 contained in section 41(f)(3) shall apply with respect

5 to the acquisition or disposition of a taxpayer.

6 ‘‘(4) SHORT TAXABLE YEARS.—In the case of

7 any short taxable year, qualified investment expenses

8 shall be annualized in such circumstances and under

9 such methods as the Secretary may prescribe by

10 regulation.

11 ‘‘(5) DENIAL OF DOUBLE BENEFIT.—

12 ‘‘(A) DISALLOWANCE OF DEDUCTION.—

13 Any deduction allowable under this chapter for

14 any costs taken into account in computing the

15 amount of the credit determined under sub16 section (a) shall be reduced by the amount of

17 such credit attributable to such costs.

18 ‘‘(B) BASIS ADJUSTMENTS.—For purposes

19 of this subtitle, if a credit is determined under

20 this section for any expenditure with respect to

21 any property, the increase in the basis of such

22 property which would (but for this subsection)

23 result from such expenditures shall be reduced

24 by the amount of the credit so allowed.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 for subpart B of part IV of subchapter A of chapter 1

3 is amended by adding at the end thereof the following new

4 item:

‘‘Sec. 30A. Crude oil and natural gas exploration and development

credit.’’.

5 (c) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to expenditures paid or incurred

7 after the date of enactment of this Act in taxable years

8 ending after such date.

9 SEC. 204. MARGINAL PRODUCTION CREDIT.

10 (a) IN GENERAL.—Subpart B of part IV of sub11 chapter A of chapter 1 (relating to foreign tax credit, etc.),

12 as amended by section 203(a), is amended by adding the

13 following new section:

14 ‘‘SEC. 30B. MARGINAL PRODUCTION CREDIT.

15 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al16 lowed as a credit against the tax imposed by this chapter

17 for the taxable year to the producer of eligible crude oil

18 or eligible natural gas an amount equal to 20 percent of

19 the qualified cost of each barrel of such oil or each barrel20 of-oil equivalent of such gas (or fractional part thereof)

21 produced during the taxable year.

22 ‘‘(b) QUALIFIED COST.—For purposes of this section,

23 the term ‘qualified cost’ means, with respect to each barrel
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1 of eligible crude oil or each barrel-of-oil equivalent of eligi2 ble natural gas, the sum of—

3 ‘‘(1) such barrel’s or barrel-of-oil equivalent’s

4 pro rata share of the lease operating expenses (other

5 than business overhead expenses) paid or incurred

6 by the producer of such barrel or barrel-of-oil equiv7 alent during the taxable year in which such barrel

8 or barrel-of-oil equivalent was produced, plus

9 ‘‘(2) the amount of severance tax paid or in10 curred by such producer with respect to such barrel

11 or barrel-of-oil equivalent.

12 ‘‘(c) DEFINITIONS.—For purposes of this section—

13 ‘‘(1) ELIGIBLE CRUDE OIL.—The term ‘eligible

14 crude oil’ means domestic crude oil which is—

15 ‘‘(A) from a stripper well property,

16 ‘‘(B) heavy oil,

17 ‘‘(C) oil recovered through a tertiary recov18 ery method, or

19 ‘‘(D) harsh environment oil.

20 ‘‘(2) ELIGIBLE NATURAL GAS.—The term ‘eligi21 ble natural gas’ means gas, other than gas qualify22 ing for the credit under section 29, which is—

23 ‘‘(A) from a stripper well property, or

24 ‘‘(B) natural gas recovered through a ter25 tiary recovery method.
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1 ‘‘(3) OTHER DEFINITIONS.—

2 ‘‘(A) CRUDE OIL.—The term ‘crude oil’

3 has the meaning given to such term by the

4 June 1979 energy regulations.

5 ‘‘(B) BARREL.—The term ‘barrel’ means

6 42 United States gallons.

7 ‘‘(C) BARREL-OF-OIL EQUIVALENT.—The

8 term ‘barrel-of-oil equivalent’ with respect to

9 any natural gas means that amount of such

10 natural gas which has a Btu content of 5.8 mil11 lion.

12 ‘‘(D) DOMESTIC.—The term ‘domestic’

13 when used with respect to crude oil, means

14 crude oil produced from a property located in

15 the United States or a possession of the United

16 States.

17 ‘‘(E) UNITED STATES.—The term ‘United

18 States’ has the meaning given to such term by

19 paragraph (1) of section 638 (relating to Con20 tinental Shelf areas).

21 ‘‘(F) POSSESSION OF THE UNITED

22 STATES.—The term ‘possession of the United

23 States’ has the meaning given to such term by

24 paragraph (2) of section 638.
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1 ‘‘(G) STRIPPER WELL PROPERTY.—The

2 term ‘stripper well property’ has the meaning

3 given to such term by subparagraph (E) of sec4 tion 613A(c)(6).

5 ‘‘(H) PROPERTY.—The term ‘property’

6 means property as defined in section 614.

7 ‘‘(I) HEAVY OIL.—The term ‘heavy oil’

8 means all crude oil which is produced from a

9 property if crude oil produced and sold from

10 such property during—

11 ‘‘(i) the last month before July 1979

12 in which crude oil was produced and sold

13 from such property, or

14 ‘‘(ii) the taxable year had a weighted

15 average gravity of 20 degrees API or less

16 (corrected to 60 degrees Fahrenheit).

17 ‘‘(J) TERTIARY RECOVERY METHOD.—The

18 term ‘tertiary recovery method’ means—

19 ‘‘(i) any method which is described in

20 subparagraphs (1) through (9) of section

21 212.78(c) of the October 1979 energy reg22 ulations, or

23 ‘‘(ii) any other method to provide ter24 tiary enhanced recovery (including steam
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1 generation) which is approved by the Sec2 retary for purposes of this section.

3 ‘‘(K) HARSH ENVIRONMENT OIL.—The

4 term ‘harsh environment oil’ means oil pro5 duced from a property located north of the 49th

6 parallel or under at least 400 feet of water.

7 ‘‘(L) SEVERANCE TAX.—The term ‘sever8 ance tax’ means a tax imposed by a State or

9 political subdivision thereof with respect to the

10 extraction of crude oil.

11 ‘‘(M) ENERGY REGULATIONS.—

12 ‘‘(i) IN GENERAL.—The term ‘energy

13 regulations’ means regulations prescribed

14 under section 4(a) of the Energy Petro15 leum Allocation Act of 1973 (15 U.S.C.

16 753(a)).

17 ‘‘(ii) JUNE 1979 ENERGY REGULA18 TIONS.—The June 1979 energy regulations

19 shall be the terms of the energy regula20 tions as such terms existed on June 1,

21 1979.

22 ‘‘(iii) OCTOBER 1979 ENERGY REGULA23 TIONS.—The October 1979 Energy Regu24 lations shall be the terms of the energy
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1 regulations as such terms existed on Octo2 ber 30, 1979.

3 ‘‘(iv) CONTINUED APPLICATION OF

4 REGULATIONS AFTER DECONTROL.—En5 ergy regulations shall be treated as con6 tinuing in effect without regard to decon7 trol of oil prices or any other termination

8 of the application of such regulations.

9 ‘‘(d) SPECIAL RULE FOR OFFSHORE WELLS.—In the

10 case of eligible crude oil or eligible natural gas produced

11 from a property located under at least 400 feet (but less

12 than 1,200 feet) of water, the percentage determined

13 under the following table shall be substituted for ‘20 per14 cent’ in subsection (a):

‘‘If distance (in feet) of the property

under water is—

At least But less than The percentage is—

400 600 5 percent

600 900 10 percent

900 1,200 15 percent

15 ‘‘(e) LIMITATION BASED ON AMOUNT OF TAX.—

16 ‘‘(1) LIABILITY FOR TAX.—The credit allowable

17 under subsection (a) for any taxable year shall not

18 exceed—

19 ‘‘(A) the sum of—
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1 ‘‘(i) the taxpayer’s minimum tax li2 ability under section 55(a) for such taxable

3 year, plus

4 ‘‘(ii) the taxpayer’s regular tax liabil5 ity for such taxable year (as defined in sec6 tion 26(b)), over

7 ‘‘(B) the sum of the credits allowable

8 against the taxpayer’s regular tax liability

9 under subparts A and D of this part and sec10 tions 27, 28, 29, 30, and 30A.

11 ‘‘(2) CARRYBACK AND CARRYFORWARD OF UN12 USED CREDIT.—

13 ‘‘(A) IN GENERAL.—If the amount of the

14 credit allowed under subsection (a) for any tax15 able year exceeds the limitation under para16 graph (1) for such taxable year (hereinafter in

17 this paragraph referred to as the ‘unused credit

18 year’), such excess shall be—

19 ‘‘(i) an oil and gas production credit

20 carryback to each of the 3 taxable years

21 preceding the unused credit year, and

22 ‘‘(ii) an oil and gas production credit

23 carryforward to each of the 15 taxable

24 years following the unused credit year,
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1 and shall be added to the amount allowable as

2 a credit under subsection (a) for such years. If

3 any portion of such excess is a carryback to a

4 taxable year beginning on or before the date of

5 the enactment of this section, this section shall

6 be deemed to have been in effect for such tax7 able year for purposes of allowing such

8 carryback as a credit under this section. The

9 entire amount of the unused credit shall be car10 ried to the earliest of the 18 taxable years to

11 which such credit may be carried, and then to

12 each of the other 17 taxable years to the extent

13 that, because of the limitation contained in

14 paragraph (1), such unused credit may not be

15 added for a prior taxable year to which such

16 unused credit may be carried.

17 ‘‘(B) LIMITATIONS.—The amount of the

18 unused credit which may be taken into account

19 under subparagraph (A) for any succeeding tax20 able year shall not exceed the amount by which

21 the limitation provided by paragraph (1) for

22 such taxable year exceeds the sum of—

23 ‘‘(i) the credit allowable under sub24 section (a) for such taxable year, and
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1 ‘‘(ii) the amounts which, by reason of

2 this paragraph, are added to the amount

3 allowable for such taxable year and which

4 are attributable to taxable years preceding

5 the unused credit year.’’.

6 (b) CLERICAL AMENDMENT.—The table of sections

7 for subpart B of part IV of subchapter A of chapter 1,

8 as amended by section 203(b), is amended by adding at

9 the end thereof the following new item:

‘‘Sec. 30B. Marginal production credit.’’.

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to expenditures paid or incurred

12 after the date of enactment of this Act in taxable years

13 ending after such date.

14 SEC. 205. EXPANSION OF ENHANCED OIL RECOVERY

15 CREDIT.

16 (a) IN GENERAL.—Section 43(a) (relating to en17 hanced oil recovery credit) is amended to read as follows:

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

19 the enhanced oil recovery credit for any taxable year is

20 an amount equal to—

21 ‘‘(1) 15 percent of the taxpayer’s qualified en22 hanced oil recovery costs for such taxable year, plus

23 ‘‘(2) in the case of a taxpayer (other than an

24 integrated oil company as defined in section
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1 291(b)(4)), 15 percent of the taxpayer’s advanced

2 secondary recovery costs for such taxable year.’’.

3 (b) ADVANCED SECONDARY RECOVERY COSTS,

4 ETC.—Section 43(c) (defining qualified enhanced oil re5 covery costs) is amended by redesignating paragraphs (3)

6 and (4) as paragraphs (4) and (5), respectively, and by

7 inserting after paragraph (2) the following new paragraph:

8 ‘‘(3) ADVANCED SECONDARY RECOVERY

9 COSTS.—

10 ‘‘(A) IN GENERAL.—The term ‘advanced

11 secondary recovery costs’ means any of the fol12 lowing:

13 ‘‘(i) Any amount paid or incurred dur14 ing the taxable year for tangible prop15 erty—

16 ‘‘(I) which is an integral part of

17 a qualified advanced secondary recov18 ery project, and

19 ‘‘(II) with respect to which de20 preciation (or amortization in lieu of

21 depreciation) is allowable under this

22 chapter.

23 ‘‘(ii) Any intangible drilling and devel24 opment costs—
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1 ‘‘(I) which are paid or incurred

2 in connection with a qualified ad3 vanced secondary recovery project,

4 and

5 ‘‘(II) with respect to which the

6 taxpayer may make an election under

7 section 263(c) for the taxable year.

8 ‘‘(iii) Any qualified secondary ad9 vanced injectant expenses which are paid

10 or incurred in connection with a qualified

11 advanced secondary recovery project.

12 ‘‘(B) QUALIFIED ADVANCED SECONDARY

13 RECOVERY PROJECT.—The term ‘qualified ad14 vanced secondary recovery project’ means any

15 project which meets the requirements of sub16 paragraph (C) and which involves 1 of the fol17 lowing advanced secondary recovery methods:

18 ‘‘(i) A method which is used to

19 produce unrecovered oil which remains in a

20 reservoir after conventional production be21 cause of heterogeneity and mobility dif22 ferences between oil and water.

23 ‘‘(ii) A reservoir characterization tech24 nique which pinpoints the location of new

25 well sites without regard to traditional
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1 spacing requirements (including advanced

2 well logging, advanced geophysical detec3 tion technologies, advanced geocellular res4 ervoir computer modeling, and precision

5 drilling).

6 ‘‘(iii) A drilling method in which the

7 wellbore is deviated from the vertical by a

8 short- or long-range radius technique at a

9 direction parallel to the bedding plane.

10 ‘‘(iv) Any other advanced secondary

11 recovery method approved by the Secretary

12 for purposes of this section.

13 ‘‘(C) REQUIREMENTS FOR QUALIFIED AD14 VANCED SECONDARY RECOVERY PROJECT.—

15 ‘‘(i) IN GENERAL.—A project meets

16 the requirements of a qualified advanced

17 secondary recovery project if—

18 ‘‘(I) such project involves the ap19 plication (in accordance with sound

20 engineering principles) of 1 or more

21 advanced secondary recovery methods

22 which can reasonably be expected to

23 result in more than an insignificant

24 increase in the amount of crude oil

25 which will ultimately be recovered,
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1 ‘‘(II) such project is located with2 in the United States (within the

3 meaning of section 638(1)), and

4 ‘‘(III) such project commences

5 after December 31, 1992.

6 ‘‘(ii) CERTIFICATION.—A project shall

7 not be treated as a qualified advanced sec8 ondary recovery project unless the operator

9 submits to the Secretary (at such times

10 and in such manner as the Secretary pro11 vides) a certification from a petroleum

12 engineer that the project meets (and con13 tinues to meet) the requirements of clause

14 (i).’’.

15 (c) NO DOUBLE CERTIFICATION.—Section 43(c), as

16 amended by subsection (b), is amended by adding at the

17 end thereof the following new paragraph:

18 ‘‘(6) ONLY 1 CERTIFICATION ALLOWED.—For

19 purposes of this section, the term ‘qualified en20 hanced oil recovery project’ shall not include any

21 project which is certified as a qualified advanced sec22 ondary recovery project under paragraph (3) and the

23 term ‘qualified advanced secondary recovery project’

24 shall not include any project which is certified as an

25 enhanced oil recovery project under paragraph (2).’’.
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1 (d) CONFORMING AMENDMENTS.—

2 (1) Paragraph (4) of section 43(c), as redesig3 nated, is amended by inserting ‘‘and qualified ad4 vanced secondary recovery costs’’ after ‘‘qualified en5 hanced oil recovery costs’’.

6 (2) The heading for subsection (c) of section 43

7 is amended by inserting ‘‘AND QUALIFIED AD8 VANCED SECONDARY RECOVERY COSTS’’ after

9 ‘‘COSTS’’.

10 (e) EFFECTIVE DATE.—

11 (1) IN GENERAL.—The amendments made by

12 this section shall apply in the case of amounts paid

13 or incurred in taxable years beginning after Decem14 ber 31, 1992.

15 (2) EXPANSION OF PROJECTS.—For purposes

16 of section 43(c)(3)(C)(i)(III) of the Internal Reve17 nue Code of 1986 (as added by subsection (b)), any

18 significant expansion after December 31, 1992, of a

19 project begun before January 1, 1993, shall be

20 treated as a project which commences after Decem21 ber 31, 1992.

22 SEC. 206. EXPANSION OF STRIPPER WELL DEFINITION.

23 (a) IN GENERAL.—Clause (i) of section

24 613A(c)(6)(E) (defining stripper well property) is

25 amended by striking ‘‘15’’ and inserting ‘‘25’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to expenditures paid or incurred

3 after the date of enactment of this Act in taxable years

4 ending after such date.

5 TITLE III—INVESTMENT

6 INCENTIVES

7 SEC. 301. AMORTIZATI0N OF GEOLOGICAL AND GEO8 PHYSICAL COSTS.

9 (a) IN GENERAL.—Section 263 (relating to capital

10 expenditures) is amended by adding at the end the follow11 ing new subsection:

12 ‘‘(j) SPECIAL RULE FOR CERTAIN GEOLOGICAL AND

13 GEOPHYSICAL COSTS.—Geological and geophysical costs

14 for the purpose of ascertaining the existence, location, ex15 tent, or quality of any deposit of oil or gas within the Unit16 ed States (within the meaning of section 638(1)) or a pos17 session of the United States (within the meaning of sec18 tion 638(2)) shall be allowed as a deduction ratably over

19 the 5-year period beginning with the taxable year in which

20 such costs were paid or incurred.’’.

21 (b) EFFECTIVE DATE.—The amendment made by

22 this section shall apply to costs paid or incurred after the

23 date of the enactment of this Act in taxable years ending

24 after such date.
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1 SEC. 302. DEPRECIATION ADJUSTMENTS NOT TO APPLY TO

2 ENVIRONMENTAL PROPERTY.

3 (a) IN GENERAL.—Subparagraph (B) of section

4 56(a)(1) (relating to depreciation adjustments) is

5 amended to read as follows:

6 ‘‘(B) EXCEPTION.—With respect to any oil

7 or gas producer, this paragraph shall not apply

8 to—

9 ‘‘(i) property described in paragraph

10 (1), (2), (3), or (4) of section 168(f), or

11 ‘‘(ii) environmental improvement as12 sets (as defined in section 59(k)).’’.

13 (b) ENVIRONMENTAL IMPROVEMENT ASSETS.—Sec14 tion 59 (relating to definition and special rules) is

15 amended by adding at the end the following new sub16 section:

17 ‘‘(k) ENVIRONMENTAL IMPROVEMENT ASSETS.—

18 ‘‘(1) IN GENERAL.—For purposes of section

19 56(a)(1)(B)(ii), the term ‘environmental improve20 ment asset’ means tangible property which is—

21 ‘‘(A) of a character subject to the allow22 ance for depreciation provided in section 167 or

23 is nondepreciable real property;

24 ‘‘(B) used for, or is functionally related to

25 property used for, one or more of the following

26 purposes—
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1 ‘‘(i) source reduction,

2 ‘‘(ii) solid waste minimization,

3 ‘‘(iii) waste conversion or recycling,

4 ‘‘(iv) reduction of environmental haz5 ards,

6 ‘‘(v) compliance with environmental

7 permits, rules, and similar requirements,

8 ‘‘(vi) prevention, containment or con9 trol of unplanned releases, or

10 ‘‘(vii) the manufacture, distribution

11 and sale of alternate fuels and blending

12 stocks or fuel additives for reformulated

13 fuels, and

14 ‘‘(C) located and used exclusively in the

15 United States during the taxable year.

16 If only a portion of property described in subpara17 graphs (A) and (C) is described in subparagraph

18 (B), such portion shall be treated as an environ19 mental improvement asset.

20 ‘‘(2) OTHER DEFINITIONS.—For purposes of

21 this subsection—

22 ‘‘(A) SOURCE REDUCTION.—The term

23 ‘source reduction’ means reduction of the

24 amount of regulated substances or other pollut25 ants from fixed or mobile sources released into
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1 the environment if such reduction reduces haz2 ards to public health or environment.

3 ‘‘(B) WASTE MINIMIZATION.—The term

4 ‘waste minimization’ means the reduction in the

5 generation of, or the recovery of commercially

6 usable products from, residual materials which

7 are classified as, or which if disposed would be

8 classified as, solid wastes (within the meaning

9 of the Resource Conservation and Recovery

10 Act).

11 ‘‘(C) WASTE CONVERSION OR RECY12 CLING.—The term ‘waste conversion or recy13 cling’ means the processing or conversion of liq14 uid, solid, or gaseous wastes into fuel, energy,

15 or other commercially usable products, and the

16 production of such products if production oc17 curs at the same facility as the conversion.

18 ‘‘(D) ABATEMENT OF ENVIRONMENTAL

19 HAZARDS.—The term ‘abatement of environ20 mental hazards’ includes the abatement, reduc21 tion, monitoring, or stabilization of potential

22 human exposure to toxic chemicals, hazardous

23 or extremely hazardous substances, or harmful

24 radiation.
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1 ‘‘(E) UNPLANNED RELEASES.—The term

2 ‘unplanned releases’ means any release of regu3 lated substances (except federally permitted re4 leases), including indoor releases.

5 ‘‘(F) REGULATED SUBSTANCE.—The term

6 ‘regulated substance’ includes any substance

7 the release or emission of which is prohibited,

8 limited, or regulated by Federal or State law or

9 by Federal regulations (as determined without

10 regard to whether a particular release would

11 have been prohibited or limited).

12 ‘‘(G) RELEASE.—The term ‘release’ means

13 any spilling, leaking, pouring, discharging, es14 caping, dumping, or disposing into the environ15 ment, including the abandonment or discarding

16 of barrels or other closed receptacles.’’.

17 (c) CONFORMING AMENDMENT.—Subparagraph (A)

18 of section 56(g)(4) is amended by adding at the end the

19 following new clause:

20 ‘‘(vi) This subparagraph shall not

21 apply to environmental improvement assets

22 (as defined in section 59(k)).’’.

23 (d) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to property placed in service in

25 taxable years beginning after December 31, 1992.
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