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1 1 (May 11, 2020)

handle is hein.crs/govdaeo0001 and id is 1 raw text is: i% 'N\jq Low Oil Prices May Trigger Certain Tax Benefits, but Not Others May 11, 2020 Benchmark crude oil prices-such as U.S. West Texas Intermediate (WTI)-have steeply declined since January 2020. Oil market ovcrsupply, the result of COVID-19 travel restrictions and increased global supply levels in March and April, has exerted downward pressure on prices. Although the duration of low oil prices is uncertain, price levels for the remainder of 2020 may largely be a function of demand recovery, supply adjustments, and return to a balanced market. Energy Information Administration (EIA) price forecasts, as of April 2020, indicate that WTI spot prices may average just over $29 per barrel during calendar year 2020, less than half the price at the beginning of the year. Some federal oil production tax incentives are triggered when a reference price of crude oil-estimated and published annually by the Internal Revenue Service (IRS)-drops below a statutory oil price level. The refrcincc price is an estimate of the annual average wellhead price per barrel for all domestic crude oil the price of which is not subject to regulation. Wellhead prices are unique to each oil producer and generally reflect price adjustments-relative to a benchmark price such as WTI-for crude oil quality characteristics, transportation (e.g., truck, pipeline, rail), and other considerations. Publicly available information provides a limited monthly assessment of domestic wellhead prices for calendar year 2020. EIA does not forecast wellhead prices. However, the historical relationship of annual average WTI spot prices to reference prices, combined with EIA price forecasts, may provide some indication about the likelihood that certain oil tax incentives will be triggered. Tax Credit for Enhanced Oil Recovery (Internal Revenue Code [1RC Section 43) A tax credit may be claimed for certain costs associated with enhanced oil recovery. The credit encourages producers to extract domestic oil that can only be recovered using more expensive unconventional methods, at times when oil market prices alone might not lead to this oil being recovered. In a given tax year, the EOR credit may be available at the full 15% rate, partially available (available at a less than 15% rate), or fully phased out. This tax credit phases out once oil prices rise above $28 per barrel, as adjusted for inflation. (The base year in the inflation adjustment is 1990.) The credit phases out over a $6 range. (The size of the phaseout range is fixed, and not inflation adjusted.) Congressional Research Service https://crsreports.congress.gov IN11381 CRS tNStGHT Prepare'd for M, embers and C o m m it'e e s o ; C o q g re s s ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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