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May 24, 2011


WASHINGTON, D.C. – Citing a need to increase economic growth and assist domestic energy producers, U.S. Sen. Jim Inhofe (R-Okla.) and U.S. Rep. Dan Boren (D-OK-2) today reintroduced both S. 1007 and H.R. 1961. This legislation will amend the Internal Revenue Code to eliminate the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.  

Since 1926 small producers and millions of royalty owners have had the option to utilize percentage depletion to both simplify and account for the decline in the value of minerals produced from a property.  Percentage depletion is particularly important for the production of America’s 690,000 low-volume marginal wells.  The average marginal well produces barely 2 barrels per day, yet cumulatively they account for nearly 28 percent of domestic production in the lower 48 states.  Removing the taxable income limitation on percentage depletion allows producers to take percentage depletion deductions on a portfolio-wide, rather than a well-by-well basis.  This makes marginal producers’ entire operation more economical.  Since 1998, Congress has understood the value of this accounting method, but it has never made it permanent.   

“Our nation cannot afford to wait for Congress to vote on this measure year after year,” said Inhofe. “With gas at $4 per gallon, unemployment at nine percent, and new drilling opportunities being cut off by the Administration, we need to do all we can to encourage domestic energy production at marginal oil and natural gas properties.  Making this common sense tax accounting provision permanent will give energy producers the accounting stability they need to ensure that these wells keep pumping. The Congressional Research Service recently released a report that says the United States has more energy potential under its soil than any other country on earth.  Congress should take steps to allow our nation’s energy producers to develop these resources.   Until then, we should encourage more production at marginally producing wells.  Let’s give our nation’s energy producers the opportunities they need to allow this sector to succeed and put Americans back to work again.”

Boren said, “This legislation ensures that the nation’s policies recognize the economic importance and energy contribution of marginal well production, and most importantly would help reduce our dependence on foreign energy by prolonging and enhancing energy production.   The producers who operate marginal wells are smaller, independent operators that assist local and state economies with job creation and added revenue streams.  Every day hard-working Oklahomans are facing rising costs of energy, and Congress must ensure that we are taking full advantage of every option available to increase our domestic energy supply.” 



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