Protecting America’s Small Oil and Gas Producers and Rural Jobs Act
- Sponsor
- Rep. Mann, Tracey [R-KS-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Mar 20, 2026
Bottom line
The bill provides substantial new tax incentives for domestic oil and gas production, especially for smaller operators and marginal wells, by increasing depletion allowances and expanding eligibility.
What it actually does
This bill amends the Internal Revenue Code of 1986 to significantly expand tax benefits for oil and gas wells, particularly those classified as marginal properties. It introduces a variable percentage depletion rate that increases when crude oil prices are low, removes taxable income limitations on these depletion allowances, and doubles the daily production quantity eligible for percentage depletion from 1,000 to 2,000 barrels.
Proponents argue
Supporters argue that this bill is crucial for stabilizing the domestic oil and gas industry, protecting jobs in rural communities, and enhancing America's energy independence. They contend that marginal wells are particularly vulnerable to price fluctuations and high operating costs, and these tax modifications will ensure their continued viability and production, preventing premature abandonment and job losses.
Opponents contend
Critics contend that the bill provides excessive tax breaks to the fossil fuel industry, potentially reducing federal revenue significantly and incentivizing continued reliance on non-renewable energy sources. They argue that removing taxable income limitations and doubling eligible production quantities could benefit larger entities than intended for 'small' producers and represents an unnecessary subsidy.
The bill text is short and focused, making it relatively quick to read. However, understanding the full implications of the tax code changes requires some background knowledge, which this analysis aims to provide efficiently.
Section 2(a), amending Section 613A(c)(6)(C)
Variable Percentage Depletion Rate for Marginal Properties
This provision changes how the percentage depletion rate is calculated for marginal oil and gas wells. Instead of a fixed 15% rate, it introduces a variable rate that starts at 15% and increases by one percentage point for every whole dollar the reference price of crude oil falls below $70, up to a maximum of 25%. The $70 threshold will be adjusted for inflation using the Producer Price Index for Drilling Oil and Gas Wells after 2027.
Supporters argue
Proponents argue this variable rate provides crucial stability for marginal well operators, who are often the first to suffer during periods of low oil prices. By increasing the depletion allowance when prices are down, it helps these producers maintain operations, retain employees, and continue domestic energy production.
Critics contend
Opponents contend that this provision is a direct subsidy to the fossil fuel industry, insulating it from market forces at taxpayer expense. They argue it encourages continued extraction of oil and gas, potentially hindering the transition to renewable energy and contributing to climate change.
Tradeoffs
This provision balances the goal of supporting domestic energy production and rural jobs against concerns about federal revenue loss and environmental impact. It seeks to mitigate the volatility inherent in commodity markets for a specific industry.
Section 2(b), amending Section 613A(c)(6)
Removal of Taxable Income Limitations for Marginal Property Depletion
This provision removes two key limitations on the percentage depletion allowance for marginal oil and gas properties. Currently, depletion is limited to 100% of the taxable income from the property and 65% of the taxpayer's overall taxable income. This bill eliminates both these caps, allowing eligible producers to claim larger deductions, potentially even exceeding their taxable income from the property or their total taxable income.
Section 2(c), amending Section 613A(c)(3)(B)
Doubling of Depletable Oil Quantity
This provision doubles the 'depletable oil quantity' from 1,000 barrels to 2,000 barrels. The depletable oil quantity is the average daily production of domestic crude oil (or natural gas equivalent) that is eligible for the percentage depletion allowance for independent producers and royalty owners. By increasing this limit, more of a producer's daily output qualifies for the tax benefit.