DEFINITION of 'Intangible Drilling Costs - IDC'

Intangible drilling costs (IDC) are costs to develop an oil or gas well or the elements that are not a part of the final operating well. Intangible drilling costs 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 intangible drilling costs if they have no salvage value. Since intangible drilling costs 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 intangible drilling costs 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 intangible drilling costs, the taxpayer deducts the amount of the intangible drilling costs in the taxable year in which it was paid or incurred.

Example of Intangible Drilling Costs

As an example of intangible drilling costs, if Company OIL wanted to develop a new oil well they would need to first go through a bunch of steps to prepare to drill the well. This may involve hiring people to conduct surveys, clear the ground area so they well can be built, build adequate drainage, and pay folks to work. Since these are not costs for the actual drilling equipment and have no salvage value after the well is no longer functioning, they are labeled as "intangible."

RELATED TERMS
  1. Intangible Asset

    An intangible asset is an asset that is not physical in nature ...
  2. Intangible Cost

    An intangible cost is an unquantifiable cost relating to an identifiable ...
  3. Calculated Intangible Value - CIV

    Calculated intangible value is a method of valuing a company's ...
  4. Directional Drilling

    Directional drilling is a technique in which a well is bored ...
  5. Property

    Property is anything tangible or intangible over which a person ...
  6. Development Well

    A development well is drilled in a proven area for the production ...
Related Articles
  1. Investing

    Goodwill versus other intangible assets: What's the difference?

    "Intangible" assets don't possess physical substance. Yet they are quantifiable, and of great importance to any business.
  2. Small Business

    Your Business Could Ruin Your Investment Strategy

    It's important to properly value your business assets when managing your portfolio. Here's why.
  3. Investing

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  4. Investing

    How the Oil and Gas Industry Works

    The oil and gas industry has unique terminology that's crucial for investors to understand.
  5. Tech

    Tech Startups Eye the Oil Industry

    Although the oil and gas industries have plummeted, high tech companies and investors see promise.
  6. Investing

    Now’s The Time To Buy The Land Drillers

    As both natural gas and oil drilling activity continues to increase onshore, the land drillers will benefit. For investors, the firms doing the heavy lifting continue to see rising rig counts ...
  7. Investing

    The Cost of Shale Oil Versus Conventional Oil

    Fracking technology has brought new costs to the oil extraction process, and that has an impact on the profitability of the deposits being drilled.
  8. Investing

    The 4 Worst Oil and Gas Stocks of 2015

    Learn about the energy sector and the type of companies that operate within the sector. Find out about the four worst performing oil and gas stocks of 2015.
  9. Investing

    Will Natural Gas Perform Like Oil? (UNG, XLE)

    Oil is in a bull market. Will natural gas prices follow or are both headed for a near-term correction?
RELATED FAQS
  1. Can you realize capital gains on intangible property?

    Learn more about capital gains and losses and how they may apply to intangible assets. Find examples of intangible assets ... Read Answer >>
  2. How long do oil and gas producers need to go from drilling to production?

    Discover the process of oil well production and learn how long it typically takes an oil producer to move from drilling to ... Read Answer >>
  3. What are typical examples of capitalized costs within a company?

    Learn examples of company capitalized costs, including expenses incurred to put fixed assets; software development costs; ... Read Answer >>
  4. What is the difference between shareholder equity and net tangible assets?

    Find out more about shareholders' equity, net tangible assets, how to calculate these balance sheet items and the difference ... Read Answer >>
  5. What percentage of the global economy is comprised of the oil & gas drilling sector?

    Read about a rising industry that already composes as much as one-twentieth of total global economic output: the oil & gas ... Read Answer >>
  6. What are the main benchmarks that track the oil & gas drilling sector?

    Read about several different types of benchmarks that investors can use to track the overall performance of the oil and gas ... Read Answer >>
Trading Center