Project Ozona Economic & Technical Review[8167]

United States Tax Treatment for Oil & Gas
Intangible Drilling Cost and Other Deductions (1)
Oil and Gas investments in the United States have significant tax advantages relative to other industries. The motivation behind this
beneficial tax treatment is to encourage constant re-investment into the sector, which requires substantial capital expenditures to
maintain oil & gas production levels
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Intangible Drilling Cost (IDC) Deduction
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Standard O&G Deductions
Normally represents ~75% of the total cost to drill and
complete a new well
These costs are deductible against active, passive and/or
portfolio income so long as the taxpayer has ownership in
real oil & gas properties
70% to 80% of IDCs are deductible in the first year the costs
are incurred, which provides a substantial tax shield when a
new producing well is at is peak production (primary revenue
producing year)
O&G Tax Advantage Example
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Tangible Drilling Cost Deduction
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Normally represents approximately 25% of the total cost to
drill and complete a new well
This amount can be deducted over a 5 year period
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Depletion Allowance
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Currently, the depletion allowance provides for an additional
15% deduction.
• Thus, 15 cents of every income dollar is tax free, providing
tax-sheltered income
1. Please consult a tax expert regarding the aforementioned tax benefits, which may affect individual investor’s unique tax situation differently
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