IRS Announces 2019 Marginal Well Credit

Natural gas well owners holding an operating interest in a qualified marginal well during 2019 are eligible to claim a credit of $0.08 per qualified MCF since the IRS finalized and released the reference price used to compute the credit for tax year 2019 with issuance of Bulletin No. 2020-34, dated May 18, 2020. This represents an opportunity for oil and gas producers that own interests in stripper wells, as the credit could provide as much as $525.60 in tax savings per qualified well.

There’s no limit on the number of qualified wells an owner can utilize to determine the credit, which, as noted in prior posts, is a production-based tax benefit for domestic wells that have marginal production under percentage depletion rules, currently set at 15 barrels of oil equivalent – or about 90 MCF or less – per day.

The marginal well credit is part of the general business credit and cannot offset tax liabilities generated by the alternative minimum tax. Any unused credit can be carried back five years and carried forward 20 years.