Gas and Oil Industry Tax Deductions

Tax Deferral – Effective Tax Rate of 20% vs US Corporate of 35%  Exxon - $31 billion, equal to 19% of shareholder equity
 Conoco Phillips -$13.5 billion, 28% of shareholder equity
 Chevron - $14 billion, 10% of shareholder equity

Special Tax Treatment – IDC Deduction

  More generous expensing rules - deductions can be larger than actual investment

leading to very large tax deferrals

  Full deduction of Intangible Drilling Costs (IDC) such as design and fabrication of

drilling platforms on top of normal direct costs to prepare and operate them. IDCs

make up 60-80% of drilling a well

  Non-oil businesses must capitalize all these costs and depreciate over much longer

time periods

Special Percentage Deletion Allowance
 Allows for deductions of leases on wells up to 100% of net income
 Percentage of deduction increased from 50% to 100% in last 90 years

Deduction for Tertiary Injection
 Full deduction in first for fluid injections that produce beyond one year

Accelerated Amortization costs of Oil and Gas exploration and assessment  Smaller companies can deduct full amount in two years

Last-In, First-Out Accounting
 Enables producers to defer net income based on lower inventory valuation – as

inventories grow the higher value inventory stays safe from taxation

Section 199 Domestic Production Deduction
 Designed to spur manufacturing jobs – yet the number of jobs continues to decline

while automation displaces workers. The higher the profit, the greater the


Master Limited Partnerships

  Account for market capitalization of $500 billion but unlike corporations are taxed

as partnerships, eliminating corporate taxes

  Energy and natural resource MLPs account for 86% of this total