Nielson-True Partnership, True Oil Company, Tax Matters Partner - Page 16

                                                    - 16 -16                                                      
             high but did little to encourage development of high-cost tight                                      
             formation gas when prices were low.  See Texaco Inc. v.                                              
             Commissioner, 101 T.C. 571 (1993).  Consequently, in enacting the                                    
             nonconventional energy production tax credit under section 29                                        
             (formerly section 44D), Congress provided an additional incentive                                    
             to compensate for the extra costs and risks of producing high-                                       
             cost fuel, including tight formation gas.  See S. Rept. 96-394,                                      
             at 87 (1979), 1980-3 C.B. 131, 205.                                                                  
                    Turning to the legislative history, the nonconventional                                       
             fuels tax credit first appeared in COWPTA.  The conference                                           
             committee report states:                                                                             
                    For purposes of the credit, the definition of                                                 
                    natural gas from geopressured brine, coal seams, and                                          
                    Devonian shale is the same as that determined by the                                          
                    Federal Energy Regulatory Commission (FERC) under the                                         
                    Natural Gas Policy Act of 1978 (NGPA).  Until FERC                                            
                    defines the term "tight formation" under section                                              
                    107(c)(5) of the NGPA, tight sands gas is defined in                                          
                    terms of average matrix permeability to gas.  [H. Conf.                                       
                    Rept. 96-817, at 138 (1980), 1980-3 C.B. 245, 298.]                                           
             In addition, the conference report for the COWPTA stated:                                            
                          Conference agreement.--The conference agreement                                         
                    adopts a modified version of the Senate amendment.                                            
                    This provision is intended to provide producers of                                            
                    alternative fuels with protection against significant                                         
                    decreases in the average wellhead price for the                                               
                    uncontrolled domestic oil, with which alternative fuels                                       
                    frequently compete.  * * *                                                                    
                    *        *        *        *        *        *        *                                       
                          Sources eligible for the credit, and the                                                
                    definitions of those sources, generally are the same as                                       
                    those in the Senate amendment.  Natural gas produced                                          
                    from a tight formation, however, has the same                                                 

Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011