I
106TH CONGRESS
1ST SESSION
H. R. 53
To amend the Internal Revenue Code of 1986 to provide a tax credit for
marginal oil and natural gas well production.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 6, 1999
Mr. WATKINS (for himself, Mr. THOMAS, Mr. ISTOOK, Mr. MORAN of Kansas,
Mr. BRADY of Texas, Mr. SKEEN, Mr. THORNBERRY, Mr. MCCRERY, Mr.
LARGENT, Mr. WATTS of Oklahoma, Mr. LUCAS of Oklahoma, Mr.
SMITH of Texas, and Mr. STENHOLM) 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 provide
a tax credit for marginal oil and natural gas well production.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TAX CREDIT FOR MARGINAL DOMESTIC OIL
AND NATURAL GAS WELL PRODUCTION.
(a) CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.—Subpart D of part IV of subchapter
A of chapter 1 of the Internal Revenue Code of 1986 (re-
lating 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 1999, 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 ‘1998’ 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 which during
the taxable year has marginal production (as
defined in section 613A(c)(6)).
‘‘(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 natu-
ral 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 operat-
ing 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.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) of such Code is amended by striking ‘‘plus’’
at the end of paragraph (11), by striking the period at
the end of paragraph (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).’’.
(c) CREDIT ALLOWED AGAINST REGULAR AND MINI-
MUM 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 45D(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),
and
‘‘(B) paragraph (1) shall be applied by
substituting ‘10 taxable years’ for ‘1 taxable
years’ in subparagraph (A) 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 follow-
ing item:
‘‘45D. Credit for producing oil and gas from marginal wells.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to production after the date of the
enactment of this Act.
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