This notice publishes the applicable reference price and credit amount under § 45I of the Internal Revenue Code for qualified natural gas production from qualified marginal wells during taxable years…

# SECTION 1. PURPOSE

This notice provides the applicable reference price for qualified natural gas production from qualified marginal wells during taxable years beginning in calendar year 2026 for the purpose of determining the marginal well production credit (MWC) under § 45I of the Internal Revenue Code. The applicable reference price for taxable years beginning in calendar year 2026 is $2.20 per 1,000 cubic feet (Mcf).

This notice also provides the credit amount used for the purpose of determining the MWC for taxable years beginning in calendar year 2026. The credit amount is determined using the 2026 inflation adjustment factor of 1.6295 and the applicable reference price of $2.20 per Mcf. The credit amount for taxable years beginning in calendar year 2026 is $0.81 per Mcf.

# SECTION 2. BACKGROUND

Section 45I(a), as it relates to qualified natural gas production, provides that, for purposes of § 38, the MWC for any taxable year is an amount equal to the product of (1) the credit amount and (2) the qualified natural gas production that is attributable to the taxpayer.

Section 45I(c)(1) provides that “qualified natural gas production” means domestic natural gas produced from a qualified marginal well. Section 45I(c)(3)(A) provides that a qualified marginal well is a domestic well (i) the production from which during the taxable year is treated as marginal production under § 613A(c)(6), or (ii) which, during the taxable year (I) has average production of not more than 25 barrel-of-oil equivalents per day, and (II) produces water at a rate not less than 95 percent of total well effluent.

Section 613A(c)(6)(D) and (E) provide that “marginal production” means domestic natural gas produced during any taxable year from a property which is a stripper well property for the calendar year in which the taxable year begins. A “stripper well property” is, with respect to any calendar year, any property producing not more than 15 barrel equivalents per day, determined by dividing the average daily production of domestic crude oil and domestic natural gas from producing wells on the property for such calendar year by the number of such wells.

Section 45I(c)(2)(A) provides that generally only the first 1,095 barrels or barrel-of-oil equivalents (as defined in § 45K(d)(5)) produced during the taxable year qualify for the MWC. This limitation is proportionately reduced in the case of a short taxable year or in the case of a well that is not capable of production each day of a taxable year. See § 45I(c)(2)(B). The number of wells on which a taxpayer may claim the MWC is not limited.

Section 45I(d)(2) provides that to claim the credit a taxpayer must hold an operating interest in the qualified marginal well producing the natural gas to which the credit relates. Under § 45I(d)(1) if a well is owned by more than one owner and the natural gas production exceeds the limitation under § 45I(c)(2), the qualifying natural gas production attributable to the taxpayer is determined on the basis of the ratio which the taxpayer’s revenue interest in the production bears to the aggregate of the revenue interests of all operating interest owners in the production. Finally, § 45I(d)(3) provides that the MWC is not allowable if the taxpayer is also eligible to claim the § 45K nonconventional sources credit for the taxable year, unless the taxpayer elects not to claim the credit under § 45K for the well.

For purposes of § 45I(a)(1), the credit amount is 50 cents (adjusted for inflation) per Mcf of qualified natural gas production (tentative credit amount). See § 45I(b)(1)(B) and (b)(2)(B).

Section 45I(b)(2)(A) and (B) provide that the tentative credit amount (adjusted for inflation) is reduced (but not below zero) to the extent that the applicable reference price exceeds $1.67 (adjusted for inflation). More specifically, § 45I(b)(2)(A) provides that the tentative credit amount (adjusted for inflation) is reduced by an amount which bears the same ratio to the tentative credit amount (adjusted for inflation) as the excess (if any) of the applicable reference price over $1.67 (adjusted for inflation), bears to $0.33 (adjusted for inflation). As a result, the MWC is not available if the applicable reference price for qualified natural gas production is $2.00 (adjusted for inflation) or more.

Section 45I(b)(2)(A) also provides that the applicable reference price for a taxable year is the reference price for the calendar year preceding the calendar year in which the taxable year begins. Section 45I(b)(2)(C)(ii) provides that the term “reference price” means, with respect to any calendar year, in the case of qualified natural gas production, the Secretary’s estimate of the annual average wellhead price per Mcf for all domestic natural gas.

Section 45I(b)(2)(B) provides that in the case of any taxable year beginning in a calendar year after 2005, each of the dollar amounts contained in § 45I(b)(2)(A) will be increased to an amount equal to such dollar amount multiplied by the inflation adjustment factor for such calendar year (determined under § 43(b)(3)(B) by substituting “2004” for “1990”).

# SECTION 3. INFLATION ADJUSTMENT FACTOR AND REFERENCE PRICE

.1 Inflation Adjustment. The inflation adjustment factor under § 45I(b)(2)(B) for calendar year 2026 is 1.6295.

.2 Reference Price. The Secretary’s estimate of the calendar year 2025 annual average wellhead price per Mcf for all domestic natural gas under § 45I(b)(2)(C)(ii) was calculated by applying the Producer Price Index commodity index for “Natural Gas from the Wellhead” (WPU053101051)¹ published by the Bureau of Labor Statistics (BLS) as part of its Producer Price Index program, to the 2024 annual average wellhead price ($1.64) published in Notice 2025-34, 2025-27 I.R.B. 6. The annual Producer Price Index commodity index for natural gas published by the BLS was 50.869 in 2024 and 68.301 in 2025, which implies a ratio of 2025 to 2024 average wellhead prices of 1.343 (68.301/50.869). Therefore, the Secretary’s estimate of the calendar year 2025 annual average wellhead price per Mcf for all domestic natural gas is $2.20 per Mcf (1.343 × $1.64 per Mcf).

For years after 2025, the Secretary intends to continue calculating the reference price by application of the Producer Price Index commodity index for “Natural Gas from the Wellhead” (WPU053101051) published by the BLS to the previous year’s reference price.

# SECTION 4. CALCULATION OF CREDIT AMOUNT

Under § 45I(b)(1)(B) and (2)(B), the tentative credit amount used to calculate the MWC for taxable years beginning in calendar year 2026 is $0.81 per Mcf ($0.50 × 1.6295 inflation adjustment factor).

Pursuant to § 45I(b)(2)(A), the tentative credit amount ($0.81) is reduced (but not below zero) by an amount (the Reduction Amount) which bears the same ratio to such amount as (i) the excess (if any) of the applicable reference price ($2.20) over $2.72 ($1.67 × 1.6295 inflation adjustment factor), bears to (ii) $0.54 ($0.33 × 1.6295 inflation adjustment factor). The Reduction Amount (as adjusted for inflation) is computed as follows:

The Reduction Amount is -$0.78 (($2.20 - $2.72) ÷ $0.54 × $0.81), which is less than zero, therefore, the tentative credit amount ($0.81) is not reduced.

# SECTION 5. EFFECTIVE DATE

This notice is effective for qualified natural gas production during taxable years beginning in calendar year 2026.

# SECTION 6. DRAFTING AND CONTACT INFORMATION

The principal author of this notice is Alan W. Tilley of the Office of Associate Chief Counsel (Energy, Credits, and Excise Tax). For further information regarding this notice, contact Mr. Tilley on (202) 317-6512 (not a toll-free number).

¹ https://data.bls.gov/cgi-bin/srgate. The BLS publishes indexes and not actual or average prices.