Study details impacts of repealing IDC deduction

Repealing the federal tax provision allowing oil and gas producers to deduct certain intangible drilling costs (IDCs) effective Jan. 1, 2014, would cost 190,000 US jobs in the first year and would cut drilling investments in the US by $407 billion over 10 years, a new study commissioned by the American Petroleum Institute found.

“The effects of repealing the IDC deduction would be significant and immediate,” Stephen Comstock, API’s tax and accounting policy director, told reporters July 11 in a teleconference. “The industry would be forced to make fewer investments, drill fewer wells, employ fewer Americans, and produce less of the energy that fuels our economy.”

The study by Wood Mackenzie, which updated research from 2010, said US job losses would reach 233,000 by 2019 and 265,000 by 2023 if the IDC deduction was removed. US production would drop by an estimated 520,000 boe/d in 2014, 2.55 million boe/d by 2019, and 3.81 million boe/d by 2023, it indicated.

“Furthermore, US industry investment would drop by $407 billion over the 2014-23 period, an annual average of more than $40 billion,” the study said.

“Repealing the IDC deduction would actually lead to long-term declines in federal revenues, state taxes, and royalty payments to private landowners,” Comstock said. “If policymakers want to generate more revenue from oil and natural gas production, raising taxes is the wrong approach.”

By contrast, a forward-looking program to expand opportunities for US oil and gas development could create more than 1 million new American jobs and generate hundreds of billions of additional dollars for the government, Comstock said.

“We urge Congress and the president to always approach the tax code with an eye toward fairness, job creation, and American energy security,” he concluded.

Contact Nick Snow at nicks@pennwell.com.

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