September 12, 2025 •Paige Buxton Graham
On June 30, the IRS released the figures needed to calculate the Marginal Well Tax Credit for tax year 2025. Using a natural gas reference price of $1.64 per mcf coupled with an inflation adjustment factor of 1.5821, the credit will increase from $0.77 per eligible mcf of production for 2024 to $0.79 per eligible mcf of production for 2025.
What is it?
The marginal well tax credit serves as an incentive to maintain production of wells (rather than shut in) when prices dip; it is a production-based tax credit that provides a per-barrel or per-barrel-of-oil equivalents (BOEs) credit for the production of crude oil or qualified natural gas from a qualified marginal well. What is a qualified marginal well, you ask? A qualified marginal well is a domestic well that has average daily production of not more than 25 BOEs AND produces water at a rate not less than 95% of total well effluent (basically the well meets environmental standards regarding wastewater) OR is treated as marginal production under Section 613A(c)(6) (think stripper wells). The credit only applies to the operating interest in a well.
On June 30, 2025, the IRS announced, through Notice 2024-34, the applicable reference price for tax years beginning in calendar year 2025 is $1.94 per 1,000 Mcf. During 2025 the commodity price of natural gas dropped below this threshold and the applicable credit is $0.77 per 1,000 Mcf.
What else should you know?
The maximum amount of production on which a credit may be claimed is 1,095 BOEs (6,570 mcf) per year, per well. This presents a significant tax savings strategy for owners of qualified stripper wells because the potential credit could be as much as $5,058 in tax savings per qualified well. There is no limit on the amount of qualified wells taxpayers can use to determine the credit. The marginal well credit is part of the general business credit and can only be used to offset general tax liabilities; the credit cannot offset alternative minimum tax liabilities. Any unused credit can be carried back five years and can be carried forward for 20 years.
HoganTaylor Energy Services
If you would like more information about the Marginal Well Tax Credit and how it could potentially benefit your business, please contact the author of this article, Paige Buxton Graham. You may also contact Jeff Koweno, Energy Practice Lead, or any other member of the HoganTaylor Energy practice.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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