Major and independent gas producers last week commended FERC fortaking steps to reinstate its authority to make well determinationsso that qualified producers can obtain Section 29 tax credits forhigh-cost gas wells. But they urged the Commission to extend thedetermination process to all qualifying wells, irrespective ofwhether the wells were spudded and/or recompleted pre-Jan. 1, 1993or whether they were recompleted after Dec. 31, 1992.

In a notice of proposed rulemaking (NOPR) last January, theCommission proposed limiting formal well determinations to onlythose wells that were recompleted after Dec. 31, 1992. Nearly allproducers took exception with FERC’s action because it would denySection 29 tax credits to qualifying wells spudded or recompletedpre-1993.

“Congress certainly did not intend to punish producers when itrepealed the [Natural Gas Policy Act], and indeed it is not fair todo so now by precluding producers from obtaining a welldetermination for certain wells that otherwise would qualify forthe tax credit,” said the Independent Petroleum Association ofAmerica (IPAA), which filed joint comments at FERC with the NaturalGas Supply Association (NGSA) last week [RM00-6].

Under the NOPR, the Commission is trying to remedy an oversightthat occurred when Congress phased out price controls for naturalgas under the Wellhead Decontrol Act of 1989, which removed FERC’sauthority to set ceiling prices for natural gas at the wellhead.

The oversight is this: in order for producers to take advantageof the Section 29 tax credit of the Internal Revenue Code, theyfirst must get from FERC a ruling on the geological formation oftheir wells — which determines whether the gas can qualify forthe tax credit. But the producers can’t get such determinationsbecause the Commission phased out its procedures after the totaldecontrol of gas prices.

A band of producers, who are mostly active in the Rocky Mountainregion, petitioned the Commission last year to reinstate its welldetermination procedures so they could qualify for the tax credit,which expires in 2002. The producers’ petition, which was backed bythe Department of Energy, along with the NOPR are in response to adecision by the Tenth Circuit Court of Appeals, which addressed thequandary involving the tax credit.

Based on the IRS codes and rulings, eligible for the tax creditare 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 werespudded prior to Jan. 1, 1993. Also, only high-cost,hard-to-produce gas (as defined under Section 107 of the NaturalGas Act) and tight-formation gas are eligible for the tax credit.

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