Energy Security Incentive Act of 1989

Energy Security Incentive Act of 1989 - Amends the Internal Revenue Code to treat certain geological and geophysical costs and surface casing costs as intangible drilling and development costs that a taxpayer may elect to capitalize or to deduct for income tax purposes.

Exempts oil and gas wells from the application of the net income limitation on percentage depletion.

Revises the percentage depletion allowance applicable to oil and gas wells, retaining a 15 percent minimum, but increasing the percentage incrementally (to a maximum of 30 percent) as the average annual removal price falls below $20.

Permits a percentage depletion income tax deduction for proven oil and gas wells that have been transferred to a new owner.

Repeals provisions that tax as ordinary income any gains from dispositions of oil, gas, or geothermal wells.

Establishes a marginal production income tax credit for producers who maintain economically unproductive oil wells. Applies the credit to domestic crude that is: (1) from stripper well property; (2) heavy oil; or (3) oil recovered through a tertiary recovery method. Fixes the credit at ten percent of the qualified cost (determined in accordance with a formula set forth in this Act) of each barrel produced by the producer during the tax year.

Establishes a crude oil and natural gas exploration and development tax credit. Allows a ten percent credit for qualified investments exceeding $1,000,000, 20 percent for those of $1,000,000 or less. Permits the credit as an offset against both minimum tax liability and regular liability.

Repeals provisions that identify intangible drilling costs as a tax preference item for purposes of determining alternative minimum tax liability and corporate preference reductions.

Increases from 65 to 100 percent the taxable income limitation on the percentage depletion deduction for oil and gas property.

Permits a taxpayer to elect to carry forward to the next succeeding taxable year any portion of excess depletion allowances.

Extends the income tax credit for producing fuel from a nonconventional source to qualified fuels from wells or facilities in service before January 1, 1996. (The change represents a five-year extension of the credit.) Affirms natural gas found in tight sands formations as a qualified fuel with respect to the credit.