Independent oil and natural gas producers scored a big victory Wednesday when House-Senate conferees approved a proposal that would establish a tax credit for marginal oil and gas wells when energy prices drop to low levels as part of the conference report on the broad corporate tax cut legislation (H.R. 4520).

Sen. Jeff Bingaman (D-NM), a conferee and member of the Senate Finance Committee, offered the last-minute amendment Wednesday as conferees met for their fourth day of negotiations on the underlying corporate tax cut bill.

This safety net for marginal oil and gas wells is an “important backstop to ensure that we will not lose existing domestic production in the future simply because of the boom-and-bust nature of the industry,” Bingaman said.

There are more than 400,000 marginal oil wells in the United States, along with approximately 250,000 marginal gas wells. They provide about 25% of the nation’s oil and 10% of its natural gas, according to the Independent Petroleum Association of American (IPAA), which represents independent producers. The market value of these wells is $12.7 billion and results in 111,000 U.S. jobs, it said. The marginal wells also generate nearly $500 million in state severance taxes.

Marginal oil wells have an average production of not more than 15 barrels per day, while marginal gas wells have an average production of not more than 90 Mcf/d.

Bingaman’s provision would allow a $3 a barrel tax credit for the first three barrels of daily production from an existing marginal oil well and a 50 cents/Mcf credit for the first 18 Mcf of gas production from a marginal well when prices drop below a certain level. The tax credit would be phased in and out in equal increments as prices for oil and natural gas fall and rise.

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