Intangible Drilling Costs - IDC

DEFINITION of 'Intangible Drilling Costs - IDC'

Costs to develop an oil or gas well for the elements that are not a part of the final operating well. Intangible drilling costs (IDCs) include all expenses made by an operator incidental to and necessary in the drilling and preparation of wells for the production of oil and gas, such as survey work, ground clearing, drainage, wages, fuel, repairs, supplies and so on. Broadly speaking, expenditures are classified as IDCs if they have no salvage value. Since IDCs include all real and actual expenses except for the drilling equipment, the word "intangible" is something of a misnomer.

BREAKING DOWN 'Intangible Drilling Costs - IDC'

The IDCs deduction has been allowed in the US since 1913 in order to attract investment capital to the high-risk business of oil and gas exploration. If a taxpayer makes an election to expense IDCs, the taxpayer deducts the amount of the IDCs in the taxable year in which it was paid or incurred.

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