I
106TH CONGRESS
1ST SESSION
H. R. 1116
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 HOUSE OF REPRESENTATIVES
MARCH 16, 1999
Mr. MORAN of Kansas (for himself, Mr. SESSIONS, Mr. PICKERING, and Mr.
WATKINS) 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 establish
a graduated response to shrinking domestic oil and gas
production and surging foreign oil imports, and for other
purposes.
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 Oil and Gas Crisis Tax Relief and Foreign Oil
Reliance Reversal Act of 1999’’.
(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. PURPOSES.
The purposes of this Act are—
(1) to establish a graduated response to shrink-
ing domestic oil and gas production and surging for-
eign oil imports;
(2) to prevent the abandonment of marginal oil
and gas wells responsible for half of the domestic oil
and gas production of the United States;
(3) to transform earned tax credits and other
tax benefits into working capital for the cash-
strapped domestic oil and gas producers and service
companies;
(4) to reverse the trend of increased dependence
on foreign oil and gas by encouraging exploration
and development of oil and gas reserves in the
United States to achieve the goal of doubling current
domestic oil and gas production; and
(5) to provide an emergency procedure for
times when foreign imports exceed 60 percent of the
total United States crude and oil product consump-
tion, thereby recognizing that when imports exceed
a statutory level a national security threat exists
that demands Presidential action.
SEC. 3. FINDINGS.
Congress finds the following:
(1) Foreign oil consumption in the United
States is estimated to be equal to 56 percent of total
oil consumption and could reach 68 percent by the
year 2010 if current prices prevail.
(2) The number of oil and gas rigs operating in
the United States is at the lowest count since 1944,
when records of this number began to be recorded.
(3) If oil prices do not increase soon, the
United States could lose at least half of its marginal
wells which, in the aggregate, produce as much oil
as the amount of oil the United States imports from
Saudi Arabia.
(4) Oil and gas prices are unlikely to increase
for the next several years.
(5) Declining production, well abandonment,
and the lack of exploration and development are
shrinking the domestic oil and gas industry.
(6) It is essential in order for the United States
to have a vibrant economy to have a healthy domes-
tic oil and gas industry.
(7) The world’s richest oil producing regions in
the Middle East are experiencing great political in-
stability.
(8) The policy of the United Nations may make
Iraq the swing oil producing nation, thereby grant-
ing an enemy of the United States a tremendous
amount of power.
(9) Reliance on foreign oil for more than 60
percent of the daily oil and gas consumption in the
United States is a national security threat.
(10) The United States is the leader of the free
world and has a worldwide responsibility to promote
economic and political security.
(11) The exercise of traditional responsibilities
in the United States and abroad in foreign policy re-
quires that the United States be free of the risk of
energy blackmail in times of gas and oil shortages.
(12) The level of the United States energy secu-
rity is directly related to the level of domestic pro-
duction of oil, natural gas liquids, and natural gas.
(13) A national energy policy should be devel-
oped which ensures that adequate supplies of oil are
available at all times free of the threat of embargo
or other foreign hostile acts.
SEC. 4. TABLE OF CONTENTS.
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 pro-
ducers.
Sec. 204. Waiver of limitations.
Subtitle B—Hard Times Tax Relief
Sec. 211. Phase-out of certain minimum tax preferences relating to energy pro-
duction.
Sec. 212. Depreciation adjustment not to apply to oil and gas assets.
Sec. 213. Repeal certain adjustments based on adjusted current earnings relat-
ing 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
‘‘(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 $14 ($1.56 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 2000, 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 ‘1999’ 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 of 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 the credit under sec-
tion 29 with respect to the well.’’.
(c) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) is amended by striking ‘‘plus’’ at the end of
paragraph (11), by striking the period at the end of para-
graph (12) and inserting ‘‘, plus’’, and by adding at the
end the following new paragraph:
‘‘(13) the marginal oil and gas well production
credit determined under section 45D(a).’’.
(d) CREDIT ALLOWED AGAINST REGULAR AND MIN-
IMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
(relating to limitation based on amount of tax) is
amended by redesignating paragraph (3) as para-
graph (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 45D(a).’’.
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) is amended by inserting
‘‘or the marginal oil and gas well production credit’’
after ‘‘employment credit’’.
(e) CARRYBACK.—Subsection (a) of section 39 (relat-
ing to carryback and carryforward of unused credits gen-
erally) 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 years’ for ‘1 taxable
years’ 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.’’
(f) COORDINATION
WITH
SECTION
29.—Section
29(a) is amended by striking ‘‘There’’ and inserting ‘‘At
the election of the taxpayer, there’’.
(g) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by adding at the end the following item:
‘‘45D. Credit for producing oil and gas from marginal wells.’’
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to production after the date of the
enactment of this Act.
SEC. 102. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
FROM RECOVERED INACTIVE WELLS.
(a) PURPOSE.—The purpose of this section is to en-
courage producers to reopen wells that have not been pro-
ducing oil and gas because the wells have been plugged
or abandoned.
(b) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by redesignating section 139 as sec-
tion 140 and by inserting after section 138 the following
new section:
‘‘SEC. 139. OIL OR GAS PRODUCED FROM A RECOVERED IN-
ACTIVE WELL.
‘‘(a) IN GENERAL.—Gross income does not include
income attributable to independent producer oil from a re-
covered inactive well.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) INDEPENDENT PRODUCER OIL.—The term
‘independent producer oil’ means crude oil or nat-
ural gas in which the economic interest of the inde-
pendent producer is attributable to an operating
mineral interest (within the meaning of section
614(d)), overriding royalty interest, production pay-
ment, net profits interest, or similar interest.
‘‘(2) CRUDE
OIL
AND
NATURAL
GAS.—The
terms ‘crude oil’ and ‘natural gas’ have the mean-
ings given such terms by section 613A(e).
‘‘(3) RECOVERED INACTIVE WELL.—The term
‘recovered inactive well’ means a well if—
‘‘(A) throughout the time period beginning
any time prior to January 15, 1999, and ending
on such date, such well is inactive or has been
plugged and abandoned, as determined by the
agency of the State in which such well is lo-
cated that is responsible for regulating such
wells, and
‘‘(B) during the 5-year period beginning on
the date of the enactment of this section, such
well resumes producing crude oil or natural gas.
‘‘(4) INDEPENDENT
PRODUCER.—The term
‘independent producer’ means a producer of crude
oil or natural gas whose allowance for depletion is
determined under section 613A(c).
‘‘(c) DEDUCTIONS.—No deductions directly con-
nected with amounts excluded from gross income by sub-
section (a) shall be allowed.
‘‘(d) ELECTION.—
‘‘(1) IN GENERAL.—This section shall apply for
any taxable year only at the election of the taxpayer.
‘‘(2) MANNER.—Such election shall be made, in
accordance with regulations prescribed by the Sec-
retary, not later than the time prescribed for filing
the return (including extensions thereof) and shall
be made annually on a property-by-property basis.’’
(c) MINIMUM TAX.—Section 56(g)(4)(B) is amended
by adding at the end the following new clause:
‘‘(iii) INACTIVE WELLS.—In the case
of income attributable to independent pro-
ducers of oil recovered from an inactive
well, clause (i) shall not apply to any
amount allowable as an exclusion under
section 139.’’
(d) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 is amended by
striking the item relating to section 139 and inserting the
following:
‘‘Sec. 139. Oil or gas produced from a recovered inactive well.
‘‘Sec. 140. Cross references to other Acts.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
SEC. 103. 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—