May 15, 2025
The United States has a real opportunity to spur domestic energy production through common-sense, durable policy reform. This includes tax policy and the equitable treatment of capital investment. Reinstating the immediate expensing of intangible drilling costs (IDCs) is one of the most effective ways to achieve this goal — resulting in new investment, more oil and gas production, more jobs, and lower energy costs.
The Situation
IDCs are ordinary business expenses incurred in the exploration, development, and drilling of new wells, including wages, repairs, supplies, fuel, surveying, and ground clearing. Up to 80% of a producer’s costs are “intangible.” Yet they’re not so intangible; the largest share consists of jobs and labor-related costs. That’s the American men and women in the fields: the roughnecks, floor hands, lead-tong operators, motormen, derrickmen, assistant drillers, the driller, and more.
For decades, the tax code let America’s independent producers immediately expense these essential costs — just like other capital-intensive industries — allowing them to put cash back into new wells, new jobs, and additional energy supply. The 2022 Inflation Reduction Act (IRA) changed that. Now, for many American independents, IDCs are treated as depletion deductions that are recovered over the life of the asset, which can be upwards of 20+ years. This means less capital available for our American companies to re-invest, which means fewer jobs, less production, and higher energy prices.
For more background on IDCs, click here.
New Investment Means More Jobs
When American producers can immediately deduct the labor‑intensive capital costs that go into preparing and drilling a well, they free up capital to drill the next well sooner. Cash that would otherwise sit idle waiting for depreciation flows straight back into the field, creating a cycle of hiring, training, and retaining skilled workers.
Real Paychecks to Real Communities
American energy producers benefit our families and communities through direct and indirect job creation, as highlighted below in key U.S. energy states:
These numbers aren’t so intangible either – they represent real jobs and paychecks that support American families across the country.
The Real-World Impact of the IDC Tax Penalty
The IRA’s tax penalty on IDCs reduces America’s energy producers’ ability to invest in states where the sector serves as a major economic driver. Independent producers — which drill roughly 90% of U.S. wells — would see capital tighten, leading to:
Congress doesn’t need a new program to create energy jobs; it just needs to fix the tax treatment of IDCs under the IRA. By preserving immediate expensing, lawmakers can keep the economy growing and support the hardworking men and women of the oil and gas industry.
