heavy oil

(6) Oil and natural gas produced from marginal properties (A) In general Except as provided in subsection (d) and subparagraph (B), the allowance for depletion under section 611 shall be computed in accordance with section 613 with respect to— (i) so much of the taxpayer’s average daily marginal production of domestic crude oil as does not exceed the taxpayer’s depletable oil quantity (determined without regard to paragraph (3)(A)(ii)), and (ii) so much of the taxpayer’s average daily marginal production of domestic natural gas as does not exceed the taxpayer’s depletable natural gas quantity (determined without regard to paragraph (3)(A)(ii)), and the applicable percentage shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection (a) of that section. (B) Election to have paragraph apply to pro rata portion of marginal production If the taxpayer elects to have this subparagraph apply for any taxable year, the rules of subparagraph (A) shall apply to the average daily marginal production of domestic crude oil or domestic natural gas of the taxpayer to which paragraph (1) would have applied without regard to this paragraph. (C) Applicable percentage For purposes of subparagraph (A), the term “applicable percentage” means the percentage (not greater than 25 percent) equal to the sum of— (i) 15 percent, plus (ii) 1 percentage point for each whole dollar by which $20 exceeds the reference price for crude oil for the calendar year preceding the calendar year in which the taxable year begins. For purposes of this paragraph, the term “reference price” means, with respect to any calendar year, the reference price determined for such calendar year under section 45K(d)(2)(C). (D) Marginal production The term “marginal production” means domestic crude oil or domestic natural gas which is produced during any taxable year from a property which— (i) is a stripper well property for the calendar year in which the taxable year begins, or (ii) is a property substantially all of the production of which during such calendar year is heavy oil. (E) Stripper well property For purposes of this paragraph, the term “stripper well property” means, with respect to any calendar year, any property with respect to which the amount determined by dividing— (i) the average daily production of domestic crude oil and domestic natural gas from producing wells on such property for such calendar year, by (ii) the number of such wells, is 15 barrel equivalents or less. (F) Heavy oil For purposes of this paragraph, the term “heavy oil” means domestic crude oil produced from any property if such crude oil had a weighted average gravity of 20 degrees API or less (corrected to 60 degrees Fahrenheit). (G) Average daily marginal production For purposes of this subsection— (i) the taxpayer’s average daily marginal production of domestic crude oil or natural gas for any taxable year shall be determined by dividing the taxpayer’s aggregate marginal production of domestic crude oil or natural gas, as the case may be, during the taxable year by the number of days in such taxable year, and (ii) in the case of a taxpayer holding a partial interest in the production from any property (including any interest held in any partnership), such taxpayer’s production shall be considered to be that amount of such production determined by multiplying the total production of such property by the taxpayer’s percentage participation in the revenues from such property.

Source

26 USC § 613A(c)(6)


Scoping language

For purposes of this paragraph
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