Last-Minute Tax Filers Rush To Finish Returns

Tax reform may not be the sexiest topic, but it’s an extremely important issue for oil and gas companies with strict investment criteria and some of the highest up-front costs of any industry. The words “subsidies” and “incentives” are often mixed up and thrown around in the energy business to either promote or denounce policies advantageous to different industry sectors.

Fossil fuel folks rail against subsidies for renewable energy and stopping subsidies for Big Oil is a frequent rallying cry among the environmental community. However, direct government subsidies are less common than various incentives, which often come in the form of tax code provisions. Congress is currently mulling changes to some of these provisions.

The oil and gas industry receives tax incentives, some of which date back to federal tax code formation in the early 1900’s. These incentives support companies operating in the high-risk, highly-capital intensive oil and gas exploration and production business and are not that different from tax incentives provided to other industries.

In guest commentary on the Fuel Fix blog, tax experts explain the importance of intangible drilling costs (IDC) and their treatment within the tax code:

Intangible Drilling Costs (IDCs) are a section of the tax code frequently scrutinized in tax reform discussions. IDCs represent expenses, incurred at the well site to drill a well, that have no salvage value. The deduction for IDCs helps independent producers recover a portion of their costs, quickly allowing them to reinvest these funds in continued drilling operations, ultimately increasing supply and reducing your price at the pump. These costs are analogous to research and development costs that are fully deductible.”