intangible drilling costs


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Intangible Drilling Costs

Expenses a company has when it drills for oil or natural gas. Intangible drilling costs are sometimes convenient for a company's tax purposes because it can deduct intangible drilling costs in one year when the company perhaps found little or no oil from profits made in a different year when the company does find oil.

intangible drilling costs

Expenses incurred while exploring for gas, geothermal, or oil reserves. These items may be expensed in the year incurred, or they may be capitalized and deducted throughout a period of years. Intangible drilling costs are an effective means of reducing taxes because they can be used to offset income in a single year even though the costs were incurred in order to produce or develop a capital asset (energy reserves) that will in turn generate income for many years. Costs for fuel, preparation of a site, and wages are examples of intangible drilling costs.
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57(a) required percentage depletion in excess of the adjusted basis of the mineral leasehold and excess intangible drilling costs (IDC) that exceeded 65% of annual net oil and gas income to be added back to regular taxable income as preference items for calculating AMT.
The Company is capitalizing intangible drilling costs and utilizing high tight-gas-sands tax credits to reduce its 1996 tax payments.
The Joint Venture in an oil and gas drilling operation is taxed as a General Partnership that provides active loss write-offs of all Intangible Drilling Costs (IDC) and expenses incurred.
Incentives include: tax exemptions; a duty-free import allowance for materials and equipment not available in Turkey; depreciation on fixed assets; exemption from VAT, limited to purchase of goods and services for exploration; a depletion allowance, though restricted to capitalised exploration costs, intangible drilling costs, and costs of dry-holes; the possibility of creating and/or transferring rights in licences and leases, similar to those exercisable in real property; the right to export 35% of onshore, and 45% of offshore oil production from fields discovered after January 1980; and deduction of some exploration costs from annual licence rentals.