II

106TH CONGRESS

1ST SESSION S. 595

To amend the Internal Revenue Code of 1986 to establish a graduated

response to shrinking domestic oil and gas production and surging foreign

oil imports, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 11, 1999

Mr. DOMENICI (for himself and Mr. INHOFE) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to establish

a graduated response to shrinking domestic oil and gas

production and surging foreign oil imports, 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 ‘‘Domestic Oil and Gas Crisis Tax Relief and Foreign Oil

6 Reliance Reversal Act of 1999.’’

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend-
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1 ment or repeal is expressed in terms of an amendment

2 to, or repeal of, a section or other provision, the reference

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986.

5 SEC. 2. PURPOSES.

6 The purposes of this Act are—

7 (1) to establish a graduated response to shrink8 ing domestic oil and gas production and surging for9 eign oil imports;

10 (2) to prevent the abandonment of marginal oil

11 and gas wells responsible for half of the domestic oil

12 and gas production of the United States;

13 (3) to transform earned tax credits and other

14 tax benefits into working capital for the cash15 strapped domestic oil and gas producers and service

16 companies;

17 (4) to reverse the trend of increased dependence

18 on foreign oil and gas by encouraging exploration

19 and development of oil and gas reserves in the

20 United States to achieve the goal of doubling current

21 domestic oil and gas production; and

22 (5) to provide an emergency procedure for

23 times when foreign imports exceed 60 percent of the

24 total United States crude and oil product consump25 tion, thereby recognizing that when imports exceed
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1 a statutory level a national security threat exists

2 that demands Presidential action.

3 SEC. 3. FINDINGS.

4 Congress finds the following:

5 (1) Foreign oil consumption in the United

6 States is estimated to be equal to 56 percent of total

7 oil consumption and could reach 68 percent by the

8 year 2010 if current prices prevail.

9 (2) The number of oil and gas rigs operating in

10 the United States is at the lowest count since 1944,

11 when records of this number began to be recorded.

12 (3) If oil prices do not increase soon, the

13 United States could lose at least half of its marginal

14 wells which, in the aggregate, produce as much oil

15 as the amount of oil the United States imports from

16 Saudi Arabia.

17 (4) Oil and gas prices are unlikely to increase

18 for the next several years.

19 (5) Declining production, well abandonment,

20 and the lack of exploration and development are

21 shrinking the domestic oil and gas industry.

22 (6) It is essential in order for the United States

23 to have a vibrant economy to have a healthy domes24 tic oil and gas industry.
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1 (7) The world’s richest oil producing regions in

2 the Middle East are experiencing great political sta3 bility.

4 (8) The policy of the United Nations may make

5 Iraq the swing oil producing nation, thereby grant6 ing an enemy of the United States a tremendous

7 amount of power.

8 (9) Reliance on foreign oil for more than 60

9 percent of the daily oil and gas consumption in the

10 United States is a national security threat.

11 (10) The United States is the leader of the free

12 world and has a worldwide responsibility to promote

13 economic and political security.

14 (11) The exercise of traditional responsibilities

15 in the United States and abroad in foreign policy re16 quires that the United States be free of the risk of

17 energy blackmail in times of gas and oil shortages.

18 (12) The level of the United States security is

19 directly related to the level of domestic production of

20 oil, natural gas liquids, and natural gas.

21 (13) A national energy policy should be devel22 oped which ensures that adequate supplies of oil are

23 available at all times free of the threat of embargo

24 or other foreign hostile acts.
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1 SEC. 4. TABLE OF CONTENTS.

2 The table of contents of this Act is as follows:

Sec. 1. Short title; amendment of 1986 Code.

Sec. 2. Purposes.

Sec. 3. Findings.

Sec. 4. Table of contents.

TITLE I—DOMESTIC OIL AND GAS PRODUCTION PRESERVATION

PROVISIONS

Sec. 101. Tax credit for marginal domestic oil and natural gas well production.

Sec. 102. Exclusion of certain amounts received from recovered inactive wells.

Sec. 103. Enhanced oil recovery credit extended to certain nontertiary recovery

methods.

TITLE II—DOMESTIC OIL AND GAS INDUSTRY CRISIS TAX

RELIEF

Sec. 200. Purpose.

Subtitle A—Credits to Cash Provisions

Sec. 201. 10-year carryback for unused minimum tax credit.

Sec. 202. 10-year carryback for percentage depletion for oil and gas property.

Sec. 203. 10-year net operating loss carryback for losses attributable to oil

servicing companies and mineral interests of oil and gas producers.

Sec. 204. Waiver of limitations.

Subtitle B—Hard Times Tax Relief

Sec. 211. Phase-out of certain minimum tax preferences relating to energy production.

Sec. 212. Depreciation adjustment not to apply to oil and gas assets.

Sec. 213. Repeal certain adjustments based on adjusted current earnings relating to oil and gas assets.

Sec. 214. Enhanced oil recovery credit and credit for producing fuel from a

nonconventional source allowed against minimum tax.

Subtitle C—Oil-for-Food Program Compensating Tax Benefits

Sec. 220. Purpose.

Sec. 221. Increase in percentage depletion for stripper wells.

Sec. 222. Net income limitation on percentage depletion repealed for oil and

gas properties.

Sec. 223. Election to expense geological and geophysical expenditures and delay

rental payments.

Sec. 224. Extension of Spudding rule.

TITLE III—FOREIGN OIL RELIANCE REVERSAL PROVISIONS

Sec. 300. Purpose.

Sec. 301. Crude oil and natural gas exploration and development credit.

TITLE IV—NATIONAL SECURITY EMERGENCY PROVISIONS
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Sec. 400. Purpose.

Sec. 401. Duties of the President.

Sec. 402. Congressional review.

Sec. 403. National security and oil production actions.

1 TITLE I—DOMESTIC OIL AND

2 GAS PRODUCTION PRESERVA3 TION PROVISIONS

4 SEC. 101. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND

5 NATURAL GAS WELL PRODUCTION.

6 (a) PURPOSE.—The purpose of this section is to pre7 vent the abandonment of marginal oil and gas wells re8 sponsible for half of the domestic production of oil and

9 gas in the United States.

10 (b) CREDIT FOR PRODUCING OIL AND GAS FROM

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

12 A of chapter 1 (relating to business credits) is amended

13 by adding at the end the following new section:

14 ‘‘SEC. 45D. CREDIT FOR PRODUCING OIL AND GAS FROM

15 MARGINAL WELLS.

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

17 the marginal well production credit for any taxable year

18 is an amount equal to the product of—

19 ‘‘(1) the credit amount, and

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

21 qualified natural gas production which is attrib22 utable to the taxpayer.
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1 ‘‘(b) CREDIT AMOUNT.—For purposes of this

2 section—

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

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

5 production, and

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

7 qualified natural gas production.

8 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN9 CREASE.—

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

11 amounts under paragraph (1) shall each be re12 duced (but not below zero) by an amount which

13 bears the same ratio to such amount (deter14 mined without regard to this paragraph) as—

15 ‘‘(i) the excess (if any) of the applica16 ble reference price over $14 ($1.56 for

17 qualified natural gas production), bears to

18 ‘‘(ii) $3 ($0.33 for qualified natural

19 gas production).

20 The applicable reference price for a taxable

21 year is the reference price for the calendar year

22 preceding the calendar year in which the tax23 able year begins.

24 ‘‘(B) INFLATION ADJUSTMENT.—In the

25 case of any taxable year beginning in a calendar
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1 year after 2000, each of the dollar amounts

2 contained in subparagraph (A) shall be in3 creased to an amount equal to such dollar

4 amount multiplied by the inflation adjustment

5 factor for such calendar year (determined under

6 section 43(b)(3)(B) by substituting ‘1999’ for

7 ‘1990’).

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

9 this paragraph, the term ‘reference price’

10 means, with respect to any calendar year—

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

12 production, the reference price determined

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

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

15 gas production, the Secretary’s estimate of

16 the annual average wellhead price per

17 1,000 cubic feet for all domestic natural

18 gas.

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

20 PRODUCTION.—For purposes of this section—

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

22 oil production’ and ‘qualified natural gas production’

23 mean domestic crude oil or natural gas which is pro24 duced from a marginal well.
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1 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

2 WHICH MAY QUALIFY.—

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

4 gas produced during any taxable year from any

5 well shall not be treated as qualified crude oil

6 production or qualified natural gas production

7 to the extent production from the well during

8 the taxable year exceeds 1,095 barrels or barrel

9 equivalents.

10 ‘‘(B) PROPORTIONATE REDUCTIONS.—

11 ‘‘(i) SHORT TAXABLE YEARS.—In the

12 case of a short taxable year, the limitations

13 under this paragraph shall be proportion14 ately reduced to reflect the ratio which the

15 number of days in such taxable year bears

16 to 365.

17 ‘‘(ii) WELLS NOT IN PRODUCTION EN18 TIRE YEAR.—In the case of a well which is

19 not capable of production during each day

20 of a taxable year, the limitations under

21 this paragraph applicable to the well shall

22 be proportionately reduced to reflect the

23 ratio which the number of days of produc24 tion bears to the total number of days in

25 the taxable year.
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1 ‘‘(3) DEFINITIONS.—

2 ‘‘(A) MARGINAL WELL.—The term ‘mar3 ginal well’ means a domestic well—

4 ‘‘(i) the production from which during

5 the taxable year is treated as marginal

6 production under section 613A(c)(6), or

7 ‘‘(ii) which, during the taxable year—

8 ‘‘(I) has average daily production

9 of not more than 25 barrel equiva10 lents, and

11 ‘‘(II) produces water at a rate

12 not less than 95 percent of total well

13 effluent.

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

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

16 the meanings given such terms by section

17 613A(e).

18 ‘‘(C) BARREL EQUIVALENT.—The term

19 ‘barrel equivalent’ means, with respect to nat20 ural gas, a conversion ratio of 6,000 cubic feet

21 of natural gas to 1 barrel of crude oil.

22 ‘‘(d) OTHER RULES.—

23 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX24 PAYER.—In the case of a marginal well in which

25 there is more than one owner of operating interests
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1 in the well and the crude oil or natural gas produc2 tion exceeds the limitation under subsection (c)(2),

3 qualifying crude oil production or qualifying natural

4 gas production attributable to the taxpayer shall be

5 determined on the basis of the ratio which tax6 payer’s revenue interest in the production bears to

7 the aggregate of the revenue interests of all oper8 ating interest owners in the production.

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

10 credit under this section may be claimed only on

11 production which is attributable to the holder of an

12 operating interest.

13 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

14 SOURCES EXCLUDED.—In the case of production

15 from a marginal well which is eligible for the credit

16 allowed under section 29 for the taxable year, no

17 credit shall be allowable under this section unless

18 the taxpayer elects not to claim the credit under sec19 tion 29 with respect to the well.’’.

20 ‘‘(c) CREDIT TREATED AS BUSINESS CREDIT.—Sec21 tion 38(b) is amended by striking ‘‘plus’’ at the end of

22 paragraph (11), by striking the period at the end of para23 graph (12) and inserting ‘‘, plus’’, and by adding at the

24 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 (d) CREDIT ALLOWED AGAINST REGULAR AND MIN4 IMUM TAX.—

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

6 (relating to limitation based on amount of tax) is

7 amended by redesignating paragraph (3) as para8 graph (4) and by inserting after paragraph (2) the

9 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) is amended by inserting

10 ‘‘or the marginal oil and gas well production credit’’

11 after ‘‘employment credit’’.

12 (e) CARRYBACK.—Subsection (a) of section 39 (relat13 ing to carryback and carryforward of unused credits gen14 erally) is amended by adding at the end the following new

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

23 substituting ‘10 taxable years’ for ‘1 taxable

24 years’ in subparagraph (A) thereof, and

25 ‘‘(C) paragraph (2) shall be applied—
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1 ‘‘(i) by substituting ‘31 taxable years’

2 for ‘21 taxable years’ in subparagraph (A)

3 thereof, and

4 ‘‘(ii) by substituting ‘30 taxable years’

5 for ‘20 taxable years’ in subparagraph (B)

6 thereof.’’

7 (f) COORDINATION WITH SECTION 29.—Section

8 29(a) is amended by striking ‘‘There’’ and inserting ‘‘At

9 the election of the taxpayer, there’’.

10 (g) CLERICAL AMENDMENT.—The table of sections

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

12 is amended by adding at the end the following item:

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

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

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

15 enactment of this Act.

16 SEC. 102. EXCLUSION OF CERTAIN AMOUNTS RECEIVED

17 FROM RECOVERED INACTIVE WELLS.

18 (a) PURPOSE.—The purpose of this section is to en19 courage producers to reopen wells that have not been pro20 ducing oil and gas because the wells have been plugged

21 or abandoned.

22 (b) IN GENERAL.—Part III of subchapter B of chap23 ter 1 (relating to items specifically excluded from gross

24 income) is amended by redesignating section 139 as sec-
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1 tion 140 and by inserting after section 138 the following

2 new section:

3 ‘‘SEC. 139. OIL OR GAS PRODUCED FROM A RECOVERED IN4 ACTIVE WELL.

5 ‘‘(a) IN GENERAL.—Gross income does not include

6 income attributable to independent producer oil from a re7 covered inactive well.

8 ‘‘(b) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) INDEPENDENT PRODUCER OIL.—The term

10 ‘independent producer oil’ means crude oil or nat11 ural gas in which the economic interest of the inde12 pendent producer is attributable to an operating

13 mineral interest (within the meaning of section

14 614(d)), overriding royalty interest, production pay15 ment, net profits interest, or similar interest.

16 ‘‘(2) CRUDE OIL AND NATURAL GAS.—The

17 terms ‘crude oil’ and ‘natural gas’ have the mean18 ings given such terms by section 613A(e).

19 ‘‘(3) RECOVERED INACTIVE WELL.—The term

20 ‘recovered inactive well’ means a well if—

21 ‘‘(A) throughout the time period beginning

22 any time prior to January 15, 1999, and ending

23 on such date, such well is inactive or has been

24 plugged and abandoned, as determined by the

25 agency of the State in which such well is lo-
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1 cated that is responsible for regulating such

2 wells, and

3 ‘‘(B) during the 5-year period beginning on

4 the date of the enactment of this section, such

5 well resumes producing crude oil or natural gas.

6 ‘‘(4) INDEPENDENT PRODUCER.—The term

7 ‘independent producer’ means a producer of crude

8 oil or natural gas whose allowance for depletion is

9 determined under section 613A(c).

10 ‘‘(c) DEDUCTIONS.—No deductions directly con11 nected with amounts excluded from gross income by sub12 section (a) shall be allowed.

13 ‘‘(d) ELECTION.—

14 ‘‘(1) IN GENERAL.—This section shall apply for

15 any taxable year only at the election of the taxpayer.

16 ‘‘(2) MANNER.—Such election shall be made, in

17 accordance with regulations prescribed by the Sec18 retary, not later than the time prescribed for filing

19 the return (including extensions thereof) and shall

20 be made annually on a property-by-property basis.’’

21 (c) MINIMUM TAX.—Section 56(g)(4)(B) is amended

22 by adding at the end the following new clause:

23 ‘‘(iii) INACTIVE WELLS.—In the case

24 of income attributable to independent pro25 ducers of oil recovered from an inactive
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1 well, clause (i) shall not apply to any

2 amount allowable as an exclusion under

3 section 139.’’

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

5 for part III of subchapter B of chapter 1 is amended by

6 striking the item relating to section 139 and inserting the

7 following:

‘‘Sec. 139. Oil or gas produced from a recovered inactive well.

‘‘Sec. 140. Cross references to other Acts.’’

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

9 this section shall apply to taxable years ending after the

10 date of the enactment of this Act.

11 SEC. 103. ENHANCED OIL RECOVERY CREDIT EXTENDED TO

12 CERTAIN NONTERTIARY RECOVERY METH13 ODS.

14 (a) PURPOSE.—The purpose of this section is to ex15 tend the productive lives of existing domestic oil and gas

16 wells in order to recover the 75 percent of the oil and gas

17 that is not recoverable using primary oil and gas recovery

18 techniques.

19 (b) IN GENERAL.—Clause (i) of section 43(c)(2)(A)

20 (defining qualified enhanced oil recovery project) is

21 amended to read as follows:

22 ‘‘(i) which involves the application (in

23 accordance with sound engineering prin24 ciples) of—
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1 ‘‘(I) one or more tertiary recov2 ery methods (as defined in section

3 193(b)(3)) which can reasonably be

4 expected to result in more than an in5 significant increase in the amount of

6 crude oil which will ultimately be re7 covered, or

8 ‘‘(II) one or more qualified non9 tertiary recovery methods which are

10 required to recover oil with tradition11 ally immobile characteristics or from

12 formations which have proven to be

13 uneconomical or noncommercial under

14 conventional recovery methods,’’

15 (c) QUALIFIED NONTERTIARY RECOVERY METH16 ODS.—Section 43(c)(2) is amended by adding at the end

17 the following new subparagraphs:

18 ‘‘(C) QUALIFIED NONTERTIARY RECOVERY

19 METHOD.—For purposes of this paragraph—

20 ‘‘(i) IN GENERAL.—The term ‘quali21 fied nontertiary recovery method’ means

22 any recovery method described in clause

23 (ii), (iii), or (iv), or any combination there24 of.
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1 ‘‘(ii) ENHANCED GRAVITY DRAINAGE

2 (EGD) METHODS.—The methods described

3 in this clause are as follows:

4 ‘‘(I) HORIZONTAL DRILLING.—

5 The drilling of horizontal, rather than

6 vertical, wells to penetrate any hydro7 carbon-bearing formation which has

8 an average in situ calculated perme9 ability to fluid flow of less than or

10 equal to 12 or less millidarcies and

11 which has been demonstrated by use

12 of a vertical wellbore to be uneco13 nomical unless drilled with lateral hor14 izontal lengths in excess of 1,000 feet.

15 ‘‘(II) GRAVITY DRAINAGE.—The

16 production of oil by gravity flow from

17 drainholes that are drilled from a

18 shaft or tunnel dug within or below

19 the oil-bearing zone.

20 ‘‘(iii) MARGINALLY ECONOMIC RES21 ERVOIR REPRESSURIZATION (MERR) METH22 ODS.—The methods described in this

23 clause are as follows, except that this

24 clause shall only apply to the first

25 1,000,000 barrels produced in any project:
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1 ‘‘(I) CYCLIC GAS INJECTION.—

2 The increase or maintenance of pres3 sure by injection of hydrocarbon gas

4 into the reservoir from which it was

5 originally produced.

6 ‘‘(II) FLOODING.—The injection

7 of water into an oil reservoir to dis8 place oil from the reservoir rock and

9 into the bore of a producing well.

10 ‘‘(iv) OTHER METHODS.—Any method

11 used to recover oil having an average lab12 oratory measured air permeability less

13 than or equal to 100 millidarcies when

14 averaged over the productive interval being

15 completed, or an in situ calculated perme16 ability to fluid flow less than or equal to

17 12 millidarcies or oil defined by the De18 partment of Energy as being immobile.

19 ‘‘(D) AUTHORITY TO ADD OTHER NONTER20 TIARY RECOVERY METHODS.—The Secretary

21 shall provide procedures under which—

22 ‘‘(i) the Secretary may treat methods

23 not described in clause (ii), (iii), or (iv) of

24 subparagraph (C) as qualified nontertiary

25 recovery methods, and
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1 ‘‘(ii) a taxpayer may request the Sec2 retary to treat any method not so de3 scribed as a qualified nontertiary recovery

4 method.

5 The Secretary may only specify methods as

6 qualified nontertiary recovery methods under

7 this subparagraph if the Secretary determines

8 that such specification is consistent with the

9 purposes of subparagraph (C) and will result in

10 greater production of oil and natural gas.’’

11 (d) CONFORMING AMENDMENT.—Clause (iii) of sec12 tion 43(c)(2)(A) is amended to read as follows:

13 ‘‘(iii) with respect to which—

14 ‘‘(I) in the case of a tertiary re15 covery method, the first injection of

16 liquids, gases, or other matter com17 mences after December 31, 1990, and

18 ‘‘(II) in the case of a qualified

19 nontertiary recovery method, the im20 plementation of the method begins

21 after December 31, 1998.’’

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

23 this section shall apply to taxable years ending after De24 cember 31, 1998.
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1 TITLE II—DOMESTIC OIL AND

2 GAS INDUSTRY CRISIS TAX

3 RELIEF

4 SEC. 200. PURPOSE.

5 The purpose of this title is to transform earned tax

6 credits and other accumulated tax benefits into working

7 capital for the cash-strapped domestic oil and gas pro8 ducers and service companies.

9 Subtitle A—Credits to Cash

10 Provisions

11 SEC. 201. 10-YEAR CARRYBACK FOR UNUSED MINIMUM TAX

12 CREDIT.

13 (a) IN GENERAL.—Section 53(c) of the Internal Rev14 enue Code of 1986 (relating to limitation) is amended by

15 adding at the end the following new paragraph:

16 ‘‘(2) SPECIAL RULE FOR TAXPAYERS WITH UN17 USED ENERGY MINIMUM TAX CREDITS.—

18 ‘‘(A) IN GENERAL.—If, during the 10-tax19 able year period ending with the current taxable

20 year, a taxpayer has an unused energy min21 imum tax credit for any taxable year in such

22 period (determined without regard to the appli23 cation of this paragraph to the current taxable

24 year)—
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1 ‘‘(i) paragraph (1) shall not apply to

2 each of the taxable years in such period for

3 which the taxpayer has an unused energy

4 minimum tax credit (as so determined),

5 and

6 ‘‘(ii) the credit allowable under sub7 section (a) for each of such taxable years

8 shall be equal to the excess (if any) of—

9 ‘‘(I) the sum of the regular tax

10 liability and the net minimum tax for

11 such taxable year, over

12 ‘‘(II) the sum of the credits al13 lowable under subparts A, B, D, E,

14 and F of this part.

15 ‘‘(B) ENERGY MINIMUM TAX CREDIT.—For

16 purposes of this paragraph, the term ‘energy

17 minimum tax credit’ means the minimum tax

18 credit which would be computed with respect to

19 any taxable year if the adjusted net minimum

20 tax were computed by only taking into account

21 items attributable to—

22 ‘‘(i) the taxpayer’s mineral interests

23 in oil and gas property, and

24 ‘‘(ii) the taxpayer’s active conduct of

25 a trade or business of providing tools,
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1 products, personnel, and technical solu2 tions on a contractural basis to persons en3 gaged in oil and gas exploration and pro4 duction.’’

5 (b) CONFORMING AMENDMENTS.—Section 53(c) of

6 such Code (as in effect before the amendment made by

7 subsection (a)) is amended—

8 (1) by striking ‘‘The’’ and inserting:

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), the ’’, and

11 (2) by redesignating paragraphs (1) and (2) as

12 subparagraphs (A) and (B).

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

14 this section shall apply to taxable years beginning after

15 December 31, 1998, and to any taxable year beginning

16 on or before such date to the extent necessary to apply

17 section 53(c)(2) of the Internal Revenue Code of 1986 (as

18 added by subsection (a)).

19 SEC. 202. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLE20 TION FOR OIL AND GAS PROPERTY.

21 (a) IN GENERAL.—Subsection (d)(1) of section 613A

22 (relating to limitations on percentage depletion in case of

23 oil and gas wells) is amended to read as follows:

24 ‘‘(1) LIMITATION BASED ON TAXABLE IN25 COME.—
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1 ‘‘(A) IN GENERAL.—The deduction for the

2 taxable year attributable to the application of

3 subsection (c) shall not exceed the taxpayer’s

4 taxable income for the year computed without

5 regard to—

6 ‘‘(i) any depletion on production from

7 an oil or gas property which is subject to

8 the provisions of subsection (c),

9 ‘‘(ii) any net operating loss carryback

10 to the taxable year under section 172,

11 ‘‘(iii) any capital loss carryback to the

12 taxable year under section 1212, and

13 ‘‘(iv) in the case of a trust, any dis14 tributions to its beneficiary, except in the

15 case of any trust where any beneficiary of

16 such trust is a member of the family (as

17 defined in section 267(c)(4)) of a settlor

18 who created inter vivos and testamentary

19 trusts for members of the family and such

20 settlor died within the last six days of the

21 fifth month in 1970, and the law in the ju22 risdiction in which such trust was created

23 requires all or a portion of the gross or net

24 proceeds of any royalty or other interest in

25 oil, gas, or other mineral representing any
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1 percentage depletion allowance to be allo2 cated to the principal of the trust.

3 ‘‘(B) CARRYBACKS AND

4 CARRYFORWARDS.—

5 ‘‘(i) IN GENERAL.—If any amount is

6 disallowed as a deduction for the taxable

7 year (in this subparagraph referred to as

8 the ‘unused depletion year’) by reason of

9 application of subparagraph (A), the dis10 allowed amount shall be treated as an

11 amount allowable as a deduction under

12 subsection (c) for—

13 ‘‘(I) each of the 10 taxable years

14 preceding the unused depletion year,

15 and

16 ‘‘(II) the taxable year following

17 the unused depletion year,

18 subject to the application of subparagraph

19 (A) to such taxable year.

20 ‘‘(ii) APPLICABLE RULES.—Rules

21 similar to the rules of section 39 shall

22 apply for purposes of this subparagraph.

23 ‘‘(C) ALLOCATION OF DISALLOWED

24 AMOUNTS.—For purposes of basis adjustments

25 and determining whether cost depletion exceeds
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1 percentage depletion with respect to the produc2 tion from a property, any amount disallowed as

3 a deduction on the application of this para4 graph shall be allocated to the respective prop5 erties from which the oil or gas was produced

6 in proportion to the percentage depletion other7 wise allowable to such properties under sub8 section (c).’’

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

10 this section shall apply to taxable years beginning after

11 December 31, 1998, and to any taxable year beginning

12 on or before such date to the extent necessary to apply

13 section 613A(d)(1)(B) of the Internal Revenue Code of

14 1986 (as added by subsection (a)).

15 SEC. 203. 10-YEAR NET OPERATING LOSS CARRYBACK FOR

16 LOSSES ATTRIBUTABLE TO OIL SERVICING

17 COMPANIES AND MINERAL INTERESTS OF

18 OIL AND GAS PRODUCERS.

19 (a) IN GENERAL.—Paragraph (1) of section 172(b)

20 (relating to years to which loss may be carried) is amended

21 by adding at the end the following new subparagraph:

22 ‘‘(H) LOSSES ON OPERATING MINERAL IN23 TERESTS OF OIL AND GAS PRODUCERS AND

24 OILFIELD SERVICING COMPANIES.—In the case

25 of a taxpayer which has an eligible oil and gas
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1 loss (as defined in subsection (j)) for a taxable

2 year, such eligible oil and gas loss shall be a net

3 operating loss carryback to each of the 10 tax4 able years preceding the taxable year of such

5 loss.’’

6 (b) ELIGIBLE OIL AND GAS LOSS.—Section 172 is

7 amended by redesignating subsection (j) as subsection (k)

8 and by inserting after subsection (i) the following new sub9 section:

10 ‘‘(j) ELIGIBLE OIL AND GAS LOSS.—For purposes of

11 this section—

12 ‘‘(1) IN GENERAL.—The term ‘eligible oil and

13 gas loss’ means the lesser of—

14 ‘‘(A) the amount which would be the net

15 operating loss for the taxable year if only in16 come and deductions attributable to—

17 ‘‘(i) mineral interests in oil and gas

18 wells, and

19 ‘‘(ii) the active conduct of a trade or

20 business of providing tools, products, per21 sonnel, and technical solutions on a con22 tractual basis to persons engaged in oil

23 and gas exploration and production,

24 are taken into account, and
29

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1 ‘‘(B) the amount of the net operating loss

2 for such taxable year.

3 ‘‘(2) COORDINATION WITH SUBSECTION

4 (b)(2).—For purposes of applying subsection (b)(2),

5 an eligible oil and gas loss for any taxable year shall

6 be treated in a manner similar to the manner in

7 which a specified liability loss is treated.

8 ‘‘(3) ELECTION.—Any taxpayer entitled to a

9 10-year carryback under subsection (b)(1)(H) from

10 any loss year may elect to have the carryback period

11 with respect to such loss year determined without re12 gard to subsection (b)(1)(H). Such election shall be

13 made in such manner as may be prescribed by the

14 Secretary and shall be made by the due date (includ15 ing extensions of time) for filing the taxpayer’s re16 turn for the taxable year of the net operating loss.

17 Such election, once made for any taxable year, shall

18 be irrevocable for such taxable year.’’

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

20 this section shall apply to net operating losses for taxable

21 years beginning after December 31, 1998, and to any tax22 able year beginning on or before such date to the extent

23 necessary to apply section 172(b)(1)(H) of the Internal

24 Revenue Code of 1986 (as added by subsection (a)).
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1 SEC. 204. WAIVER OF LIMITATIONS.

2 If refund or credit of any overpayment of tax result3 ing from the application of the amendments made by this

4 subtitle is prevented at any time before the close of the

5 1-year period beginning on the date of the enactment of

6 this Act by the operation of any law or rule of law (includ7 ing res judicata), such refund or credit may nevertheless

8 be made or allowed if claim therefor is filed before the

9 close of such period.

10 Subtitle B—Hard Times Tax Relief

11 SEC. 211. PHASE-OUT OF CERTAIN MINIMUM TAX PREF12 ERENCES RELATING TO ENERGY PRODUC13 TION.

14 (a) ENERGY PREFERENCES FOR INTEGRATED OIL

15 COMPANIES.—Section 56 (relating to alternative min16 imum taxable income) is amended by adding at the end

17 the following new subsection:

18 ‘‘(h) ADJUSTMENT BASED ON ENERGY PREF19 ERENCE.—

20 ‘‘(1) IN GENERAL.—In computing the alter21 native minimum taxable income of any taxpayer

22 which is an integrated oil company (as defined in

23 section 291(b)(4)) for any taxable year beginning

24 after 1998, there shall be allowed as a deduction an

25 amount equal to the alternative tax energy pref26 erence deduction.
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1 ‘‘(2) PHASE-OUT OF DEDUCTION AS OIL PRICES

2 INCREASES.—The amount of the deduction under

3 paragraph (1) (determined without regard to this

4 paragraph) shall be reduced (but not below zero) by

5 the amount which bears the same ratio to such

6 amount as—

7 ‘‘(A) the amount by which the reference

8 price for the calendar year preceding the cal9 endar year in which the taxable year begins ex10 ceeds $14, bears to

11 ‘‘(B) $3.

12 For purposes of this paragraph, the reference price

13 for any calendar year shall be determined under sec14 tion 29(d)(2)(C) and the $14 amount under sub15 paragraph (A) shall be adjusted at the same time

16 and in the same manner as under section 43(b)(3).

17 ‘‘(3) ALTERNATIVE TAX ENERGY PREFERENCE

18 DEDUCTION.—For purposes of paragraph (1), the

19 term ‘alternative tax energy preference deduction’

20 means an amount equal to the sum of—

21 ‘‘(A) the intangible drilling cost preference,

22 and

23 ‘‘(B) the depletion preference.

24 ‘‘(4) INTANGIBLE DRILLING COST PREF25 ERENCE.—For purposes of this subsection, the term
32

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1 ‘intangible drilling cost preference’ means the

2 amount by which alternative minimum taxable in3 come would be reduced if it were computed without

4 regard to section 57(a)(2).

5 ‘‘(5) DEPLETION PREFERENCE.—For purposes

6 of this subsection, the term ‘depletion preference’

7 means the amount by which alternative minimum

8 taxable income would be reduced if it were computed

9 without regard to section 57(a)(1).

10 ‘‘(6) ALTERNATIVE MINIMUM TAXABLE IN11 COME.—For purposes of paragraphs (1), (4), and

12 (5), alternative minimum taxable income shall be de13 termined without regard to the deduction allowable

14 under this subsection and the alternative tax net op15 erating loss deduction under subsection (a)(4).

16 ‘‘(7) REGULATIONS.—The Secretary may by

17 regulation provide for appropriate adjustments in

18 computing alternative minimum taxable income or

19 adjusted current earnings for any taxable year fol20 lowing a taxable year for which a deduction was al21 lowed under this subsection to ensure that no double

22 benefit is allowed by reason of such deduction.’’

23 (b) REPEAL OF LIMIT ON REDUCTION FOR INDE24 PENDENT PRODUCERS.—Subparagraphs (E) of section
33

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1 57(a)(2) (relating to exception for independent producers)

2 is amended to read as follows:

3 ‘‘(E) EXCEPTION FOR INDEPENDENT PRO4 DUCERS.—In the case of any oil or gas well,

5 this paragraph shall not apply to any taxpayer

6 which is not an integrated oil company (as de7 fined in section 291(b)(4)).’’

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

9 this section shall apply to taxable years beginning after,

10 and amounts paid or incurred in taxable years after, De11 cember 31, 1998.

12 SEC. 212. DEPRECIATION ADJUSTMENT NOT TO APPLY TO

13 OIL AND GAS ASSETS.

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

15 56(a)(1) (relating to depreciation adjustments) is amend16 ed to read as follows:

17 ‘‘(B) EXCEPTIONS.—This paragraph shall

18 not apply to—

19 ‘‘(i) property described in paragraph

20 (1), (2), (3), or (4) of section 168(f), or

21 ‘‘(ii) property used in the active con22 duct of the trade or business of exploring

23 for, extracting, developing, or gathering

24 crude oil or natural gas.’’
34

•S 595 IS

1 (b) CONFORMING AMENDMENT.—Paragraph (4)(A)

2 of section 56(g) (relating to adjustments based on ad3 justed current earnings) is amended by adding at the end

4 the following new clause:

5 ‘‘(vi) OIL AND GAS PROPERTY.—In

6 the case of property used in the active con7 duct of the trade or business of exploring

8 for, extracting, developing, or gathering

9 crude oil or natural gas, the amount allow10 able as depreciation or amortization with

11 respect to such property shall be deter12 mined in the same manner as for purposes

13 of computing the regular tax.’’

14 (c) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to property placed in service in

16 taxable years beginning after December 31, 1998.

17 SEC. 213. REPEAL CERTAIN ADJUSTMENTS BASED ON AD18 JUSTED CURRENT EARNINGS RELATING TO

19 OIL AND GAS ASSETS.

20 (a) DEPRECIATION.—Clause (vi) of section

21 56(g)(4)(A), as added by section 212(b), is amended to

22 read as follows:

23 ‘‘(vi) OIL AND GAS PROPERTY.—This

24 subparagraph shall not apply to property

25 used in the active conduct of the trade or
35

•S 595 IS

1 business of exploring for, extracting, devel2 oping, or gathering crude oil or natural

3 gas.’’

4 (b) INTANGIBLE DRILLING COSTS.—Clause (i) of

5 section 56(g)(4)(D) is amended by striking the second

6 sentence and inserting ‘‘In the case of any oil or gas well,

7 this clause shall not apply in the case of amounts paid

8 or incurred in taxable years beginning after December 31,

9 1998.’’.

10 (c) DEPLETION.—Clause (ii) of section 56(g)(4)(F)

11 is amended to read as follows:

12 ‘‘(ii) EXCEPTION FOR OIL AND GAS

13 WELLS.—In the case of any taxable year

14 beginning after December 31, 1998, clause

15 (i) (and subparagraph (C)(i)) shall not

16 apply to any deduction for depletion com17 puted in accordance with section 613A.’’

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

19 this section shall apply to taxable years beginning after

20 December 31, 1998.
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1 SEC. 214. ENHANCED OIL RECOVERY CREDIT AND CREDIT

2 FOR PRODUCING FUEL FROM A NONCONVEN3 TIONAL SOURCE ALLOWED AGAINST MIN4 IMUM TAX.

5 (a) ENHANCED OIL RECOVERY CREDIT ALLOWED

6 AGAINST REGULAR AND MINIMUM TAX.—

7 (1) ALLOWING CREDIT AGAINST MINIMUM

8 TAX.—Subsection (c) of section 38 (relating to limi9 tation based on amount of tax), as amended by sec10 tion 101(d), is amended by redesignating paragraph

11 (4) as paragraph (5) and by inserting after para12 graph (3) the following new paragraph:

13 ‘‘(4) SPECIAL RULES FOR ENHANCED OIL RE14 COVERY CREDIT.—

15 ‘‘(A) IN GENERAL.—In the case of the en16 hanced oil recovery credit—

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

18 be applied separately with respect to the

19 credit, and

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

21 credit—

22 ‘‘(I) subparagraphs (A) and (B)

23 thereof shall not apply, and

24 ‘‘(II) the limitation under para25 graph (1) (as modified by subclause

26 (I)) shall be reduced by the credit al-
37

•S 595 IS

1 lowed under subsection (a) for the

2 taxable year (other than the enhanced

3 oil recovery credit).

4 ‘‘(B) ENHANCED OIL RECOVERY CRED5 IT.—For purposes of this subsection, the term

6 ‘enhanced oil recovery credit’ means the credit

7 allowable under subsection (a) by reason of sec8 tion 43(a).’’.

9 (2) CONFORMING AMENDMENTS.—

10 (A) Subclause (II) of section

11 38(c)(2)(A)(ii), as amended by section 101(d),

12 is amended by striking ‘‘or the marginal oil and

13 gas well production credit’’ and inserting ‘‘, the

14 marginal oil and gas well production credit, or

15 the enhanced oil recovery credit’’.

16 (B) Subclause (II) of section

17 38(c)(3)(A)(ii), as added by section 101(d), is

18 amended by inserting ‘‘or the enhanced oil re19 covery credit’’ after ‘‘recovery credit’’.

20 (b) CREDIT FOR PRODUCING FUEL FROM A NON21 CONVENTIONAL SOURCE.—

22 (1) ALLOWING CREDIT AGAINST MINIMUM

23 TAX.—Section 29(b)(6) is amended to read as fol24 lows:
38

•S 595 IS

1 ‘‘(6) APPLICATION WITH OTHER CRED2 ITS.—The credit allowed by subsection (a) for

3 any taxable year shall not exceed—

4 ‘‘(A) the regular tax for the taxable

5 year and the tax imposed by section 55, re6 duced by

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

8 under subpart A and section 27.’’

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 53(d)(1)(B)(iii) is amended by

11 inserting ‘‘as in effect on the date of the enact12 ment of the Domestic Oil and Gas Crisis Tax

13 Reliance Reversal Act of 1999,’’ after

14 ‘‘29(b)(6)(B),’’.

15 (B) Section 55(c)(2) is amended by strik16 ing ‘‘29(b)(6),’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 1998.

20 Subtitle C—Oil-for-Food Program

21 Compensating Tax Benefits

22 SEC. 220. PURPOSE.

23 The purpose of this subtitle is to provide compensa24 tion to the domestic oil and gas industry in the form of
39

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1 tax benefits to offset the depressing impact that the Oil2 for-Food Program is having on the world market.

3 SEC. 221. INCREASE IN PERCENTAGE DEPLETION FOR

4 STRIPPER WELLS.

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

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

7 marginal properties) is amended—

8 (1) by striking ‘‘25 percent’’ and inserting

9 ‘‘27.5 percent’’ in the matter preceding clause (i);

10 and

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

12 clause (ii).

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

14 this section shall apply to taxable years beginning after

15 December 31, 1998.

16 SEC. 222. NET INCOME LIMITATION ON PERCENTAGE DE17 PLETION REPEALED FOR OIL AND GAS PROP18 ERTIES.

19 (a) IN GENERAL.—Section 613(a) (relating to per20 centage depletion) is amended by striking the second sen21 tence and inserting: ‘‘Except in the case of oil and gas

22 properties, such allowance shall not exceed 50 percent of

23 the taxpayer’s taxable income from the property (com24 puted without allowances for depletion).’’

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 613A(c)(7) (relating to special

2 rules) is amended by striking subparagraph (C) and

3 redesignating subparagraph (D) as subparagraph

4 (C).

5 (2) Section 613A(c)(6) (relating to oil and nat6 ural gas produced from marginal properties) is

7 amended by striking subparagraph (H).

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

9 this section shall apply to taxable years beginning after

10 December 31, 1998.

11 SEC. 223. ELECTION TO EXPENSE GEOLOGICAL AND GEO12 PHYSICAL EXPENDITURES AND DELAY RENT13 AL PAYMENTS.

14 (a) PURPOSE.—The purpose of this section is to rec15 ognize that geological and geophysical expenditures and

16 delay rentals are ordinary and necessary business expenses

17 that should be deducted in the year the expense is in18 curred.

19 (b) ELECTION TO EXPENSE GEOLOGICAL AND GEO20 PHYSICAL EXPENDITURES.—

21 (1) IN GENERAL.—Section 263 (relating to cap22 ital expenditures) is amended by adding at the end

23 the following new subsection:

24 ‘‘(j) GEOLOGICAL AND GEOPHYSICAL EXPENDI25 TURES FOR DOMESTIC OIL AND GAS WELLS.—Notwith-
41

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1 standing subsection (a), a taxpayer may elect to treat geo2 logical and geophysical expenses incurred in connection

3 with the exploration for, or development of, oil or gas with4 in the United States (as defined in section 638) as ex5 penses which are not chargeable to capital account. Any

6 expenses so treated shall be allowed as a deduction in the

7 taxable year in which paid or incurred.’’

8 (2) CONFORMING AMENDMENT.—Section

9 263A(c)(3) is amended by inserting ‘‘263(j),’’ after

10 ‘‘263(i),’’.

11 (3) EFFECTIVE DATE.—

12 (A) IN GENERAL.—The amendments made

13 by this subsection shall apply to expenses paid

14 or incurred after the date of the enactment of

15 this Act.

16 (B) TRANSITION RULE.—In the case of

17 any expenses described in section 263(j) of the

18 Internal Revenue Code of 1986, as added by

19 this subsection, which were paid or incurred on

20 or before the date of the enactment of this Act,

21 the taxpayer may elect, at such time and in

22 such manner as the Secretary of the Treasury

23 may prescribe, to amortize the unamortized

24 portion of such expenses over the 36-month pe25 riod beginning with the month in which the
42

•S 595 IS

1 date of the enactment of this Act occurs. For

2 purposes of this subparagraph, the unamortized

3 portion of any expense is the amount remaining

4 unamortized as of the first day of the 36-month

5 period.

6 (c) ELECTION TO EXPENSE DELAY RENTAL PAY7 MENTS.—

8 (1) IN GENERAL.—Section 263 (relating to cap9 ital expenditures), as amended by subsection (b)(1),

10 is amended by adding at the end the following new

11 subsection:

12 ‘‘(k) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL

13 AND GAS WELLS.—

14 ‘‘(1) IN GENERAL.—Notwithstanding subsection

15 (a), a taxpayer may elect to treat delay rental pay16 ments incurred in connection with the development

17 of oil or gas within the United States (as defined in

18 section 638) as payments which are not chargeable

19 to capital account. Any payments so treated shall be

20 allowed as a deduction in the taxable year in which

21 paid or incurred.

22 ‘‘(2) DELAY RENTAL PAYMENTS.—For purposes

23 of paragraph (1), the term ‘delay rental payment’

24 means an amount paid for the privilege of deferring

25 development of an oil or gas well.’’
43

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1 (2) CONFORMING AMENDMENT.—Section

2 263A(c)(3), as amended by subsection (b)(2), is

3 amended by inserting ‘‘263(k),’’ after ‘‘263(j),’’.

4 (3) EFFECTIVE DATE.—

5 (A) IN GENERAL.—The amendments made

6 by this subsection shall apply to payments made

7 or incurred after the date of the enactment of

8 this Act.

9 (B) TRANSITION RULE.—In the case of

10 any payments described in section 263(k) of the

11 Internal Revenue Code of 1986, as added by

12 this subsection, which were made or incurred on

13 or before the date of the enactment of this Act,

14 the taxpayer may elect, at such time and in

15 such manner as the Secretary of the Treasury

16 may prescribe, to amortize the unamortized

17 portion of such payments over the 36-month pe18 riod beginning with the month in which the

19 date of the enactment of this Act occurs. For

20 purposes of this subparagraph, the unamortized

21 portion of any payment is the amount remain22 ing unamortized as of the first day of the 36-

23 month period.
44

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1 SEC. 224. EXTENSION OF SPUDDING RULE.

2 (a) IN GENERAL.—Section 461(i)(2)(A) (relating to

3 special rule for spudding of oil or gas wells) is amended

4 by striking ‘‘90th day’’ and inserting ‘‘180th day’’.

5 (b) EFFECTIVE DATE—The amendment made by this

6 section shall apply to taxable years beginning after De7 cember 31, 1998.

8 TITLE III—FOREIGN OIL RELI9 ANCE REVERSAL PROVISIONS

10 SEC. 300. PURPOSE.

11 The purpose of this title is to reverse the trend of

12 increased foreign dependence of oil and gas by encour13 aging exploration and development of oil and gas reserves

14 in the United States to achieve the goal of doubling cur15 rent domestic oil and gas production.

16 ‘‘SEC. 301. CRUDE OIL AND NATURAL GAS EXPLORATION

17 AND DEVELOPMENT CREDIT.

18 (a) CRUDE OIL AND NATURAL GAS EXPLORATION

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

20 subchapter A of chapter 1 is amended by adding at the

21 end the following new section:

22 ‘‘SEC. 30B. CRUDE OIL AND NATURAL GAS EXPLORATION

23 AND DEVELOPMENT CREDIT.

24 ‘‘(a) GENERAL RULE.—The crude oil and natural gas

25 exploration and development credit determined under this
45

•S 595 IS

1 section for any applicable taxable year shall be an amount

2 equal to the sum of—

3 ‘‘(1) 20 percent of so much of the taxpayer’s

4 qualified investment for the taxable year as does not

5 exceed $1,000,000, plus

6 ‘‘(2) 10 percent of so much of such qualified in7 vestment for the taxable year as exceeds $1,000,000.

8 ‘‘(b) APPLICALE TAXABLE YEAR.—For purposes of

9 subsection (a)—

10 ‘‘(1) IN GENERAL.—The term ‘applicable tax11 able year’ means any taxable year beginning in a

12 calendar year during which the imports of foreign

13 crude and oil product are determined by the Sec14 retary of Energy to exceed 50 percent of the amount

15 of United States crude and oil product consumption

16 for such year.

17 ‘‘(2) DETERMINATION.—A determination under

18 paragraph (1) shall be made not later than March

19 1 of each year with respect to the preceding calendar

20 year.

21 ‘‘(c) QUALIFIED INVESTMENT.—For purposes of this

22 section, the term ‘qualified investment’ means amounts

23 paid or incurred by a taxpayer—

24 ‘‘(1) for the purpose of ascertaining the exist25 ence, location, extent, or quality of any crude oil or
46

•S 595 IS

1 natural gas deposit, including core testing and drill2 ing test wells located in the United States or in a

3 possession of the United States as defined in section

4 638, or

5 ‘‘(2) for the purpose of developing a property

6 (located in the United States or in a possession of

7 the United States as defined in section 638) on

8 which there is a reservoir capable of commercial pro9 duction and such amounts are paid or incurred in

10 connection with activities which are intended to re11 sult in the recovery of crude oil or natural gas on

12 such property.

13 ‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—

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

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

16 exceed the excess (if any) of—

17 ‘‘(A) the sum of—

18 ‘‘(i) the taxpayer’s tentative minimum

19 tax liability under section 55(b) for such

20 taxable year determined without regard to

21 this section, plus

22 ‘‘(ii) the taxpayer’s regular tax liabil23 ity for such taxable year (as defined in sec24 tion 26(b)), over
47

•S 595 IS

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

2 against the taxpayer’s regular tax liability

3 under part IV (other than section 43 and this

4 section).

5 ‘‘(2) APPLICATION OF THE CREDIT.—Each of

6 the following amounts shall be reduced by the full

7 amount of the credit determined under paragraph

8 (1):

9 ‘‘(A) the taxpayer’s tentative minimum tax

10 under section 55(b) for the taxable year, and

11 ‘‘(B) the taxpayer’s regular tax liability (as

12 defined in section 26(b)) reduced by the sum of

13 the credits allowable under part IV (other than

14 section 43 of this section).

15 If the amount of the credit determined under para16 graph (1) exceeds the amount described in subpara17 graph (B) of paragraph (2), then the excess shall be

18 deemed to be the adjusted net minimum tax for such

19 taxable year for purposes of section 53.

20 ‘‘(3) CARRYBACK AND CARRYFORWARD OF UN21 USED CREDIT.—

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

23 credit allowed under subsection (a) for any tax24 able year exceeds the limitation under para25 graph (1) for such taxable year (hereafter in
48

•S 595 IS

1 this paragraph referred to as the ‘unused credit

2 year’), such excess shall be—

3 ‘‘(i) an oil and gas exploration and de4 velopment credit carryback to each of the

5 3 taxable years preceding the unused cred6 it year, and

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

8 development credit carryforward to each of

9 the 15 taxable years following the unused

10 credit year,

11 and shall be added to the amount allowable as

12 a credit under subsection (a) for such years, ex13 cept that no portion of the unused oil and gas

14 exploration and development credit for any tax15 able year may be carried to a taxable year end16 ing before the date of the enactment of this sec17 tion.

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

19 unused credit which may be taken into account

20 under subparagraph (A) for any succeeding tax21 able year shall not exceed the amount by which

22 the limitation provided by paragraph (1) for

23 such taxable year exceeds the sum of—

24 ‘‘(i) the credit allowable under sub25 section (a) for such taxable year, and
49

•S 595 IS

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 ‘‘(e) SPECIAL RULES.—For purposes of this

7 section—

8 ‘‘(1) AGGREGATION OF QUALIFIED INVESTMENT

9 EXPENSES.—

10 ‘‘(A) CONTROLLED GROUPS; COMMON CON11 TROL.—In determining the amount of the cred12 it under this section, all members of the same

13 controlled group of corporations (within the

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

15 common control (within the meaning of section

16 52(b)) shall be treated as a single taxpayer for

17 purposes of this section.

18 ‘‘(B) APPORTIONMENT OF CREDIT.—The

19 credit (if any) allowable by this section to mem20 bers of any group (or to any person) described

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

22 person’s proportionate share of the qualified in23 vestment expenses giving rise to the credit de24 termined under regulations prescribed by the

25 Secretary.
50

•S 595 IS

1 ‘‘(2) PARTNERSHIPS, S CORPORATIONS, ES2 TATES AND TRUSTS.—

3 ‘‘(A) PARTNERSHIPS AND S CORPORA4 TIONS.—In the case of a partnership, the credit

5 shall be allocated among partners under regula6 tions prescribed by the Secretary. A similar rule

7 shall apply in the case of an S corporation and

8 its shareholders.

9 ‘‘(B) PASS-THRU IN THE CASE OF ES10 TATES AND TRUSTS.—Under regulations pre11 scribed by the Secretary, rules similar to the

12 rules of subsection (d) of section 52 shall apply.

13 ‘‘(3) ADJUSTMENTS FOR CERTAIN ACQUISI14 TIONS AND DISPOSITIONS.—Under regulations pre15 scribed by the Secretary, rules similar to the rules

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

17 to the acquisition or disposition of a taxpayer.

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

19 any short taxable year, qualified investment expenses

20 shall be annualized in such circumstances and under

21 such methods as the Secretary may prescribe by reg22 ulation.

23 ‘‘(5) DENIAL OF DOUBLE BENEFIT.—

24 ‘‘(A) DISALLOWANCE OF DEDUCTION.—

25 Any deduction allowable under this chapter for
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1 any costs taken into account in computing the

2 amount of the credit determined under sub3 section (a) shall be reduced by the amount of

4 such credit attributable to such costs.

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

6 of this subtitle, if a credit is determined under

7 this section for any expenditure with respect to

8 any property, the increase in the basis of such

9 property which would (but for this subsection)

10 result from such expenditures shall be reduced

11 by the amount of the credit so allowed.’’

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

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

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

15 item:

‘‘Sec. 30B. Crude oil and natural gas exploration and development credit.’’

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

17 this section shall apply to expenses paid or incurred in

18 taxable years beginning after December 31, 1998.

19 TITLE IV—NATIONAL SECURITY

20 EMERGENCY PROVISIONS

21 SEC. 400. PURPOSE.

22 The purpose of this title is to recognize that a na23 tional security threat exists when foreign crude oil, oil

24 product, and natural gas imports exceed 60 percent of
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1 United States oil and gas consumption and to create an

2 emergency procedure to address that threat.

3 SEC. 401. DUTIES OF THE PRESIDENT.

4 (a) ESTABLISHMENT OF CEILING.—The President

5 shall establish a National Security Energy Independence

6 Ceiling (Referred to in this title as the ‘‘ceiling level’’)

7 which shall represent a ceiling level beyond which foreign

8 crude oil, oil product, and natural gas imports as a share

9 of United States crude and oil product consumption shall

10 not rise.

11 (b) LEVEL OF CEILING.—The ceiling level estab12 lished under subsection (a) shall not exceed 60 percent

13 of United States crude oil, oil product, and natural gas

14 consumption for any annual period.

15 (c) REPORT.—

16 (1) CONTENTS.—

17 (A) IN GENERAL.—The President shall

18 prepare and submit an annual report to Con19 gress containing a national security projection

20 for energy independence (in this title referred to

21 as the ‘‘projection’’), which shall contain a fore22 cast of domestic oil and liquid natural gas

23 (commonly known as ‘‘NGL’’) demand and pro24 duction, and imports of crude oil, oil product,

25 and natural gas, for the subsequent 3 years.
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1 (B) REQUIRED ADJUSTMENTS.—The pro2 jection shall contain appropriate adjustments

3 for expected price and production changes.

4 (2) PRESENTATION.—The projection prepared

5 under paragraph (1) shall be presented to Congress

6 with the Budget.

7 (3) CERTIFICATION.—The President shall cer8 tify in the report whether foreign crude oil, oil prod9 uct, and natural gas imports will exceed the ceiling

10 level for any year during the 3 years succeeding the

11 date of the report.

12 SEC. 402. CONGRESSIONAL REVIEW.

13 (a) REVIEW.—Congress shall have 10 continuous ses14 sion days after submission of each projection under section

15 401 to review the projection and make a determination

16 whether the ceiling level will be violated within 3 years.

17 (b) CERTIFICATION BINDING.—Unless disapproved

18 or modified by joint resolution, the Presidential certifi19 cation shall be binding 10 session days after submitted

20 to Congress.

21 SEC. 403. NATIONAL SECURITY AND OIL AND GAS PRODUC22 TION ACTIONS.

23 (a) NATIONAL SECURITY AND OIL AND GAS PRO24 DUCTION POLICY.—
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1 (1) SUBMISSION.—Upon certification under sec2 tion 401(c)(3) that the ceiling level will be exceeded,

3 the President shall, within 90 days, submit a Na4 tional Security and Oil and Gas Production Policy

5 (in this section referred to as the ‘‘policy’’) to Con6 gress. The policy shall prevent crude oil, oil product,

7 and natural gas imports from exceeding the ceiling

8 level.

9 (2) APPROVAL.—Unless disapproved or modi10 fied by joint resolution, the policy shall be effective

11 90 session days after submitted to Congress.

12 (b) CONTENTS OF POLICY.—The National Security

13 and Oil Production Policy may include—

14 (1) energy conservation actions, including im15 proved fuel efficiency for automobiles;

16 (2) expansion of the Strategic Petroleum Re17 serves to maintain a larger cushion against projected

18 oil import blockages;

19 (3) additional production incentives for domes20 tic oil and gas, including tax and other incentives for

21 stripper well production, offshore, frontier, and other

22 oil produced with tertiary recovery techniques;

23 (4) regulatory burden relief; and
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1 (5) other policy initiatives designed to lower for2 eign import reliance.

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