I 

108TH CONGRESS 

1ST SESSION H. R. 503

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

production of oil and gas from domestic marginal wells and to extend 

the credit for alternative fuels. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 29, 2003

Mr. THORNBERRY (for himself, Mr. STENHOLM, Mr. BONILLA, Mr. TURNER

of Texas, Mr. COMBEST, Mr. SULLIVAN, Mr. SMITH of Texas, and Mrs. 

CUBIN) 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 allow a 

credit for the production of oil and gas from domestic 

marginal wells and to extend the credit for alternative 

fuels.

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

3 SECTION 1. TAX CREDIT FOR MARGINAL DOMESTIC OIL 

4 AND NATURAL GAS WELL PRODUCTION. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of 
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1 1986 (relating to business credits) is amended by adding 

2 at the end the following new section: 

3 ‘‘SEC. 45G. CREDIT FOR PRODUCING OIL AND GAS FROM 

4 MARGINAL WELLS. 

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

6 the marginal well production credit for any taxable year 

7 is an amount equal to the product of—

8 ‘‘(1) the credit amount, and

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

10 qualified natural gas production which is attrib11 utable to the taxpayer. 

12 ‘‘(b) CREDIT AMOUNT.—For purposes of this sec13 tion—

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

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

16 production, and 

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

18 qualified natural gas production. 

19 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN20 CREASE.—

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

22 amounts under paragraph (1) shall each be re23 duced (but not below zero) by an amount which 

24 bears the same ratio to such amount (deter25 mined without regard to this paragraph) as—
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1 ‘‘(i) the excess (if any) of the applica2 ble reference price over $15 ($1.67 for 

3 qualified natural gas production), bears to 

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

5 gas production). 

6 The applicable reference price for a taxable 

7 year is the reference price for the calendar year 

8 preceding the calendar year in which the tax9 able year begins. 

10 ‘‘(B) INFLATION ADJUSTMENT.—In the 

11 case of any taxable year beginning in a calendar 

12 year after 2003, each of the dollar amounts 

13 contained in subparagraph (A) shall be in14 creased to an amount equal to such dollar 

15 amount multiplied by the inflation adjustment 

16 factor for such calendar year (determined under 

17 section 43(b)(3)(B) by substituting ‘2002’ for 

18 ‘1990’). 

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

20 this paragraph, the term ‘reference price’ 

21 means, with respect to any calendar year—

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

23 production, the reference price determined 

24 under section 29(d)(2)(C), and 
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1 ‘‘(ii) in the case of qualified natural 

2 gas production, the Secretary’s estimate of 

3 the annual average wellhead price per 

4 1,000 cubic feet for all domestic natural 

5 gas. 

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

7 PRODUCTION.—For purposes of this section—

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

9 oil production’ and ‘qualified natural gas production’ 

10 mean domestic crude oil or natural gas which is pro11 duced from a marginal well. 

12 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

13 WHICH MAY QUALIFY.—

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

15 gas produced during any taxable year from any 

16 well shall not be treated as qualified crude oil 

17 production or qualified natural gas production 

18 to the extent production from the well during 

19 the taxable year exceeds 1,095 barrels or barrel 

20 equivalents. 

21 ‘‘(B) PROPORTIONATE REDUCTIONS.—

22 ‘‘(i) SHORT TAXABLE YEARS.—In the 

23 case of a short taxable year, the limitations 

24 under this paragraph shall be proportion25 ately reduced to reflect the ratio which the 
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1 number of days in such taxable year bears 

2 to 365. 

3 ‘‘(ii) WELLS NOT IN PRODUCTION EN4 TIRE YEAR.—In the case of a well which is 

5 not capable of production during each day 

6 of a taxable year, the limitations under 

7 this paragraph applicable to the well shall 

8 be proportionately reduced to reflect the 

9 ratio which the number of days of produc10 tion bears to the total number of days in 

11 the taxable year. 

12 ‘‘(3) DEFINITIONS.—

13 ‘‘(A) MARGINAL WELL.—The term ‘mar14 ginal well’ means a domestic well—

15 ‘‘(i) the production from which during 

16 the taxable year is treated as marginal 

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

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

19 ‘‘(I) has average daily production 

20 of not more than 25 barrel equiva21 lents, and

22 ‘‘(II) produces water at a rate 

23 not less than 95 percent of total well 

24 effluent. 
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1 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude 

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

3 the meanings given such terms by section 

4 613A(e). 

5 ‘‘(C) BARREL EQUIVALENT.—The term 

6 ‘barrel equivalent’ means, with respect to nat7 ural gas, a conversion ratio of 6,000 cubic feet 

8 of natural gas to 1 barrel of crude oil. 

9 ‘‘(d) OTHER RULES.—

10 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX11 PAYER.—In the case of a marginal well in which 

12 there is more than one owner of operating interests 

13 in the well and the crude oil or natural gas produc14 tion exceeds the limitation under subsection (c)(2), 

15 qualifying crude oil production or qualifying natural 

16 gas production attributable to the taxpayer shall be 

17 determined on the basis of the ratio which tax18 payer’s revenue interest in the production bears to 

19 the aggregate to the revenue interests of all oper20 ating interest owners in the production. 

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

22 credit under this section may be claimed only on 

23 production which is attributable to the holder of an 

24 operating interest. 
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1 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

2 SOURCES EXCLUDED.—In the case of production 

3 from a marginal well which is eligible for the credit 

4 allowed under section 29 for the taxable year, no 

5 credit shall be allowable under this section unless 

6 the taxpayer elects not to claim credit under section 

7 29 with respect to the well.’’. 

8 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec9 tion 38(b) of such Code is amended by striking ‘‘plus’’ 

10 at the end of paragraph (14), by striking the period at 

11 the end of paragraph (15) and inserting’’, plus’’, and by 

12 adding at the end of the following new paragraph: 

13 ‘‘(16) the marginal oil and gas well production 

14 credit determined under section 45G(a).’’. 

15 (c) CREDIT ALLOWED AGAINST REGULAR AND MIN16 IMUM TAX.—

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

18 of such Code (relating to limitation based on amount 

19 of tax) is amended by redesignating paragraph (4) 

20 as paragraph (5) and by inserting after paragraph 

21 (3) the following new paragraph: 

22 ‘‘(4) SPECIAL RULES FOR MARGINAL OIL AND

23 GAS WELL PRODUCTION CREDIT.—

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

25 marginal oil and gas well production credit—
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1 ‘‘(i) this section and section 39 shall 

2 be applied separately with respect to the 

3 credit, and 

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

5 credit—

6 ‘‘(I) subparagraphs (A) and (B) 

7 thereof shall not apply, and 

8 ‘‘(II) the limitation under para9 graph (1) (as modified by subclause 

10 (I)) shall be reduced by the credit al11 lowed under subsection (a) for the 

12 taxable year (other than the marginal 

13 oil and gas well production credit). 

14 ‘‘(B) MARGINAL OIL AND GAS WELL PRO15 DUCTION CREDIT.—For purposes of this sub16 section, the term ‘marginal oil and gas well pro17 duction credit’ means the credit allowable under 

18 subsection (a) by reason of section 45G(a).’’. 

19 (2) CONFORMING AMENDMENTS.—

20 (A) Subclause (II) of section 

21 38(c)(2)(A)(ii) of such Code is amended by 

22 striking ‘‘credit or’’ and inserting ‘‘credit,’’ and 

23 by striking ‘‘credit)’’ and inserting ‘‘credit, or 

24 the marginal oil and gas well production cred25 it)’’. 
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1 (B) Subclause (II) of section 

2 38(c)(3)(A)(ii) of such Code is amended by in3 serting ‘‘or the marginal oil and gas well pro4 duction credit)’’ after ‘‘employee credit’’. 

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

6 such Code (relating to carryback and carryforward of un7 used credits generally) is amended by adding at the end 

8 the following new paragraph: 

9 ‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL

10 AND GAS WELL PRODUCTION CREDIT.—In the case 

11 of the marginal oil and gas well production credit—

12 ‘‘(A) this section shall be applied sepa13 rately from the business credit (other than the 

14 marginal oil and gas well production credit), 

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

16 substituting ‘10 taxable year’ for ‘1 taxable 

17 year’ in subparagraph (A) thereof, and 

18 ‘‘(C) paragraph (2) shall be applied—

19 ‘‘(i) by substituting ‘31 taxable years’ 

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

21 thereof, and 

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

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

24 thereof.’’. 
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1 (e) COORDINATION WITH SECTION 29.—Section 

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

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

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

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

6 of such Code is amended by adding at the end the fol7 lowing item:

‘‘Sec. 45G. Credit for producing oil and gas from marginal 

wells.’’.

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

9 this section shall apply to production in taxable years be10 ginning after December 31, 2002. 

11 SEC. 2. EXTENSION OF CREDIT FOR PRODUCING FUEL 

12 FROM A NONCONVENTIONAL SOURCE. 

13 (a) IN GENERAL.—Paragraph (2) of section 29(f) of 

14 the Internal Revenue Code of 1986 (relating to application 

15 of section) is amended by striking ‘‘2003’’ and inserting 

16 ‘‘2008’’. 

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

18 subsection (a) shall apply with respect to fuels sold after 

19 December 31, 2002.

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