[Congressional Record Volume 153, Number 45 (Thursday, March 15, 2007)]
[Senate]
[Pages S3212-S3213]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INHOFE:
  S. 905. A bill to amend the Internal Revenue Code of 1986 to 
eliminate the taxable income limit on percentage depletion for oil and 
natural gas produced from marginal properties; to the Committee on 
Finance.
  Mr. INHOFE. Mr. President, the independent producers of oil and gas 
are the backbone of our domestic supply of energy. They have played and 
continue to play a critical role in meeting our domestic needs, 
especially as the big oil companies' focus mainly offshore. In fact, 
independents develop 90 percent of our Nation's wells. According to the 
Department of Energy, independent producers supply 68 percent of 
American oil production and 82 percent of overall American natural gas.
  Therefore, I rise today to introduce legislation that eliminates the 
taxable income limit on percentage depletion for oil and natural gas 
produced from marginal wells; wells producing 15 barrels of day and 
less than 90 thousand cubic feet of natural gas.
  Under current law, the percentage depletion method is limited to only 
independent producers and royalty owners. It is a form of cost recovery 
for capital initially invested toward production of oil and gas wells. 
Generally, the percentage depletion rate is 15 percent of the 
taxpayer's gross income from an oil and gas producing property and is 
limited to a daily average of 1,000 barrels of oil or 6,000 thousand 
cubic feet of natural gas. However, under the net income limitation, 
percentage depletion is limited to 100 percent of the net income from 
an individual property. In the case of marginal wells, where total 
deductions often do exceed this net-income, this limitation discourages 
producers from investing in the continued production from marginal 
wells.
  As a result Congress has suspended the net-income limitation for 1998 
through 2005; and again for 2006 and 2007, with the passage of the Tax 
Relief and Health Care Act of 2006, H.R. 6111.
  My bill would simply clarify the policy by doing away with the 
taxable net income limitation altogether.
  In my own State of Oklahoma, it is the small independents, basically 
mom-and-pop operations, producing the majority of oil and natural gas, 
with 85 percent of Oklahoma's oil coming from marginal wells.
  Because marginal wells supply such a significant amount of our oil 
and gas, it is vital we keep them in operation. According to the Energy 
Department, between 1994 and 2003, we lost 110 million barrels of crude 
oil due to plugged marginal wells. Thus, when we lose marginal wells, 
we become more dependent upon foreign sources of energy, at a time when 
virtually all agree that U.S. policies should encourage reliance upon 
domestic sources. Furthermore, we lose domestic jobs to foreign 
nations.
  My bill would allow independents the necessary capital to continue to 
produce from these existing marginal wells--which is critical to the 
Nation's overall energy security. I ask unanimous consent that the text 
of the bill be printed in the Record.

[[Page S3213]]

  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 905

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

     SECTION 1. ELIMINATION OF TAXABLE INCOME LIMIT ON PERCENTAGE 
                   DEPLETION FOR OIL AND NATURAL GAS PRODUCED FROM 
                   MARGINAL PROPERTIES.

       (a) In General.--Subparagraph (H) of section 613A(c)(6) of 
     the Internal Revenue Code of 1986 (relating to oil and 
     natural gas produced from marginal properties) is amended to 
     read as follows:
       ``(H) Nonapplication of taxable income limit with respect 
     to marginal production.--The second sentence of subsection 
     (a) of section 613 shall not apply to so much of the 
     allowance for depletion as is determined under subparagraph 
     (A).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.
                                 ______