Intangible Drilling Costs (IDCs)
Oil and natural gas producers benefit American families and communities through direct and indirect job creation, significant contributions to federal, state, and local budgets, as well as through significant contributions to landowners.
When an operator drills a well, approximately 15 percent of the costs are tangible (pipe, controls, etc.) and 85 percent of the costs are intangible.
Intangible drilling costs (IDCs) allow oil and natural gas companies to recover their intangible costs more quickly, freeing funds up to reinvest in development, resulting in more jobs. Unlike tax credits, IDCs do not reduce the total taxes paid over the lifetime. IDCs allow operators to immediately deduct expenses, which is similar to other tax mechanisms to encourage investment, such as the deduction for R&D expenses allowed for other industries. Additionally, most manufacturing assets are eligible for bonus depreciation, which also allows for an immediate tax deduction. Drilling expenditures, mainly the jobs provided by exploration and development activities, account for billions of US investment dollars each year, which allows ongoing environmentally protective and safe production of domestic oil and natural gas here in the United States.
IDCs allow oil and natural gas companies to recover their costs consistent with the economic reality of their underlying expenses, freeing up funds to reinvest in new projects that support millions of good-paying jobs. And IDCs allow the industry to invest in states where the industry serves as a major economic driver – such as Texas, New Mexico, Pennsylvania, and West Virginia.
Maintaining the current tax policy on IDCs helps support production, supports the industry’s ability to further invest in emissions detection and capture technologies, and helps keep energy prices low for American families and businesses. Changes to the current IDC tax policy would be detrimental not only to independent producers, but to the US economy, resulting in: reduced nationwide investments, less good-paying American jobs, decreased revenue to federal and state governments, and an increased dependence on foreign countries to meet Americans’ energy needs.