Tax Bill Brings New Headaches to Oil Patch --- Change May Add $10 Billion To Troubled Industry's Costs

• Published in: The Wall Street journal. Eastern edition
• Main Author: By James Tanner and Steve Frazier
• Format: Newspaper Article
• Language: English
• Published: New York, N.Y Dow Jones & Company Inc 20.08.1986
• Edition: Eastern edition
• Subjects: Coal; Costs; Depletion allowances; Drilling; Energy industry; Energy prices; Master limited partnerships; Petroleum industry; Petroleum production; Production costs; Tax credits; Tax incentives; Tax increases; Tax reform; Windmills
• ISSN: 0099-9660

For years, drilling-fund salesmen played the part of Santa's helpers, scouring the U.S. for investor dollars and then delivering them to oil companies from Houston to Denver. By Christmas, the roar of drilling rigs signaled that tax-shelter dollars were being spent before the year ended. In two out of every three years since 1949, in fact, the peak of drilling activity occurred after Dec. 15. Now, as energy ventures lose some of their favored tax status, the industry worries that the money spigot will run dry as private investors suddenly move into lower tax brackets and have less incentive to sink money into risky deals that can't promise big returns. However, the industry acknowledges that the bill also eliminates tax incentives that have encouraged widespread inefficiencies in development of domestic oil resources. Through intense lobbying, the oil industry managed to preserve certain tax preferences involving depletion allowances and write-offs for intangible drilling costs. But the industry says other important changes in the tax bill will add at least $10 billion to the industry's overall costs at a time when they can least afford it. Moreover, they fear that the loss of oil's lure as a tax-shelter will prevent a hoped-for resurgence in investment capital that amounted to some $8 billion during the industry's heyday for domestic oil and gas drilling.