A key piece of tax legislation benefiting independent natural gas and oil producers moved through the House Ways and Means Committee Wednesday night (on a 24-17 vote) on its way to a late July rendezvous with three other parts of the administration’s energy plan on the House floor.

“This is very much what we’ve been advocating over the past several months. It gets to the heart of the capital formation issues,” said Lee Fuller, government relations director of the Independent Petroleum Association of America. The measure would aid marginal wells, extend depletion allowance provisions and allow faster recovery of capital for new development by allowing expensing of some of the costs.

The key debate over these measures, Fuller said, was the amount–$8 billion–they would cost the federal government in uncollected revenues over the next 10 years, and how it would fit into the budget. Overall, the Ways and Means Committee bill would cost $33.5 billion, including numerous tax incentives for alternative energy, conservation through energy efficiency, and clean coal technology.

Two other segments of the energy plan have made it through their respective House committees. The House Energy and Commerce Committee Thursday passed a bill including stricter fuel economy requirements for sport utility vehicles, among other things. Earlier in the week, the House Resources Committee passed a bill that included drilling in the Alaska Natural Wildlife Refuge (ANWR) and continued royalty-relief incentives to further spur development of deepwater leases in the central and western Gulf. It also calls for the National Academy of Sciences to analyze the oil and gas resources in the Gulf and recommends incentives to “optimize” oil and gas supplies from the moratoria-free areas of the Gulf. The resources bill also seeks expedited reviews for onshore leasing, more flexible royalty-in-kind programs, and royalty relief for stripper oil and gas wells (see Daily GPI, July 11 and July 18).

The tax incentives legislation from the Ways and Means Committee, which is going to join the other measures on the floor, includes tax credits for marginal natural gas wells which kick in when average gas prices fall below $2.00/Mcf, increasing to a maximum of $0.50 when the price hits $1.67. For oil the credits start at $18/bbl and reach a maximum of $3.00 when the oil marker price falls to $15/bbl. The bill also would extend until 2006 certain provisions allowing a greater depletion allowance and spreading of losses over five years. These provisions help “create a tax credit safety net,” Fuller said. They’re not much help now when the industry is booming, but “they would have helped small marginal well producers stay in business during the downturn in 1997 and 1998.”

Measures to allow expensing of delay rental payments, and geological and geophysical costs, would serve to help jump-start new projects, by allowing producers to recover development costs on finding new reserves faster. The legislation also addresses problems with the Alternative Minimum Tax for enhanced oil recovery and intangible drilling costs. “The package touches on all different components of the business that would restrict capital. It would allow more producers to stay in the industry during the lean times, and provide them with more capital to put back in the ground,” Fuller said.

The bill also would shorten the expensing of natural gas gathering lines to seven years and distribution lines to 10 years.

While the Republican-led U.S. House seems determined to pass energy legislation before the traditional August recess, the Democratic-led Senate is not expected to act until the recess ends. The Senate Finance Committee is considering the tax incentive package. Fuller speculated that most of the floor debate will be about ANWR and measures addressing the California crisis.

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