26 U.S.C. § 45I — Credit for producing oil and gas from marginal wells

(a) General rule: The marginal well production credit equals the credit amount times the taxpayer's qualified crude oil and natural gas production for the year. (b) Credit amount: The base amount is $3 per barrel of qualifying crude oil, and 50 cents per 1,000 cubic feet of qualifying natural gas. These amounts shrink, but never below zero, as prices go up. Here is how: figure out how much last year's "reference price" was above $15 for oil ($1.67 for gas). Divide that by $3 for oil ($0.33 for gas). That fraction is how much of the $3, or 50 cents, gets cut. Starting with tax years after 2005, the $15, $1.67, $3, and $0.33 dollar figures are adjusted upward each year for inflation. "Reference price" means, for oil, the price defined in section 45K(d)(2)(C); for gas, it means the Treasury's estimate of the average U.S. wellhead price per 1,000 cubic feet that year. (c) Qualified production: "Qualified crude oil production" and "qualified natural gas production" mean domestic oil or gas from a "qualified marginal well." From any one well, only the first 1,095 barrels, or barrel-equivalents, produced in the year count toward the credit. If the tax year is shorter than a full year, or the well was not producing every day of the year, this 1,095-barrel limit shrinks proportionally. A "qualified marginal well" is a domestic well that either counts as "marginal production" under section 613A(c)(6), or that produces no more than 25 barrel-equivalents a day on average and is at least 95% water by volume. "Crude oil," "natural gas," "domestic," and "barrel" mean what section 613A(e) says they mean. (d) Other rules: If a well has more than one owner and its production goes over the 1,095-barrel cap, each owner's qualifying share is based on their share of the well's revenue. Only the holder of an "operating interest" in the well can claim this credit. If a well also qualifies for the nonconventional fuels credit under section 45K, this credit cannot be claimed too, unless the taxpayer chooses not to use section 45K for that well instead.