[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1050 Introduced in Senate (IS)]
106th CONGRESS
1st Session
S. 1050
To amend the Internal Revenue Code of 1986 to provide incentives for
gas and oil producers, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 13, 1999
Mr. Murkowski introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide incentives for
gas and oil producers, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Energy Security Tax Policy Act of
1999''.
SEC. 2. ELIMINATION OF CERTAIN AMT PREFERENCES FOR OIL AND GAS ASSETS.
(a) Depletion.--Section 57(a)(1) of the Internal Revenue Code of
1986 (relating to depletion) is amended by striking the second sentence
and inserting the following: ``This paragraph shall not apply to any
deduction for depletion computed in accordance with section 613A.''
(b) Intangible Drilling Costs.--Section 57(a)(2)(E) of the Internal
Revenue Code of 1986 (relating to exception for independent producers)
is amended to read as follows:
``(E) Termination of application to oil and gas
properties.--In the case of any taxable year beginning
after December 31, 1998, this paragraph shall not apply
in the case of any oil or gas property.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 3. DEPRECIATION ADJUSTMENT NOT TO APPLY TO OIL AND GAS ASSETS.
(a) In General.--Subparagraph (B) of section 56(a)(1) of the
Internal Revenue Code of 1986 (relating to depreciation adjustments) 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 conduct
of the trade or business of exploring for,
extracting, developing, or gathering crude oil
or natural gas.''
(b) Depreciation Adjustment for Purposes of Adjusted Current
Earnings.--Paragraph (4)(A) of section 56(g) of such Code (relating to
adjustments based on adjusted current earnings) is amended by adding at
the end the following new clause:
``(vi) Oil and gas property.--In the case
of property used in the active conduct of the
trade or business of exploring for, extracting,
developing, or gathering crude oil or natural
gas, the amount allowable as depreciation or
amortization with respect to such property
shall be determined in the same manner as for
purposes of computing the regular tax.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 4. REPEAL CERTAIN ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS
RELATING TO OIL AND GAS ASSETS.
(a) Intangible Drilling Costs.--Clause (i) of section 56(g)(4)(D)
of the Internal Revenue Code of 1986 (relating to certain other
earnings and profits adjustments) is amended by striking the second
sentence and inserting the following: ``In the case of any oil or gas
well, this clause shall not apply to amounts paid or incurred in
taxable years beginning after December 31, 1998.''
(b) Depletion.--Clause (ii) of section 56(g)(4)(F) of the Internal
Revenue Code of 1986 (relating to depletion) 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 computed 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. 5. ENHANCED OIL RECOVERY CREDIT AND CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE ALLOWED AGAINST MINIMUM TAX.
(a) Enhanced Oil Recovery Credit Allowed Against Regular and
Minimum Tax.--
(1) Allowing credit against minimum tax.--Subsection (c) of
section 38 of the Internal Revenue Code of 1986 (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 enhanced oil recovery credit.--
``(A) In general.--In the case of the enhanced 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
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the enhanced
oil recovery credit).
``(B) Enhanced oil recovery credit.--For purposes
of this subsection, the term `enhanced oil recovery
credit' means the credit allowable under subsection (a)
by reason of section 43(a).''.
(2) Conforming amendment.--Subclause (II) of section
38(c)(2)(A)(ii) of such Code is amended by inserting ``or the
enhanced oil recovery credit'' after ``employment credit''.
(b) Credit for Producing Fuel From a Nonconventional Source.--
(1) Allowing credit against minimum tax.--Section 29(b)(6)
of the Internal Revenue Code of 1986 is amended to read as
follows:
``(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) of such Code is
amended by inserting ``as in effect on the date of the
enactment of the Energy Security Tax Policy Act of
1999,'' after ``29(b)(6)(B),''.
(B) Section 55(c)(2) of such Code is amended by
striking ``29(b)(6),''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 6. 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 (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 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 excess (if any) of the applicable
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 taxable 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 increased 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 produced 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 proportionately reduced
to reflect the ratio which the number of days
in such taxable 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--
``(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) 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 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 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.
``(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 the
Internal Revenue Code of 1986 (relating to current year business
credit) 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 Minimum Tax.--
(1) In general.--Subsection (c) of section 38 of the
Internal Revenue Code of 1986 (relating to limitation based on
amount of tax), as amended by section 5(a)(1), is amended by
redesignating paragraph (4) as paragraph (5) and by inserting
after paragraph (3) the following new paragraph:
``(4) 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
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the marginal
oil and gas well production credit).
``(B) Marginal oil and gas well production
credit.--For purposes of this subsection, the term
`marginal oil and gas well production credit' means the
credit allowable under subsection (a) by reason of
section 45D(a).''.
(2) Conforming amendments.--
(A) Subclause (II) of section 38(c)(2)(A)(ii) of
such Code, as amended by section 5(a)(2), is amended by
striking ``or the enhanced oil recovery credit'' and
inserting ``the enhanced oil recovery credit, or the
marginal oil and gas well production credit''.
(B) Subclause (II) of section 38(c)(3)(A)(ii) of
such Code, as added by section 5(a)(1), is amended by
inserting ``or the marginal oil and gas well production
credit'' after ``recovery credit''.
(d) Coordination With Section 29.--Section 29(d) of the Internal
Revenue Code of 1986 (relating to other definitions and special rules)
is amended by adding at the end the following new paragraph:
``(9) Election not to take credit.--No credit shall be
allowed under subsection (a) with respect to production from
any marginal well (as defined in section 45D(c)(3)(A)) if the
taxpayer elects to not have this section apply to such well.''
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 of the Internal Revenue Code of
1986 is amended by adding at the end the following new item:
``45D. Credit for producing oil and gas from marginal wells.''
(f) Effective Date.--The amendments made by this section shall
apply to production in taxable years ending after the date of the
enactment of this Act.
SEC. 7. ALLOWANCE OF ADDITIONAL ENHANCED OIL RECOVERY METHOD.
(a) In General.--Clause (i) of section 43(c)(2)(A) of the Internal
Revenue Code of 1986 (defining qualified enhanced oil recovery project)
is amended to read as follows:
``(i) which involves the application (in
accordance with sound engineering principles)
of--
``(I) one or more tertiary recovery
methods (as defined in section
193(b)(3)) which can reasonably be
expected to result in more than an
insignificant increase in the amount
of crude oil which will ultimately be recovered, or
``(II) a qualified horizontal
drilling method which can reasonably be
expected to result in more than an
insignificant increase in the amount
of crude oil which will ultimately be recovered or lead to the
discovery or delineation of previously undeveloped accumulations of
crude oil,''
(b) Qualified Horizontal Drilling Method.--Section 43(c)(2) of the
Internal Revenue Code of 1986 (relating to qualified enhanced oil
recovery project) is amended by adding at the end the following new
subparagraph:
``(C) Qualified horizontal drilling method.--For
purposes of this paragraph--
``(i) In general.--The term `qualified
horizontal drilling method' means the drilling
of a horizontal well in order to penetrate
hydrocarbon bearing formations located north of
latitude 54 degrees North.
``(ii) Horizontal well.--The term
`horizontal well' means a well which is
drilled--
``(I) at an inclination of at least
70 degrees off the vertical, and
``(II) for a distance in excess of
1,000 feet.''
(c) Conforming Amendment.--Clause (iii) of section 43(c)(2)(A) of
the Internal Revenue Code of 1986 is amended to read as follows:
``(iii) with respect to which--
``(I) in the case of a tertiary
recovery method, the first injection of
liquids, gases, or other matter
commences after December 31, 1990, and
``(II) in the case of a qualified
horizontal drilling method, the
implementation of the method begins
after December 31, 1998.''
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending after December 31, 1998.
SEC. 8. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.
(a) In General.--Subparagraph (C) of section 168(e)(3) of the
Internal Revenue Code of 1986 (relating to classification of certain
property) is amended by redesignating clause (ii) as clause (iii) and
by inserting after clause (i) the following new clause:
``(ii) any natural gas gathering line,
and''.
(b) Natural Gas Gathering Line.--Subsection (i) of section 168 of
the Internal Revenue Code of 1986 is amended by adding at the end the
following new paragraph:
``(15) Natural gas gathering line.--The term `natural gas
gathering line' means the pipe, equipment, and appurtenances
used to deliver natural gas from the wellhead to the point at
which such gas first reaches--
``(A) a gas processing plant,
``(B) an interconnection with an interstate
natural-gas company (as defined in section 2(6) of the
Natural Gas Act (15 U.S.C. 717a(6))), or
``(C) an interconnection with an intrastate
transmission pipeline.''
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service before, on, or after the date of
the enactment of this Act.
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