For various reasons discussed above the US government strongly supports domestic oil and gas exploration and production projects. The primary method that the government can induce more oil and gas exploration and developments projects is by providing unusual tax benefits for groups or individuals who want to participate in oil and gas ventures. Although each working interest holder should consul with his/her CPA (Certified Public Accountant) to address issues unique to them, we are presenting here a couple of important tax advantages that are very significant and are unique for oil and gas participants.

Initial Drilling Costs
Initial Drilling Cost is considered a complete write off, whether oil was discovered or not. Meaning that if the participation opportunity was not made, the potential working interest holder would have lost about 30% or more (depending on the tax bracket of the potential working interest holder) of the potential participation to the tax authorities without making any participation. Therefore, the actual drilling portion of the investment would cost only 70% of its participation cost.

Completion Costs
Up to $17,000 of total completion costs can be written off as a one time charge in any given year with the remaining balance depleted (deducted) over a period of 7 years reducing income tax expense paid to tax authorities.

Income Tax
All revenues from oil exploration and development projects are subject to a depletion allowance benefit from the US government. Working interest holders will pay taxes on only 80-85% of total oil and gas income.

These are just a few of the tax benefits for oil and gas working interest holders. There are other tax programs such as the North American Venture Program for high net worth individuals. Oil and gas working interest holders may be able to lower their respective tax brackets by making such participation opportunities.