[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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