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Repealing a US oil and natural gas tax deduction for intangible drilling costs would cause 190,000 Americans to be unemployed and production to significantly decline, according to a Wood Mackenzie study released Thursday.

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Taking away the tax deduction would cause industry investment in the US to fall by $407 billion through 2023, resulting in a 15%-20% decline in future domestic drilling, said the study, funded by the American Petroleum Institute.

"Repealing the IDC deduction would actually lead to long term declines in federal revenues, state taxes, and royalty payments to private landowners," said Stephen Comstock, API's director of tax and accounting policy, in a statement accompanying the study. "If policymakers want to generate more revenue from oil and natural gas production, raising taxes is the wrong approach."

The IDC tax break is one of several that environmentalists and fiscal hawks have said are unnecessary for an industry that continues to rake in record profits.


The IDC deduction dates back to 1916 and permits domestic oil companies to take immediate deductions for certain costs associated with drilling oil wells, instead of spreading those deductions out over the life of the wells. The Center for American Progress, a liberal think tank, has said the IDC benefits the oil and gas industry by $12.5 billion over 10 years.

While there are no immediate plans in Congress to repeal the IDC deduction, Comstock said API, in releasing the study, wanted to stress its importance in maintaining robust domestic production to policymakers.

"There is a lot of activity going on behind the scenes" in congressional discussions about oil and gas company revenues, Comstock said in a later conference call with reporters. "We still get a lot of questions about it."

--Herman Wang, herman.wang@platts.com
--Edited by Richard Rubin, richard.rubin@platts.com