Producers Ask FERC to Lift Restriction on Tax Credits
Major and independent gas producers last week commended FERC for
taking steps to reinstate its authority to make well determinations
so that qualified producers can obtain Section 29 tax credits for
high-cost gas wells. But they urged the Commission to extend the
determination process to all qualifying wells, irrespective of
whether the wells were spudded and/or recompleted pre-Jan. 1, 1993
or whether they were recompleted after Dec. 31, 1992.
In a notice of proposed rulemaking (NOPR) last January, the
Commission proposed limiting formal well determinations to only
those wells that were recompleted after Dec. 31, 1992. Nearly all
producers took exception with FERC's proposal because it would deny
Section 29 tax credits to qualifying wells spudded or recompleted
"Congress certainly did not intend to punish producers when it
repealed the [Natural Gas Policy Act], and indeed it is not fair to
do so now by precluding producers from obtaining a well
determination for certain wells that otherwise would qualify for
the tax credit," said the Independent Petroleum Association of
America (IPAA), which filed joint comments at FERC with the Natural
Gas Supply Association (NGSA) last week [RM00-6].
Under the NOPR, the Commission is trying to remedy an oversight
that occurred when Congress phased out price controls for natural
gas under the Wellhead Decontrol Act of 1989, which removed FERC's
authority to set ceiling prices for natural gas at the wellhead.
The oversight is this: in order for producers to take advantage
of the Section 29 tax credit of the Internal Revenue Code, they
first must get from FERC a ruling on the geological formation of
their wells --- which determines whether the gas can qualify for
the tax credit. But the producers can't get such determinations
because the Commission phased out its procedures after the total
decontrol of gas prices.
A band of producers, who are mostly active in the Rocky Mountain
region, petitioned the Commission last year to reinstate its well
determination procedures so they could qualify for the tax credit,
which expires in 2002. The producers' petition, which was backed by
the Department of Energy, along with the NOPR are in response to a
decision by the Tenth Circuit Court of Appeals, which addressed the
quandary involving the tax credit.
Based on the IRS code and a subsequent IRS ruling, eligible for
the tax credit are gas wells that were spudded and/or recompleted
prior to Jan. 1, 1993 and wells that were recompleted post Dec. 31,
1992. Recompletion essentially is continuous drilling in wells that
were spudded prior to Jan. 1, 1993. Also, only high-cost,
hard-to-produce gas (as defined under Section 107 of the Natural
Gas Act) is eligible for the tax credit.
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