The American Petroleum Institute was a major proponent of the reforms and they were quick to applaud the passage of the law, though they glossed over some of the details. They said the new “pro-growth tax code” will allow the industry to “continue building on the millions of jobs we support and the billions we invest into the U.S. economy each year.” Analysts from places like Forbes and CNBC agree. They point out that the industry is one of the most heavily taxed, between income taxes and other specialty taxes like “severance” taxes for taking oil and gas out of the ground. So the overall rate decrease will be a huge benefit. The bill also allows for exploration in Alaska, though it does not expand access in other parts of the country.
Probably the most important thing for the oil and gas industry is that the “intangible drilling costs” deduction was unscathed. When a company spends money aimed at making future profits, that spending needs to be deducted over the same time period of the profits. So without a special rule the expenses for drilling a well would need to be deducted over the life of the well. The intangible drilling cost deduction allows oil and gas producers to immediately deduct most of the cost of drilling a well, including things like wages, fuel, survey work, and ground clearing. The new tax reform law will actually expand on this concept by allowing “full expensing” of capital investments for the next five years, with that amount then phasing out over time.
There is little doubt that the tax reform law should improve the investment environment for the oil and gas industry in our region and across the country. If your company would like to consider expanding in Pennsylvania, Ohio, or West Virginia the experts at Cimmaron Land are standing by to guide you through the process. Call us at (412) 212-7517 today!