Before adjourning last week, Congress scaled back tax incentives for oil companies in budget deficit legislation.
The final pact will increase the 9cts/gal gasoline tax and 15cts/gal diesel tax each by 5cts/gal effective Dec. 1.
The bill gives industry $2.5 billion in tax and production incentives in fiscal 1991-95 vs. $4 billion in the initial budget deficit agreement (OGJ, Oct. 8, 1990, p. 30), which the House rejected.
It extends for 2 years to Dec. 31, 1991, the Sec. 29 credit for nonconventional fuels, aiding tight sands and coal seam gas producers. The bill reduces the ethanol tax credit by 6cts to 54cts/gal and lowers the ethanol exemption from the gasoline tax by 0.6cts/gal to 5.4cts/gal.
Congress tied tax incentives for enhanced oil recovery and a relaxation of the alternative minimum tax (ATM) to oil prices. The incentives begin phasing out when crude is $28/bbl and are eliminated at $34/bbl.
The EOR credit, effective Jan. 1, is for 15% of qualified EOR costs for the tax year. The ATM reduction lowers the preference for intangible drilling costs and reduces the ATM preference for percentage depletion on marginal properties, defined as wells producing 15 b/d or less.
The agreement would repeal a provision that denies the depletion allowance for properties that majors sell to independents.
It increases the net income limitation to 100% from 50% effective Jan. 1, doubling the potential percentage depletion for any one property.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.