[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 325 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                 S. 325

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
 encourage production of oil and gas within the United States, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 28, 1999

Mrs. Hutchison (for herself, Mr. Domenici, Mr. Nickles, Mr. Murkowski, 
 Mr. Bingaman, Mr. Breaux, Mr. Brownback, Mr. Cochran, Mr. Conrad, Mr. 
      Enzi, Mr. Gramm, Mr. Inhofe, Ms. Landrieu, Mr. Roberts, Mr. 
    Rockefeller, Mr. Stevens, Mr. Thomas, Mr. Burns, and Mr. Lott) 
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 tax incentives to 
 encourage production of oil and gas within the United States, 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 ``United States Energy Economic Growth 
Act''.

          TITLE I--PRODUCTION FROM MARGINAL AND INACTIVE WELLS

SEC. 101. 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 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 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 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 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 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 amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) of such Code is amended by inserting ``or the 
        marginal oil and gas well production credit'' after 
        ``employment credit''.
    (d) Carryback.--Subsection (a) of section 39 of such Code (relating 
to carryback and carryforward of unused 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 separately 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.''
    (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 following 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.

SEC. 102. EXCLUSION OF CERTAIN AMOUNTS RECEIVED FROM RECOVERED INACTIVE 
              WELLS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 139 as section 
140 and by inserting after section 138 the following new section:

``SEC. 139. OIL OR GAS PRODUCED FROM A RECOVERED INACTIVE WELL.

    ``(a) In General.--Gross income does not include income 
attributable to independent producer oil from a recovered inactive 
well.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Independent producer oil.--The term `independent 
        producer oil' means crude oil or natural gas in which the 
        economic interest of the independent producer is attributable 
        to an operating mineral interest (within the meaning of section 
        614(d)), overriding royalty interest, production payment, net 
        profits interest, or similar interest.
            ``(2) Crude oil and natural gas.--The terms `crude oil' and 
        `natural gas' have the meanings given such terms by section 
        613A(e).
            ``(3) Recovered inactive well.--The term `recovered 
        inactive well' means a well if--
                    ``(A) throughout the time period beginning any time 
                prior to January 15, 1999, and ending on such date, 
                such well is inactive or has been plugged and 
                abandoned, as determined by the agency of the State in 
                which such well is located that is responsible for 
                regulating such wells, and
                    ``(B) during the 5-year period beginning on the 
                date of the enactment of this section, such well 
                resumes producing crude oil or natural gas.
            ``(4) Independent producer.--The term `independent 
        producer' means a producer of crude oil or natural gas whose 
        allowance for depletion is determined under section 613A(c).
    ``(c) Deductions.--No deductions directly connected with amounts 
excluded from gross income by subsection (a) shall be allowed.
    ``(d) Election.--
            ``(1) In general.--This section shall apply for any taxable 
        year only at the election of the taxpayer.
            ``(2) Manner.--Such election shall be made, in accordance 
        with regulations prescribed by the Secretary, not later than 
        the time prescribed for filing the return (including extensions 
        thereof) and shall be made annually on a property-by-property 
        basis.''
    (b) Minimum Tax.--Section 56(g)(4)(B) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new clause:
                            ``(iii) Inactive wells.--In the case of 
                        income attributable to independent producers of 
                        oil recovered from an inactive well, clause (i) 
                        shall not apply to any amount allowable as an 
                        exclusion under section 139.''
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by striking the item 
relating to section 139 and inserting the following:

                              ``Sec. 139. Oil or gas produced from a 
                                        recovered inactive well.
                              ``Sec. 140. Cross references to other 
                                        Acts.''

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

                       TITLE II--OTHER INCENTIVES

SEC. 201. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 263 of the Internal Revenue Code of 1986 
(relating to capital expenditures) is amended by adding at the end the 
following new subsection:
    ``(j) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat geological and geophysical expenses incurred in connection with 
the exploration for, or development of, oil or gas within the United 
States (as defined in section 638) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''
    (b) Conforming Amendment.--Section 263A(c)(3) of the Internal 
Revenue Code of 1986 is amended by inserting ``263(j),'' after 
``263(i),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to expenses paid or incurred after the date of the 
        enactment of this Act.
            (2) Transition rule.--In the case of any expenses described 
        in section 263(j) of the Internal Revenue Code of 1986, as 
added by this section, which were paid or incurred on or before the 
date of the enactment of this Act, the taxpayer may elect, at such time 
and in such manner as the Secretary of the Treasury may prescribe, to 
amortize the unamortized portion of such expenses over the 36-month 
period beginning with the month in which the date of the enactment of 
this Act occurs. For purposes of this paragraph, the unamortized 
portion of any expense is the amount remaining unamortized as of the 
first day of the 36-month period.

SEC. 202. ELECTION TO EXPENSE DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 of the Internal Revenue Code of 1986 
(relating to capital expenditures), as amended by section 201(a), is 
amended by adding at the end the following new subsection:
    ``(k) Delay Rental Payments for Domestic Oil and Gas Wells.--
            ``(1) In general.--Notwithstanding subsection (a), a 
        taxpayer may elect to treat delay rental payments incurred in 
        connection with the development of oil or gas within the United 
        States (as defined in section 638) as payments which are not 
        chargeable to capital account. Any payments so treated shall be 
        allowed as a deduction in the taxable year in which paid or 
        incurred.
            ``(2) Delay rental payments.--For purposes of paragraph 
        (1), the term `delay rental payment' means an amount paid for 
        the privilege of deferring development of an oil or gas well.''
    (b) Conforming Amendment.--Section 263A(c)(3) of the Internal 
Revenue Code of 1986, as amended by section 201(b), is amended by 
inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to payments made or incurred after the date of the 
        enactment of this Act.
            (2) Transition rule.--In the case of any payments described 
        in section 263(k) of the Internal Revenue Code of 1986, as 
        added by this section, which were made or incurred on or before 
        the date of the enactment of this Act, the taxpayer may elect, 
        at such time and in such manner as the Secretary of the 
        Treasury may prescribe, to amortize the unamortized portion of 
        such payments over the 36-month period beginning with the month 
        in which the date of the enactment of this Act occurs. For 
        purposes of this paragraph, the unamortized portion of any 
        payment is the amount remaining unamortized as of the first day 
        of the 36-month period.

SEC. 203. EXTENSION OF SPUDDING RULE.

    (a) In General.--Section 461(i)(2)(A) of the Internal Revenue Code 
of 1986 (relating to special rule for spudding of oil or gas wells) is 
amended by striking ``90th day'' and inserting ``180th day''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

SEC. 204. ENHANCED OIL RECOVERY CREDIT EXTENDED TO CERTAIN NONTERTIARY 
              RECOVERY METHODS.

    (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) one or more nontertiary 
                                recovery methods which are required to 
                                recover oil with traditionally immobile 
                                characteristics or from formations 
                                which have proven to be uneconomical or 
                                noncommercial under conventional 
                                recovery methods.''
    (b) Qualified Nontertiary Recovery Methods.--Section 43(c)(2) of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following new subparagraphs:
                    ``(C) Qualified nontertiary recovery method.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        nontertiary recovery method' means any recovery 
                        method described in clause (ii), (iii), or 
                        (iv), or any combination thereof.
                            ``(ii) Enhanced gravity drainage (egd) 
                        methods.--The methods described in this clause 
                        are as follows:
                                    ``(I) Horizontal drilling.--The 
                                drilling of horizontal, rather than 
                                vertical, wells to penetrate any 
                                hydrocarbon-bearing formation which has 
                                an average in situ calculated 
                                permeability to fluid flow of less than 
                                or equal to 12 or less millidarcies and 
                                which has been demonstrated by use of a 
                                vertical wellbore to be uneconomical 
                                unless drilled with lateral horizontal 
                                lengths in excess of 1,000 feet.
                                    ``(II) Gravity drainage.--The 
                                production of oil by gravity flow from 
                                drainholes that are drilled from a 
                                shaft or tunnel dug within or below the 
                                oil-bearing zone.
                            ``(iii) Marginally economic reservoir 
                        repressurization (merr) methods.--The methods 
                        described in this clause are as follows, except 
                        that this clause shall only apply to the first 
                        1,000,000 barrels produced in any project:
                                    ``(I) Cyclic gas injection.--The 
                                increase or maintenance of pressure by 
                                injection of hydrocarbon gas into the 
                                reservoir from which it was originally 
                                produced.
                                    ``(II) Flooding.--The injection of 
                                water into an oil reservoir to displace 
                                oil from the reservoir rock and into 
                                the bore of a producing well.
                            ``(iv) Other methods.--Any method used to 
                        recover oil having an average laboratory 
                        measured air permeability less than or equal to 
                        100 millidarcies when averaged over the 
                        productive interval being completed, or an in 
                        situ calculated permeability to fluid flow less 
                        than or equal to 12 millidarcies or oil defined 
                        by the Department of Energy as being immobile.
                    ``(D) Authority to add other nontertiary recovery 
                methods.--The Secretary shall provide procedures under 
                which--
                            ``(i) the Secretary may treat methods not 
                        described in clause (ii), (iii), or (iv) of 
                        subparagraph (C) as qualified nontertiary 
                        recovery methods, and
                            ``(ii) a taxpayer may request the Secretary 
                        to treat any method not so described as a 
                        qualified nontertiary recovery method.
                The Secretary may only specify methods as qualified 
                nontertiary recovery methods under this subparagraph if 
                the Secretary determines that such specification is 
                consistent with the purposes of subparagraph (C) and 
                will result in greater production of oil and natural 
                gas.''
    (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 
                                nontertiary recovery 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.
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