Natural Gas Producers Can Claim Marginal Well Credit in 2024

The IRS recently confirmed in Notice 2024-52 that the marginal well production credit (MWC) under IRC Section 45I will apply in 2024. For tax years beginning in 2024, the natural gas reference price for determining the credit is $2.04 per 1,000 cubic feet (Mcf) and the credit amount is $0.77 per Mcf. The IRS reference price is the only price that factors into determining the credit. The actual price at which a company sells the natural gas does not factor into the calculation.

The MWC is a production tax credit intended to help domestic oil and gas producers stay profitable when prices are low. The credit is nonrefundable but can be carried back five years and carried forward 20 years.

The credit applies to “qualified natural gas production,” which is domestic natural gas produced from a qualified marginal well. A qualified marginal well is a domestic well with production of no more than 15 barrels of oil equivalents per day, known as a “stripper well,” or a well with an average daily production of not more than 25 barrels of oil equivalents per day and water production of 95% or more of waste output. If a well produces both oil and gas, the company must consider both products when determining whether the well qualifies as a marginal well.

The credit is determined on a per-well basis with no limit to the number of well used to calculate the credit. It is available on the gross production of the first 1,095 barrels of oil (BOE) equivalent per property.

Only companies that own a working interest in a qualified marginal well can claim the credit. A company that is not the sole owner of a well must reduce the amount of the gas production that qualifies for the credit by its share of the revenue interest.

If you need assistance in claiming marginal well credits, contact Weaver today. Our knowledgeable and professional staff is here to help you.

©2024