§45I Credit for Producing Oil and Gas From Marginal Wells

Summary

Gives a tax credit for oil and gas made from small, marginal wells. The credit equals a per-unit amount times the taxpayer’s share of qualified oil and gas from the well. The base amounts are $3 for each barrel of qualified crude oil and $0.50 for each 1,000 cubic feet of qualified natural gas. Those amounts are cut (down to zero if needed) when crude or gas prices go above certain levels: above $15 per barrel for oil and above $1.67 per 1,000 cubic feet for gas, using a set formula and the prior calendar year’s reference price. For tax years after 2005, the dollar amounts are raised for inflation under a specific adjustment rule. Only production from a “qualified marginal well” counts. A well is qualified if it is treated as marginal under tax rule 613A(c)(6) or if it averages 25 barrels-of-oil-equivalent per day or less and 95 percent or more of its output is water. No more than 1,095 barrels (or barrel-of-oil equivalents) per well count per year, with proportional limits for short tax years or wells that don’t produce all year. The credit is split by each owner’s revenue share, only operating-interest holders can claim it, and a taxpayer cannot take this credit for a well if they instead claim the similar 45K credit for that well.