I
107TH CONGRESS
1ST SESSION
H. R. 805
To amend the Internal Revenue Code of 1986 to enhance domestic oil and
gas production.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 28, 2001
Mr. THORNBERRY (for himself, Mr. SKEEN, Mr. SMITH of Texas, Mr. WATTS
of Oklahoma, Mr. SESSIONS, Mr. STENHOLM, Mr. WATKINS, Mr.
BONILLA, Mr. LUCAS of Oklahoma, Mr. MORAN of Kansas, and Mr.
COMBEST) introduced the following bill; which was referred to the Com-
mittee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to enhance
domestic oil and gas production.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Independent Energy Production Act of 2001’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title and table of contents.
TITLE I—MARGINAL WELL PRESERVATION
Sec. 101. Short title; purpose.
Sec. 102. Tax credit for marginal domestic oil and natural gas well production.
Sec. 103. Election to expense geological and geophysical expenditures and delay
rental payments.
TITLE II—INDEPENDENT OIL AND GAS PRODUCERS
Sec. 201. 5-year net operating loss carryback for losses attributable to oper-
ating mineral interests of independent oil and gas producers.
Sec. 202. Temporary suspension of limitation based on 65 percent of taxable
income and extension of suspension of taxable income limit
with respect to marginal production.
Sec. 203. Determination of small refiner exception to oil depletion deduction.
TITLE III—DYED DIESEL FUEL AND KEROSENE OFFERED FOR
NONTAXABLE PURPOSES
Sec. 301. Repeal of requirement of certain approved terminals to offer dyed die-
sel fuel and kerosene for nontaxable purposes.
TITLE I—MARGINAL WELL
PRESERVATION
SEC. 101. SHORT TITLE; PURPOSE.
(a) SHORT TITLE.—This subtitle may be cited as the
‘‘Marginal Well Preservation Act of 2001’’.
(b) PURPOSE.—The purpose of section 102 is to pre-
vent the abandonment of marginal oil and gas wells re-
sponsible for half of the domestic production of oil and
gas in the United States and of section 103 is to recognize
that geological and geophysical expenditures and delay
rentals are ordinary and necessary business expenses that
should be deducted in the year the expense is incurred.
SEC. 102. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND
NATURAL GAS WELL PRODUCTION.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business credits) is amended by adding
at the end the following new section:
‘‘SEC. 45E. CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the marginal well production credit for any taxable year
is an amount equal to the product of—
‘‘(1) the credit amount, and
‘‘(2) the qualified crude oil production and the
qualified natural gas production which is attrib-
utable to the taxpayer.
‘‘(b) CREDIT
AMOUNT.—For purposes of this
section—
‘‘(1) IN GENERAL.—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil
production, and
‘‘(B) 50 cents per 1,000 cubic feet of
qualified natural gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which
bears the same ratio to such amount (deter-
mined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for
qualified natural gas production), bears to
‘‘(ii) $3 ($0.33 for qualified natural
gas production).
The applicable reference price for a taxable
year is the reference price for the calendar year
preceding the calendar year in which the tax-
able year begins.
‘‘(B) INFLATION
ADJUSTMENT.—In the
case of any taxable year beginning in a calendar
year after 2001, each of the dollar amounts
contained in subparagraph (A) shall be in-
creased to an amount equal to such dollar
amount multiplied by the inflation adjustment
factor for such calendar year (determined under
section 43(b)(3)(B) by substituting ‘2001’ for
‘1990’).
‘‘(C) REFERENCE PRICE.—For purposes of
this paragraph, the term ‘reference price’
means, with respect to any calendar year—
‘‘(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
‘‘(ii) in the case of qualified natural
gas production, the Secretary’s estimate of
the annual average wellhead price per
1,000 cubic feet for all domestic natural
gas.
‘‘(c) QUALIFIED CRUDE OIL
AND NATURAL GAS
PRODUCTION.—For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘qualified crude
oil production’ and ‘qualified natural gas production’
mean domestic crude oil or natural gas which is pro-
duced from a marginal well.
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION
WHICH MAY QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural
gas produced during any taxable year from any
well shall not be treated as qualified crude oil
production or qualified natural gas production
to the extent production from the well during
the taxable year exceeds 1,095 barrels or barrel
equivalents.
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the
case of a short taxable year, the limitations
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the
number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is
not capable of production during each day
of a taxable year, the limitations under
this paragraph applicable to the well shall
be proportionately reduced to reflect the
ratio which the number of days of produc-
tion bears to the total number of days in
the taxable year.
‘‘(3) DEFINITIONS.—
‘‘(A) MARGINAL WELL.—The term ‘mar-
ginal well’ means a domestic well—
‘‘(i) the production from which during
the taxable year is treated as marginal
production under section 613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production
of not more than 25 barrel equiva-
lents, and
‘‘(II) produces water at a rate
not less than 95 percent of total well
effluent.
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude
oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have
the meanings given such terms by section
613A(e).
‘‘(C) BARREL
EQUIVALENT.—The term
‘barrel equivalent’ means, with respect to nat-
ural gas, a conversion ratio of 6,000 cubic feet
of natural gas to 1 barrel of crude oil.
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX-
PAYER.—In the case of a marginal well in which
there is more than one owner of operating interests
in the well and the crude oil or natural gas produc-
tion exceeds the limitation under subsection (c)(2),
qualifying crude oil production or qualifying natural
gas production attributable to the taxpayer shall be
determined on the basis of the ratio which tax-
payer’s revenue interest in the production bears to
the aggregate to the revenue interests of all oper-
ating interest owners in the production.
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any
credit under this section may be claimed only on
production which is attributable to the holder of an
operating interest.
‘‘(3) PRODUCTION
FROM
NONCONVENTIONAL
SOURCES
EXCLUDED.—In the case of production
from a marginal well which is eligible for the credit
allowed under section 29 for the taxable year, no
credit shall be allowable under this section unless
the taxpayer elects not to claim credit under section
29 with respect to the well.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) of such Code is amended by striking ‘‘plus’’
at the end of paragraph (12), by striking the period at
the end of paragraph (13) and inserting’’, plus’’, and by
adding at the end of the following new paragraph:
‘‘(14) the marginal oil and gas well production
credit determined under section 45E(a).’’.
(c) CREDIT ALLOWED AGAINST REGULAR AND MIN-
IMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
of such Code (relating to limitation based on amount
of tax) is amended by redesignating paragraph (3)
as paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) SPECIAL RULES FOR MARGINAL OIL AND
GAS WELL PRODUCTION CREDIT.—
‘‘(A) IN
GENERAL.—In the case of the
marginal oil and gas well production credit—
‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) subparagraphs (A) and (B)
thereof shall not apply, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
taxable year (other than the marginal
oil and gas well production credit).
‘‘(B) MARGINAL OIL AND GAS WELL PRO-
DUCTION CREDIT.—For purposes of this sub-
section, the term ‘marginal oil and gas well pro-
duction credit’ means the credit allowable under
subsection (a) by reason of section 45E(a).’’.
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) of such Code is amended
by inserting ‘‘or the marginal oil and gas well pro-
duction credit’’ after ‘‘employment credit’’.
(d) CARRYBACK.—Subsection (a) of section 39 of
such Code (relating to carryback and carryforward of un-
used credits generally) is amended by adding at the end
the following new paragraph:
‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL
AND GAS WELL PRODUCTION CREDIT.—In the case
of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied sepa-
rately from the business credit (other than the
marginal oil and gas well production credit),
‘‘(B) paragraph (1) shall be applied by
substituting ‘10 taxable year’ for ‘1 taxable
year’ in subparagraph (A) thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘31 taxable years’
for ‘21 taxable years’ in subparagraph (A)
thereof, and
‘‘(ii) by substituting ‘30 taxable years’
for ‘20 taxable years’ in subparagraph (B)
thereof.’’.
(e) COORDINATION
WITH
SECTION
29.—Section
29(a) of such Code is amended by striking ‘‘There’’ and
inserting ‘‘At the election of the taxpayer, there.’’
(f) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the fol-
lowing item:
‘‘Sec. 45E. Credit for producing oil and gas from marginal
wells.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to production in taxable years be-
ginning after December 31, 2000.
SEC. 103. ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES AND DELAY RENT-
AL PAYMENTS.
(a) GEOLOGICAL AND GEOPHYSICAL EXPENDITURES
FOR OIL AND GAS WELLS.—
(1) IN GENERAL.—Section 263 of the Internal
Revenue Code of 1986 (relating to capital expendi-
tures) is amended by adding at the end the following
new subsection:
‘‘(j) GEOLOGICAL
AND
GEOPHYSICAL
EXPENDI-
TURES FOR OIL AND GAS WELLS.—Notwithstanding sub-
section (a), a taxpayer may elect to treat geological and
geophysical expenses incurred in connection with the ex-
ploration for, or development of, oil or gas as expenses
which are not chargeable to capital account. Any expenses
so treated shall be allowed as a deduction in the taxable
year in which paid or incurred.’’.
(2) 
CONFORMING
AMENDMENT.—Section
263A(c)(3) of such Code is amended by inserting
‘‘263(j),’’ after ‘‘263(i),’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to expenses paid
or incurred after the date of the enactment of
this Act.
(B) TRANSITION
RULE.—In the case of
any expenses described in section 263(j) of the
Internal Revenue Code of 1986, as added by
this subsection, which were paid or incurred on
or before the date of the enactment of this Act,
the taxpayer may elect, at such time and in
such manner as the Secretary of the Treasury
may prescribe, to amortize the suspended por-
tion of such expenses over the 36-month period
beginning with the month in which the date of
the enactment of this Act occurs. For purposes
of this subparagraph, the suspended portion of
any expense is that portion of such expense
which, as of the first day of the 36-month pe-
riod, has not been included in the cost of a
property or otherwise deducted.
(b) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
(1) IN GENERAL.—Section 263 of such Code
(relating to capital expenditures), as amended by
subsection (a)(1), is amended by adding at the end
the following new subsection:
‘‘(k) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), a taxpayer may elect to treat delay rental pay-
ments incurred in connection with the development
of oil or gas within the United States (as defined in
section 638) as payments which are not chargeable
to capital account. Any payments so treated shall be
allowed as a deduction in the taxable year in which
paid or incurred.
‘‘(2) DELAY RENTAL PAYMENTS.—For purposes
of paragraph (1), the term ‘delay rental payment’
means an amount paid for the privilege of deferring
the drilling of an oil or gas well under an oil or gas
lease.’’.
(2) 
CONFORMING
AMENDMENT.—Section
263A(c)(3) of such Code, as amended by subsection
(a)(2), is amended by inserting ‘‘263(k),’’ after
‘‘263(j),’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to payments made
TITLE III—DYED DIESEL FUEL
AND 
KEROSENE 
OFFERED
FOR NONTAXABLE PURPOSES
SEC. 301. REPEAL OF REQUIREMENT OF CERTAIN AP-
PROVED TERMINALS TO OFFER DYED DIESEL
FUEL AND KEROSENE FOR NONTAXABLE
PURPOSES.
Section 4101 of the Internal Revenue Code of 1986
(relating to certain approved terminals of registered per-
sons required to offer dyed diesel fuel and kerosene for
nontaxable purposes) is amended by striking subsection
(e).
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