Oil and Gas Transactions (Portfolio 605)

Gregory Matlock

Global Energy Tax Leader

Ernst & Young

At a glance

I. Introduction
II. Acquisition of Interest
III. Cost Recovery - Exploration and Development
IV. Cost Recovery - Depletion
V. Tax Credits
VI. Joint Operations
VII. Additional Topics


Bloomberg Tax Portfolio, Oil and Gas Transactions, No. 605, analyzes the principal domestic federal income tax aspects of acquiring various types of interests in oil and gas properties; exploring, developing, and operating the properties; the various types of arrangements and organizations used in the process; the depletion allowance; intangible drilling and development costs; production payments; and the application of other areas of the Code to the oil and gas industry.

The acquisition, exploration, and development of properties for the production of oil and gas require the investment of considerable capital and often involve the assumption of considerable risk, particularly with respect to previously undeveloped properties. The owners and operators of such properties use a variety of techniques, in addition to the usual debt financing, for financing the development of the properties and for spreading the associated risk. The selection of a particular financing technique involves the consideration of tax, economic, and other factors. The tax considerations can materially affect the anticipated income to be realized on the investment of capital and often determine the form and feasibility of the particular investment in the property. This Portfolio examines the tax considerations in detail.

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