| Industry Issues / Oil, gas and geothermal deposits percentage depletion |  |
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| Percentage
depletion applies to oil and gas only in the following cases:
• Crude oil and natural gas production of independent producers
and royalty owners. 15% depletion is allowed a taxpayer who isn't a
retailer or refiner for so much of his "average daily
production" of domestic crude oil and domestic natural gas as
doesn't exceed his "depletable oil quantity" or "depletable
natural gas quantity." "Marginal
production" may qualify for a higher percentage depletion rate (not
to exceed 25%; for 2000, the percentage is 19%) if the price of domestic
crude oil is below $20 for the calendar year preceding the
calendar year in which the tax year in question begins. The
maximum depletable amount is 1,000 barrels of oil or 6,000,000 cubic
feet of gas per day. A taxpayer who has both crude oil and natural gas
production allocates the maximum depletable amount between oil and gas
at the rate of 6,000 cubic feet of gas per barrel of oil. Over-ceiling
production isn't entitled to any depletion. The
deduction can't exceed 65% of the taxpayer's taxable income from all
sources. Also, the deduction for any costs
for which taxpayer claims the 15% enhanced oil recovery
credit must be reduced by that credit amount.
• Production of natural heat from geothermal deposits and
natural gas production from geopressured brine located in the U.S. or
its possession. Percentage depletion isn't available with respect to any lease bonus, advance royalty or other amount payable without regard to production from any oil, gas or geothermal property. The restriction on the use of percentage depletion applies only to oil and natural gas; other minerals from oil and gas wells can qualify. |
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