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Intangible Drilling Costs (IDC): Several
expenses may be deducted when an oil and/or gas well is drilled. These expenses have no salvage or tangible value, may
represent between 60 and 80% of the cost and may be taken during the year that the actual expense was incurred. However,
an accountant should be consulted as this could affect the deduction period.
Intangible Completion Costs (ICC): Same as IDC, these expenses also have no salvage value. Such expenses could be labor, rig time & fluids and may represent about 15% of the cost. These also may be taken during the year that the actual expense was incurred. Depreciation: Equipment used in completing and producing a well has salvage value and is usually depreciated over seven years based on the Accelerated Cost Recovery System. These expenses may represent 25 to 40% of the cost. Depletion Allowance: When a well produces, some of the gross income may be sheltered via a depletion deduction. This may shelter about 15% of the annual production income. For low yielding/stripper wells, the shelter may reach 20%. Operating Expense: This expense is for the daily costs incurred with operating/producing a well. It may be deducted from production income as an expense and may be deducted within the year that the cost incurred. Consult Your Tax Advisor: The tax benefits through participation may be substantial. The government may reduce your federal and possibly state income tax based on the upfront risk capital of the intangible drilling costs. Please seek professional advice. |
Ossa Energy LLC is not responsible for the interpretation and conclusion of the contents herein. Always seek the
advice of a Tax Advisor prior to investing.