I
106TH CONGRESS
1ST SESSION
H. R. 1971
To amend the Internal Revenue Code of 1986 to encourage domestic oil
and gas production, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 26, 1999
Mr. WATKINS (for himself, Mr. JOHN, and Mr. WATTS of Oklahoma) intro-
duced 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
domestic oil and gas production, 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;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Domestic Energy Production Security and Stabilization
Act.’’
(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.
(c) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Tax credit for marginal domestic oil and natural gas well production.
Sec. 3. Phase-out of certain minimum tax preferences relating to energy pro-
duction.
Sec. 4. Depreciation adjustment not to apply to oil and gas assets.
Sec. 5. Repeal certain adjustments based on adjusted current earnings relating
to oil and gas assets.
Sec. 6. Enhanced oil recovery credit and credit for producing fuel from a non-
conventional source allowed against minimum tax.
Sec. 7. 10-year carryback for percentage depletion for oil and gas property.
Sec. 8. Net income limitation on percentage depletion repealed for oil and gas
properties.
Sec. 9. Election to expense geological and geophysical expenditures and delay
rental payments.
Sec. 10. Waiver of limitations.
SEC. 2. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND
NATURAL GAS WELL PRODUCTION.
(a) PURPOSE.—The purpose of this section 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.
(b) CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business credits) is amended
by adding at the end the following new section:
‘‘SEC. 45D. 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 $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
‘‘(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:
‘‘Sec. 45D. Credit for producing oil and gas from marginal wells.’’
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to production in taxable years be-
ginning after December 31, 1998.
SEC. 3. PHASE-OUT 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 1998, there shall be
allowed as a deduction an amount equal to the alter-
native tax energy preference deduction.
‘‘(2) PHASE-OUT 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 $14, 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 2000, the
$14 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 ‘1999’ 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.—Subparagraphs (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, 1998.
SEC. 4. DEPRECIATION ADJUSTMENT NOT TO APPLY TO
OIL AND GAS ASSETS.
(a) IN GENERAL.—Subparagraph (B) of section
56(a)(1) (relating to depreciation adjustments) is amend-
ed 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, 1998.
SEC. 5. REPEAL CERTAIN ADJUSTMENTS BASED ON AD-
JUSTED CURRENT EARNINGS RELATING TO
OIL AND GAS ASSETS.
(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,
1998.’’
(b) 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, 1998, clause
(i) (and subparagraph (C)(i)) shall not
apply to any deduction for depletion com-
puted in accordance with section 613A.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 6. 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) ALLOWING
CREDIT
AGAINST
MINIMUM
TAX.—Subsection (c) of section 38 (relating to limi-
tation based on amount of tax), as amended by sec-
tion 2(d), is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after para-
graph (3) the following new paragraph:
‘‘(4) 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 AMENDMENTS.—
(A) 
Subclause 
(II) 
of 
section
38(c)(2)(A)(ii), as amended by section 2(d), is
amended by striking ‘‘or the marginal oil and
gas well production credit’’ and inserting ‘‘, the
marginal oil and gas well production credit, or
the enhanced oil recovery credit’’.
(B) 
Subclause 
(II) 
of 
section
38(c)(3)(A)(ii), as added by section 2(d), is
amended by inserting ‘‘or the enhanced oil re-
covery credit’’ after ‘‘recovery 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
CRED-
ITS.—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, re-
duced 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 Production Secu-
rity 
and 
Stabilization 
Act,’’ 
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, 1998.
SEC. 7. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLE-
TION FOR OIL AND GAS PROPERTY.
(a) IN GENERAL.—Subsection (d)(1) of section 613A
(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),