1986 (relating to business credits) is amended by adding 
at the end the following new section: 
‘‘SEC. 45G. 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 sec-
tion—
‘‘(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 2003, 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 ‘2002’ 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 (14), by striking the period at 
the end of paragraph (15) and inserting’’, plus’’, and by 
adding at the end of the following new paragraph: 
‘‘(16) the marginal oil and gas well production 
credit determined under section 45G(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 (4) 
as paragraph (5) and by inserting after paragraph 
(3) the following new paragraph: 
‘‘(4) 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 45G(a).’’. 
(2) CONFORMING AMENDMENTS.—
(A) 
Subclause 
(II) 
of 
section 
38(c)(2)(A)(ii) of such Code is amended by 
striking ‘‘credit or’’ and inserting ‘‘credit,’’ and 
by striking ‘‘credit)’’ and inserting ‘‘credit, or 
the marginal oil and gas well production cred-
it)’’.
(B) 
Subclause 
(II) 
of 
section 
38(c)(3)(A)(ii) of such Code is amended by in-
serting ‘‘or the marginal oil and gas well pro-
duction credit)’’ after ‘‘employee 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. 45G. 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, 2002. 
SEC. 2. EXTENSION OF CREDIT FOR PRODUCING FUEL 
FROM A NONCONVENTIONAL SOURCE. 
(a) IN GENERAL.—Paragraph (2) of section 29(f) of 
the Internal Revenue Code of 1986 (relating to application 
of section) is amended by striking ‘‘2003’’ and inserting 
‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply with respect to fuels sold after 
December 31, 2002.
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