FERC last week issued a final rulemaking that reinstates itsauthority to make well determinations so that qualifying producerscan obtain Section 29 tax credits for high-cost, hard-to-find gasproduced from certain wells and formations.

In the notice of proposed rulemaking in January, the Commissionsought to restore its authority to process well categorydeterminations for only those gas wells that were recompleted afterJan. 1, 1993, when gas prices were completely decontrolled. In thefinal rule last week, however, FERC said it also would acceptproducer applications for well determinations on qualifying gaswells that were spudded and/or recompleted before that date.Recompletions are active wells where no additional drilling todeepen or extend the well is involved.

In addition, the Commission said it would consider designationsof new tight gas formations by jurisdictional agencies (the statesor other federal agencies) when determining which producers qualifyfor the tax credit.

The final rule is an attempt by the Commission to correct anoversight that occurred when Congress phased out price controls fornatural gas under the Wellhead Decontrol Act of 1989, whichstripped FERC of its authority to set price ceilings for wellheadgas.

The oversight was this: in order for producers to take advantageof the Section 29 tax credit of the Internal Revenue Code, theyfirst had to get a ruling from FERC on whether their gas, in fact,met the definition for high-cost gas eligible for the credit. Butthe producers couldn’t get such determinations because theCommission had scrapped its procedures after the total decontrol ofgas prices.

A group of Rocky Mountain producers petitioned FERC last year toreinstate its well-determination procedures so it could qualify forthe tax credit, which expires in late 2002. The producers’petition, which was backed by the Department of Energy, and FERC’sfinal rule are in response to a decision by the Tenth Circuit Courtof Appeals, which addressed the quandary involving the tax credit.

“This order is about doing equity to gas producers, fulfillingthe expectations of large and small producers and royalty owners,who had no reason to think that these tax credits would not beavailable under the statute,” said Chairman James Hoecker. “It hasno impact on gas prices, although there may be some supply responseas a result our actions today for new completions in the next twoyears.” Producer requests for well determinations will mean morework for FERC staff, but “we are confident that we can handle[it],” he noted.

The Commission estimated that at least 4,000 recompletions wereperformed between 1993-1999 for which a well determination may besought at FERC, and that another 1,500 recompletions may occurbetween now and 2002. That’s when the tax credit is scheduled toexpire, but it could be extended. Susan Parker

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