House sends 2-year extension of marginal well tax credit to Senate

By the OGJ Online Staff

WASHINGTON, DC, Oct. 26 -- The US House of Representatives has voted to extend through 2003 a key marginal well tax provision due to expire this year.

The measure suspends 100% of the net income limitation for marginal oil and gas wells. It was included in a $100 billion economic stimulus package passed Wednesday by the House on a narrow 216-214 vote.

The pending 2002 White House budget plan introduced in March sought a 1-year extension of the expiring law.

This spring the White House resisted calls by independents to make permanent the net income limitation allowance or to dramatically expand tax relief measures aimed at boosting marginal wells (OGJ, Mar. 12, 2001, p. 31). White House officials argued expanding tax relief would be too expensive for the budget.

A few months later, it appeared independents had won their argument: House Republican leaders said the White House would not oppose $8 billion in expanded energy incentives that was part of H.R. 4, a comprehensive energy bill which passed the House in August.

But since the Sept. 11 terrorist attacks, the political landscape has again shifted.

Sweeping energy legislation appears to be on hold in the Democratic-controlled Senate. Oil prices are lower. Meanwhile, security issues and a weaker economy mean there may be less room for industry-specific tax breaks, lobbyists said.

The economic package that includes the 2-year marginal well extension is pending in the Senate. It is uncertain whether it will survive. Senate Democratic leaders say they want to avoid giving favorable tax treatment to specific sectors. Instead they want to follow a White House proposal that would include accelerated income tax rate cuts, a 30% bonus on what companies can depreciate and permanent suspension of the alternative minimum tax (AMT) most larger corporations pay.

The House bill also advocates tax relief for businesses but it is far more expansive than what the White House wanted. It would allow companies that pay the AMT to claim a credit retroactively for 15 years.

Meanwhile, industry lobbyists still hope that Congress may expand marginal well tax credits in the name of national security. Extending the Sec. 29 tax credit for production from nonconventional sources and a phased-in repeal of the AMT seem the most likely to pass.

Less likely are provisions to allow a tax credit to keep marginal wells in production, extending the net operating loss carryback to 5 years, and allowing companies to expense geological and geophysical costs.