[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 805 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 805

To amend the Internal Revenue Code of 1986 to enhance domestic oil and 
                            gas production.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 28, 2001

 Mr. Thornberry (for himself, Mr. Skeen, Mr. Smith of Texas, Mr. Watts 
of Oklahoma, Mr. Sessions, Mr. Stenholm, Mr. Watkins, Mr. Bonilla, Mr. 
Lucas of Oklahoma, Mr. Moran of Kansas, and Mr. Combest) 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 enhance domestic oil and 
                            gas production.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Independent Energy 
Production Act of 2001''.
    (b) Table of Contents.--

Sec. 1. Short title and table of contents.
                  TITLE I--MARGINAL WELL PRESERVATION

Sec. 101. Short title; purpose.
Sec. 102. Tax credit for marginal domestic oil and natural gas well 
                            production.
Sec. 103. Election to expense geological and geophysical expenditures 
                            and delay rental payments.
              TITLE II--INDEPENDENT OIL AND GAS PRODUCERS

Sec. 201. 5-year net operating loss carryback for losses attributable 
                            to operating mineral interests of 
                            independent oil and gas producers.
Sec. 202. Temporary suspension of limitation based on 65 percent of 
                            taxable income and extension of suspension 
                            of taxable income limit with respect to 
                            marginal production.
Sec. 203. Determination of small refiner exception to oil depletion 
                            deduction.
    TITLE III--DYED DIESEL FUEL AND KEROSENE OFFERED FOR NONTAXABLE 
                                PURPOSES

Sec. 301. Repeal of requirement of certain approved terminals to offer 
                            dyed diesel fuel and kerosene for 
                            nontaxable purposes.

                  TITLE I--MARGINAL WELL PRESERVATION

SEC. 101. SHORT TITLE; PURPOSE.

    (a) Short Title.--This subtitle may be cited as the ``Marginal Well 
Preservation Act of 2001''.
    (b) Purpose.--The purpose of section 102 is to prevent the 
abandonment of marginal oil and gas wells responsible for half of the 
domestic production of oil and gas in the United States and of section 
103 is to recognize that geological and geophysical expenditures and 
delay rentals are ordinary and necessary business expenses that should 
be deducted in the year the expense is incurred.

SEC. 102. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND NATURAL GAS WELL 
              PRODUCTION.

    (a) In General.--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. 45E. 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 $15 ($1.67 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 2001, 
                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 `2001' 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 to 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 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 (12), by 
striking the period at the end of paragraph (13) and inserting'', 
plus'', and by adding at the end of the following new paragraph:
            ``(14) the marginal oil and gas well production credit 
        determined under section 45E(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 45E(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 year' for `1 taxable year' 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:

                              ``Sec. 45E. Credit for producing oil and 
                                        gas from marginal wells.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to production in taxable years beginning after December 31, 2000.

SEC. 103. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES 
              AND DELAY RENTAL PAYMENTS.

    (a) Geological and Geophysical Expenditures for Oil and Gas 
Wells.--
            (1) 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 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 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.''.
            (2) Conforming amendment.--Section 263A(c)(3) of such Code 
        is amended by inserting ``263(j),'' after ``263(i),''.
            (3) Effective date.--
                    (A) In general.--The amendments made by this 
                subsection shall apply to expenses paid or incurred 
                after the date of the enactment of this Act.
                    (B) Transition rule.--In the case of any expenses 
                described in section 263(j) of the Internal Revenue 
                Code of 1986, as added by this subsection, 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 suspended 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 subparagraph, the 
                suspended portion of any expense is that portion of 
                such expense which, as of the first day of the 36-month 
                period, has not been included in the cost of a property 
                or otherwise deducted.
    (b) Delay Rental Payments for Domestic Oil and Gas Wells.--
            (1) In general.--Section 263 of such Code (relating to 
        capital expenditures), as amended by subsection (a)(1), 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 the drilling of an oil or gas well 
        under an oil or gas lease.''.
            (2) Conforming amendment.--Section 263A(c)(3) of such Code, 
        as amended by subsection (a)(2), is amended by inserting 
        ``263(k),'' after ``263(j),''.
            (3) Effective date.--
                    (A) In general.--The amendments made by this 
                subsection shall apply to payments made or incurred 
                after the date of the enactment of this Act.
                    (B) Transition rule.--In the case of any payments 
                described in section 263(k) of the Internal Revenue 
                Code of 1986, as added by this subsection, 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 suspended 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 subparagraph, the 
                suspended portion of any payment is that portion of 
                such payment which, as of the first day of the 36-month 
                period, has not been included in the cost of a property 
                or otherwise deducted.

              TITLE II--INDEPENDENT OIL AND GAS PRODUCERS

SEC. 201. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES ATTRIBUTABLE 
              TO OPERATING MINERAL INTERESTS OF INDEPENDENT OIL AND GAS 
              PRODUCERS.

    (a) In General.--Paragraph (1) of section 172(b) of the Internal 
Revenue Code of 1986 (relating to years to which loss may be carried) 
is amended by adding at the end the following new subparagraph:
                    ``(H) Losses on operating mineral interests of 
                independent oil and gas producers.--In the case of a 
                taxpayer--
                            ``(i) which has an eligible oil and gas 
                        loss (as defined in subsection (j)) for a 
                        taxable year, and
                            ``(ii) which is not an integrated oil 
                        company (as defined in section 291(b)(4)), such 
                        eligible oil and gas loss shall be a net 
                        operating loss carryback to each of the 5 
                        taxable years preceding the taxable year of 
                        such loss.''.
    (b) Eligible Oil and Gas Loss.--Section 172 of such Code is amended 
by redesignating subsection (j) as subsection (k) and by inserting 
after subsection (i) the following new subsection:
    ``(j) Eligible Oil and Gas Loss.--For purposes of this section--
            ``(1) In general.--The term `eligible oil and gas loss' 
        means the lesser of--
                    ``(A) the amount which would be the net operating 
                loss for the taxable year if only income and deductions 
                attributable to operating mineral interests (as defined 
                in section 614(d)) in oil and gas wells are taken into 
                account, or
                    ``(B) the amount of the net operating loss for such 
                taxable year.
            ``(2) Coordination with subsection (b)(2).--For purposes of 
        applying subsection (b)(2), an eligible oil and gas loss for 
        any taxable year shall be treated in a manner similar to the 
        manner in which a specified liability loss is treated.
            ``(3) Election.--Any taxpayer entitled to a 5-year 
        carryback under subsection (b)(1)(H) from any loss year may 
        elect to have the carryback period with respect to such loss 
        year determined without regard to subsection (b)(1)(H).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to net operating losses for taxable years beginning after 
December 31, 2000.

SEC. 202. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 PERCENT OF 
              TAXABLE INCOME AND EXTENSION OF SUSPENSION OF TAXABLE 
              INCOME LIMIT WITH RESPECT TO MARGINAL PRODUCTION.

    (a) Limitation Based on 65 Percent of Taxable Income.--Subsection 
(d) of section 613A of the Internal Revenue Code of 1986 (relating to 
limitation on percentage depletion in case of oil and gas wells) is 
amended by adding at the end the following new paragraph:
            ``(6) Temporary suspension of taxable income limit.--
        Paragraph (1) shall not apply to taxable years beginning after 
        December 31, 2000, and before January 1, 2007, including with 
        respect to amounts carried under the second sentence of 
        paragraph (1) to such taxable years.''.
    (b) Extension of Suspension of Taxable Income Limit With Respect to 
Marginal Production.--Subparagraph (H) of section 613A(c)(6) of such 
Code (relating to temporary suspension of taxable income limit with 
respect to marginal production) is amended by striking ``2002'' and 
inserting ``2007''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2000.

SEC. 203. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
              DEDUCTION.

    (a) In General.--Paragraph (4) of section 613A(d) of the Internal 
Revenue Code (relating to certain refiners excluded) is amended to read 
as follows:
            ``(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, subsection 
        (c) shall not apply to the taxpayer for a taxable year if the 
        average daily refinery runs of the taxpayer and the related 
        person for the taxable year exceed 50,000 barrels. For purposes 
        of this paragraph, the average daily refinery runs for any 
        taxable year shall be determined by dividing the aggregate 
        refinery runs for the taxable year by the number of days in the 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2000.

    TITLE III--DYED DIESEL FUEL AND KEROSENE OFFERED FOR NONTAXABLE 
                                PURPOSES

SEC. 301. REPEAL OF REQUIREMENT OF CERTAIN APPROVED TERMINALS TO OFFER 
              DYED DIESEL FUEL AND KEROSENE FOR NONTAXABLE PURPOSES.

    Section 4101 of the Internal Revenue Code of 1986 (relating to 
certain approved terminals of registered persons required to offer dyed 
diesel fuel and kerosene for nontaxable purposes) is amended by 
striking subsection (e).
                                 <all>