A bill to amend the Internal Revenue Code of 1986 to provide a tax credit for the production of oil and gas from existing marginal oil and gas wells and from new oil and gas wells.

SECTION 1. TAX CREDIT FOR MARGINAL AND NEW DOMESTIC OIL AND NATURAL GAS 
              PRODUCTION.

    (a) Credit for Producing Oil and Gas From New Wells and Marginal 
Wells.--Subpart D of part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to business credits) is amended 
by adding at the end the following new section:

``SEC. 45C. CREDIT FOR PRODUCING OIL AND GAS FROM NEW WELLS AND 
              MARGINAL WELLS.

    ``(a) General Rule.--For purposes of section 38, the new and 
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 attributable 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 increase.--
                    ``(A) In general.--The $3 and 50 cents amounts 
                under paragraph (1) shall each be reduced (but not 
                below zero) by an amount which bears the same ratio to 
                such amount (determined without regard to this 
                paragraph) as--
                            ``(i) the amount by which the reference 
                        price for the calendar year preceding the 
                        calendar year in which the taxable year begins 
                        exceeds $14 ($2.49 for qualified natural gas 
                        production), bears to
                            ``(ii) $6 ($1.06 for qualified natural gas 
                        production).
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 1995, 
                each of the dollar amounts contained in subparagraph 
                (A) shall be increased to an amount equal to such 
                dollar amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under section 
                43(c)(3)(B) by substituting `1994' 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 produced from--
                    ``(A) a marginal well, or
                    ``(B) a new 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--
                            ``(i) in the case of a marginal well, 1,095 
                        barrels or barrel equivalents, or
                            ``(ii) in the case of a new well, 5,475 
                        barrels or barrel equivalents.
                    ``(B) Special rule where well produces both.--In 
                the case of a new well which produces crude oil and 
                natural gas, the limitation for any taxable year 
                applicable to natural gas produced from the well shall 
                be reduced by the barrel equivalents (expressed in 
                cubic feet) of the crude oil produced from the well 
                during the taxable year.
                    ``(C) Proportionate reductions.--
                            ``(i) Short taxable years.--In the case of 
                        a short taxable year, the limitations under 
                        this paragraph shall be proportionately reduced 
                        to reflect the ratio which the number of days 
                        in the year bears to 365.
                            ``(ii) Wells not in production entire 
                        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 production bears to 
                        the total number of days in the taxable year.
            ``(3) Definitions.--
                    ``(A) Marginal well.--The term `marginal well' 
                means a domestic well (other than a new 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 equivalents, 
                                and
                                    ``(II) produces water at a rate not 
                                less than 95 percent of total well 
                                effluent.
                    ``(B) New well.--The term `new well' means a 
                domestic well drilled after December 31, 1994.
                    ``(C) Crude oil, etc.--The terms `crude oil', 
                `natural gas', `domestic', and `barrel' have the 
                meanings given such terms by section 613A(e).
                    ``(D) Barrel equivalent.--The term `barrel 
                equivalent' means, with respect to natural 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 taxpayer.--In the case 
        of a marginal well or new well in which there is more than one 
        owner of operating interests in the well and the crude oil or 
        natural gas production 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 taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue interests 
        of all operating 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 as defined in section 
        614(d).
            ``(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 section 29 with 
        respect to the well.''
    (b) Credit Treated as Business Credit.--Section 38(b) of such Code 
is amended by striking ``plus'' at the end of paragraph (10), by 
striking the period at the end of paragraph (11) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(12) the new and marginal oil and gas well production 
        credit determined under section 45C(a).''
    (c) Credit Allowed Against Regular and Minimum 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 oil and gas production credit.--
                    ``(A) In general.--In the case of the oil and gas 
                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) subparagraph (A) shall not 
                                apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the oil and 
                                gas production credit).
                    ``(B) Oil and gas production credit.--For purposes 
                of this subsection, the term `oil and gas production 
                credit' means the credit allowable under subsection (a) 
                by reason of section 45C(a).''
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) of such Code is amended by inserting ``or the 
        oil and gas production credit'' after ``employment credit''.
    (d) Coordination With Section 29.--Section 29(a) of such Code is 
amended by striking ``There'' and inserting ``At the election of the 
taxpayer, there''.
    (e) 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 following item:

        ``45C. Credit for producing oil and gas from new wells and 
                            marginal wells.''

    (f) Effective Date.--The amendments made by this section shall 
apply to production after the date of the enactment of this Act.

Summary: Amends the Internal Revenue Code to allow a business tax credit for producing crude oil and natural gas from new wells and marginal wells. Provides:  (1) a formula for reducing such credit in years in which oil and gas prices increase; and (2) an inflation adjustment for such formula. Allows such credit against the regular and minimum tax.