I
107TH CONGRESS
1ST SESSION
H. R. 2267
To amend the Internal Revenue Code of 1986 to encourage energy production.
IN THE HOUSE OF REPRESENTATIVES
JUNE 21, 2001
Mr. LARGENT 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 encourage
energy 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; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Domestic Energy Enhancement and Security Act of
2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. PHASEOUT OF CERTAIN MINIMUM TAX PREF-
ERENCES RELATING TO ENERGY PRODUC-
TION.
(a) ENERGY PREFERENCES FOR INTEGRATED OIL
COMPANIES.—Section 56 (relating to alternative min-
imum taxable income) is amended by adding at the end
the following new subsection:
‘‘(h) ADJUSTMENT
BASED
ON
ENERGY
PREF-
ERENCE.—
‘‘(1) IN
GENERAL.—In computing the alter-
native minimum taxable income of any taxpayer for
any taxable year beginning after December 31,
2001, there shall be allowed as a deduction an
amount equal to the alternative tax energy pref-
erence deduction.
‘‘(2) PHASEOUT OF DEDUCTION AS OIL PRICES
INCREASE.—The amount of the deduction under
paragraph (1) (determined without regard to this
paragraph) shall be reduced (but not below zero) by
the amount which bears the same ratio to such
amount as—
‘‘(A) the amount by which the reference
price for the calendar year preceding the cal-
endar year in which the taxable year begins ex-
ceeds $15, bears to
‘‘(B) $3.
For purposes of this paragraph, the reference price
for any calendar year shall be determined under sec-
tion 29(d)(2)(C), and, in the case of any taxable
year beginning in a calendar year after 2002, the
$15 amount under subparagraph (A) shall be ad-
justed at the same time and in the same manner as
under section 43(b)(3) by substituting ‘2001’ for
‘1990’.
‘‘(3) ALTERNATIVE TAX ENERGY PREFERENCE
DEDUCTION.—For purposes of paragraph (1), the
term ‘alternative tax energy preference deduction’
means an amount equal to the sum of—
‘‘(A) the intangible drilling cost preference,
and
‘‘(B) the depletion preference.
‘‘(4) 
INTANGIBLE
DRILLING
COST
PREF-
ERENCE.—For purposes of this subsection, the term
‘intangible drilling cost preference’ means the
amount by which alternative minimum taxable in-
come would be reduced if it were computed without
regard to section 57(a)(2).
‘‘(5) DEPLETION PREFERENCE.—For purposes
of this subsection, the term ‘depletion preference’
means the amount by which alternative minimum
taxable income would be reduced if it were computed
without regard to section 57(a)(1).
‘‘(6) ALTERNATIVE
MINIMUM
TAXABLE
IN-
COME.—For purposes of paragraphs (1), (4), and
(5), alternative minimum taxable income shall be de-
termined without regard to the deduction allowable
under this subsection and the alternative tax net op-
erating loss deduction under subsection (a)(4).
‘‘(7) REGULATIONS.—The Secretary may by
regulation provide for appropriate adjustments in
computing alternative minimum taxable income or
adjusted current earnings for any taxable year fol-
lowing a taxable year for which a deduction was al-
lowed under this subsection to ensure that no double
benefit is allowed by reason of such deduction.’’
(b) REPEAL OF LIMIT ON REDUCTION FOR INDE-
PENDENT PRODUCERS.—Subparagraph (E) of section
57(a)(2) (relating to exception for independent producers)
is amended to read as follows:
‘‘(E) EXCEPTION FOR INDEPENDENT PRO-
DUCERS.—In the case of any oil or gas well,
this paragraph shall not apply to any taxpayer
which is not an integrated oil company (as de-
fined in section 291(b)(4)).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 3. DEPRECIATION ADJUSTMENT NOT TO APPLY TO
OIL AND GAS ASSETS.
(a) DEPRECIATION ADJUSTMENTS.—Subparagraph
(B) of section 56(a)(1) (relating to depreciation adjust-
ments) is amended to read as follows:
‘‘(B) EXCEPTIONS.—This paragraph shall
not apply to—
‘‘(i) property described in paragraph
(1), (2), (3), or (4) of section 168(f), or
‘‘(ii) property used in the active con-
duct of the trade or business of exploring
for, extracting, developing, or gathering
crude oil or natural gas.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to property placed in service in
taxable years beginning after December 31, 2001.
SEC. 4. REPEAL CERTAIN ADJUSTMENTS BASED ON AD-
JUSTED CURRENT EARNINGS RELATING TO
LIFO INVENTORIES, INTANGIBLE DRILLING
AND DEVELOPMENT COST, AND OIL AND GAS
PERCENTAGE DEPLETION.
(a) INTANGIBLE DRILLING COSTS.—Clause (i) of
section 56(g)(4)(D) is amended by striking the second
sentence and inserting ‘‘In the case of any oil or gas well,
this clause shall not apply in the case of amounts paid
or incurred in taxable years beginning after December 31,
2001.’’
(b) LIFO INVENTORY ADJUSTMENT.—
(1) IN GENERAL.—Subparagraph (D) of section
56(g)(4) is amended by striking clause (iii) and by
redesignating clause (iv) as clause (iii).
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 2001.
(c) DEPLETION.—Clause (ii) of section 56(g)(4)(F)
is amended to read as follows:
‘‘(ii) EXCEPTION FOR OIL AND GAS
WELLS.—In the case of any taxable year
beginning after December 31, 2001, clause
(i) (and subparagraph (C)(i)) shall not
apply to any deduction for depletion com-
puted in accordance with section 613A.’’
SEC. 5. ENHANCED OIL RECOVERY CREDIT AND CREDIT
FOR PRODUCING FUEL FROM A NONCONVEN-
TIONAL SOURCE ALLOWED AGAINST MIN-
IMUM TAX.
(a) ENHANCED OIL RECOVERY CREDIT ALLOWED
AGAINST REGULAR AND MINIMUM TAX.—
(1) 
CREDIT
ALLOWED
AGAINST
MINIMUM
TAX.—Subsection (c) of section 38 (relating to limi-
tation based on amount of tax) is amended by redes-
ignating paragraph (3) as paragraph (4) and by in-
serting after paragraph (2) the following new para-
graph:
‘‘(3) SPECIAL RULES FOR ENHANCED OIL RE-
COVERY CREDIT.—
‘‘(A) IN GENERAL.—In the case of the en-
hanced oil recovery 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 enhanced
oil recovery credit).
‘‘(B) ENHANCED
OIL
RECOVERY
CRED-
IT.—For purposes of this subsection, the term
‘enhanced oil recovery credit’ means the credit
allowable under subsection (a) by reason of sec-
tion 43(a).’’
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) is amended by inserting
‘‘and the enhanced oil recovery credit’’ after ‘‘em-
ployer zone employment credit’’.
(b) CREDIT FOR PRODUCING FUEL FROM A NON-
CONVENTIONAL SOURCE.—
(1) ALLOWING
CREDIT
AGAINST
MINIMUM
TAX.—Section 29(b)(6) is amended to read as fol-
lows:
‘‘(6) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable
year shall not exceed—
‘‘(A) the regular tax for the taxable year
and the tax imposed by section 55, reduced by
‘‘(B) the sum of the credits allowable
under subpart A and section 27.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 53(d)(1)(B)(iii) is amended by
inserting ‘‘as in effect on the date of the enact-
ment of the Domestic Energy Enhancement
and 
Security 
Act 
of 
2001,’’ 
after
‘‘29(b)(6)(B),’’.
(B) Section 55(c)(2) is amended by strik-
ing ‘‘29(b)(6),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 6. ENHANCED OIL RECOVERY CREDIT EXTENDED TO
CERTAIN NONTERTIARY RECOVERY METH-
ODS.
(a) PURPOSE.—The purpose of this section is to ex-
tend the productive lives of existing domestic oil and gas
wells in order to recover the 75 percent of the oil and gas
that is not recoverable using primary oil and gas recovery
techniques.
(b) IN GENERAL.—Clause (i) of section 43(c)(2)(A)
(defining qualified enhanced oil recovery project) is
amended to read as follows:
‘‘(i) which involves the application (in
accordance with sound engineering prin-
ciples) of—
‘‘(I) one or more tertiary recov-
ery methods (as defined in section
193(b)(3)) which can reasonably be
expected to result in more than an in-
significant increase in the amount of
crude oil which will ultimately be re-
covered, or
‘‘(II) one or more qualified non-
tertiary recovery methods which are
required to recover oil with tradition-
ally immobile characteristics or from
formations which have proven to be
uneconomical or noncommercial under
conventional recovery methods,’’.
(c) QUALIFIED NONTERTIARY RECOVERY METH-
ODS.—Section 43(c)(2) is amended by adding at the end
the following new subparagraphs:
‘‘(C) QUALIFIED NONTERTIARY RECOVERY
METHOD.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied nontertiary recovery method’ means
any recovery method described in clause
(ii), (iii), or (iv), or any combination there-
of.
‘‘(ii) ENHANCED GRAVITY DRAINAGE
METHODS.—The methods described in this
clause are as follows:
‘‘(I) HORIZONTAL
DRILLING.—
The drilling of horizontal, rather than
vertical, wells to penetrate any hydro-
carbon-bearing formation which has
an average in situ calculated perme-
ability to fluid flow of not more than
12 millidarcies and which has been
demonstrated by use of a vertical
wellbore to be uneconomical unless
drilled with lateral horizontal lengths
in excess of 1,000 feet.
‘‘(II) GRAVITY
DRAINAGE.—The
production of oil by gravity flow from
drainholes that are drilled from a
shaft or tunnel dug within or below
the oil-bearing zone.
‘‘(iii) MARGINALLY
ECONOMIC
RES-
ERVOIR
REPRESSURIZATION
METHODS.—
The methods described in this clause are
as follows, except that this clause shall
only apply to the first 1,000,000 barrels
produced in any project:
‘‘(I) CYCLIC
GAS
INJECTION.—
The increase or maintenance of pres-
sure by injection of hydrocarbon gas
into the reservoir from which it was
originally produced.
‘‘(II) FLOODING.—The injection
of water into an oil reservoir to dis-
place oil from the reservoir rock and
into the bore of a producing well.
‘‘(iv) OTHER METHODS.—Any method
used to recover—
‘‘(I) oil having an average labora-
tory measured air permeability of not
more than 100 millidarcies when aver-
aged over the productive interval
being completed or an in situ cal-
culated permeability to fluid flow of
not more than 12 millidarcies, or
‘‘(II) oil defined by the Depart-
ment of Energy as being immobile.
‘‘(D) AUTHORITY TO ADD OTHER NONTER-
TIARY
RECOVERY
METHODS.—The Secretary
shall provide procedures under which—
‘‘(i) the Secretary may treat methods
not described in clause (ii), (iii), or (iv) of
subparagraph (C) as qualified nontertiary
recovery methods, and
‘‘(ii) a taxpayer may request the Sec-
retary to treat any method not so de-
scribed as a qualified nontertiary recovery
method.
The Secretary may only specify methods as
qualified nontertiary recovery methods under
this subparagraph if the Secretary determines
that such specification is consistent with the
purposes of subparagraph (C) and will result in
greater production of oil and natural gas.’’
(d) CONFORMING AMENDMENT.—Clause (iii) of sec-
tion 43(c)(2)(A) is amended to read as follows:
‘‘(iii) with respect to which—
‘‘(I) in the case of a tertiary re-
covery method, the first injection of
liquids, gases, or other matter com-
mences after December 31, 1990, and
‘‘(II) in the case of a qualified
nontertiary recovery method, the im-
plementation of the method begins
after December 31, 2001.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2001.
SEC. 7. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLE-
TION FOR OIL AND GAS PROPERTY.
(a) IN GENERAL.—Paragraph (1) of section 613A(d)
(relating to limitations on percentage depletion in case of
oil and gas wells) is amended to read as follows:
‘‘(1) LIMITATION
BASED
ON
TAXABLE
IN-
COME.—
‘‘(A) IN GENERAL.—The deduction for the
taxable year attributable to the application of
subsection (c) shall not exceed so much of the
taxpayer’s taxable income for the year as the
taxpayer elects computed without regard to—
‘‘(i) any depletion on production from
an oil or gas property which is subject to
the provisions of subsection (c),
‘‘(ii) any net operating loss carryback
to the taxable year under section 172,
‘‘(iii) any capital loss carryback to the
taxable year under section 1212, and
‘‘(iv) in the case of a trust, any dis-
tributions to its beneficiary, except in the
case of any trust where any beneficiary of
such trust is a member of the family (as
defined in section 267(c)(4)) of a settlor
who created inter vivos and testamentary
trusts for members of the family and such
settlor died within the last six days of the
fifth month in 1970, and the law in the ju-
risdiction in which such trust was created
requires all or a portion of the gross or net
proceeds of any royalty or other interest in
oil, gas, or other mineral representing any
percentage depletion allowance to be allo-
cated to the principal of the trust.
‘‘(B) 
CARRYBACKS
AND
CARRYFORWARDS.—
‘‘(i) IN GENERAL.—If an amount is
disallowed as a deduction for the taxable
year (in this subparagraph referred to as
the ‘unused depletion year’) by reason of
application of subparagraph (A), the dis-
allowed amount shall be treated as an
amount allowable as a deduction under
subsection (c) for—
‘‘(I) any of the 10 taxable years
preceding the unused depletion year,
and
‘‘(II) the taxable year following
the unused depletion year, subject to
the application of subparagraph (A)
to such taxable year.
‘‘(ii) 
ELECTION
TO
WAIVE
CARRYBACK.—Any taxpayer entitled to a
carryback period under this subparagraph
may elect to relinquish such carryback for
any of the taxable years to which it would
apply. Such election made in any taxable
year may be revised in the succeeding tax-
able year in such manner as the Secretary
may prescribe.
‘‘(C) 
ALLOCATION
OF
DISALLOWED
AMOUNTS.—For purposes of basis adjustments
and determining whether cost depletion exceeds
percentage depletion with respect to the produc-
tion from a property, any amount disallowed as
a deduction on the application of this para-
graph shall be allocated to the respective prop-
erties from which the oil or gas was produced
in proportion to the percentage depletion other-
wise allowable to such properties under sub-
section (c).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001, and to any taxable year beginning
on or before such date to the extent necessary to apply
section 613A(d)(1) of the Internal Revenue Code of 1986
(as added by subsection (a)).
SEC. 8. NET INCOME LIMITATION ON PERCENTAGE DEPLE-
TION REPEALED FOR OIL AND GAS PROP-
ERTIES.
(a) IN GENERAL.—Section 613(a) (relating to per-
centage depletion) is amended by striking the second sen-
tence and inserting: ‘‘Except in the case of oil and gas
properties, such allowance shall not exceed 50 percent of
the taxpayer’s taxable income from the property (com-
puted without allowances for depletion).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 613A(c)(7) (relating to special
rules) is amended by striking subparagraph (C) and
redesignating subparagraph (D) as subparagraph
(C).
(2) Section 613A(c)(6) (relating to oil and nat-
ural gas produced from marginal properties) is
amended by striking subparagraph (H).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
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