A bill to amend the Internal Revenue Code of 1986 to modify certain percentage depletion rules with respect to oil and gas wells.

Overview

S. 4604 (119th Congress) is a bill introduced in the Senate to amend the Internal Revenue Code of 1986 to modify certain percentage depletion rules with respect to oil and gas wells. The bill has been introduced and referred to the Senate Committee on Finance. It lists three Republican co-sponsors: Senators Jerry Moran, Roger Marshall, and Bill Cassidy.

Purpose and Intent

• The primary aim is to modify how the percentage depletion deduction is treated for oil and gas wells. Percentage depletion is a tax deduction that allows producers to subtract a fixed percentage of the gross income from each oil or gas well, rather than a calculation based on the capital cost or actual losses.
• By changing the rules around this deduction, the bill intends to alter the tax treatment of certain oil and gas production activities, potentially affecting the after-tax profitability of wells that qualify for depletion.

Key Provisions (as described by the bill’s title and typical structure of depletion-related changes)

• Amend the Internal Revenue Code to alter the rules governing percentage depletion for oil and gas wells.
• The specifics of the changes are not detailed in the available information, but potential targets could include:
  • Modifying the percentage rate used to calculate depletion.
  • Limiting or expanding eligibility criteria for depletion eligibility.
  • Adjusting phase-outs, caps, or interaction with other tax provisions (e.g., some depletion provisions phase out as production or income crosses thresholds).
• The changes would apply to oil and gas well operators and owners who currently rely on percentage depletion as part of their tax calculations.

Who Would Be Affected

• Primary: Taxpayers engaged in oil and gas extraction and production who currently claim the percentage depletion deduction on their federal tax returns.
• Taxpayers who do not claim depletion or who operate under different depletion regimes may be less directly affected.
• The bill could indirectly impact investors, royalty owners, and service firms linked to oil and gas production through changes in after-tax profitability and project economics.

Procedural and Timeline Aspects

• Introduction: The bill was introduced in the Senate on May 20, 2026.
• Referral: It was read twice and referred to the Committee on Finance on the same day.
• Next steps (typical): If the committee advances the bill, it would move through potential committee hearings, markup, and then floor consideration in the Senate. If passed, it would need to be reconciled with any companion legislation in the House and signed into law or enacted through other legislative processes.

Potential Implications

• Tax revenue impact: Changes to depletion rules could affect federal revenue, depending on whether the modification narrows or expands the deduction available to oil and gas producers.
• Industry economics: The after-tax profitability of oil and gas wells could be altered, influencing drilling and production decisions, capital expenditure, and project feasibility.
• Investment signals: Alterations to depletion policy can affect the attractiveness of upstream oil and gas investments for lenders and equity investors.

Notes

• The available information does not include the full text of the bill, so detailed provisions (e.g., exact depletion rate changes, thresholds, or Phase-out rules) are not specified here. For precise language and effective dates, the bill’s text and committee summaries should be consulted once released.