Do the drilling and completion costs of oil and/or natural gas wells provide any tax advantage?
Yes. Intangible Drilling Costs, which equate to approximately 75-80% of the well cost, can be deducted either as a first year expense or amortized over five years beginning in the year in which the well is placed in production. Tangible Costs can be depreciated over seven years or expensed in the first year based upon Section 179 of the IRS code. If a Dry Hole is encountered, the cost is 100% tax deductible. The way in which the program is structured will determine whether these costs can be taken against ordinary income or not.
