The American public benefits from the tax provisions furnishing the capital to drill for the energy that all Americans need.
Intangible Drilling Costs (IDCs)
IDCs permit companies to deduct the entire cost of drilling a well during the first year, rather than spreading it out over a period of years. This is only available on wells drilled in the United States. It is not available to major oil companies on any wells drilled outside the United States.
Why it’s important: IDCs have been available since 1913 and are consistent with how other businesses are allowed to treat similar costs to help manage risk. Examples include R&D for the technology industry and development costs for the coal mining industry.
Most importantly, IDCs mean JOBS because they provide the capital needed to drill the next well. The negative economic impact of a repeal would be substantial, placing thousands of jobs at risk – 58,000 direct, indirect and induced jobs this year alone. And 165,000 direct, indirect and induced jobs by 2020.
This is a 15% deduction utilized by independent producers and royalty owners. It’s limited to the first 1000 barrels a day of production. Congress eliminated percentage depletion for major oil companies more than 30 years ago.
Why it’s important: Percentage depletion has been available to independent producers since 1954 as an incentive to stimulate continued investment in a high-risk industry. It provides the capital and outside investment small producers need to maintain marginal wells. These wells make up 20% of our production.
Effects of eliminating IDCs and percentage depletion
A loss of IDCs and percentage depletion for independent producers would likely result in the following:
Additionally, DEPA supports the preservation of the ability to deduct the cost of the purchase of tertiary injectants as currently provided in IRC §193. Independent operators use this tax deduction to develop high-cost carbon dioxide (CO2) enhanced oil recovery (EOR) in depleted US oilfields. The purchase of high-cost anthropogenic (industrial) CO2 may no longer be an option by taking away this cost-effective tax incentive. The §193 tax deduction actually serves a dual purpose by providing incentives for both domestic oil producers and manufacturers whose processes emit CO2.