All large oil and gas operators and many medium-sized ones maintain well-staffed and adequately budgeted geological and geophysical (G&G) departments, the members of which devote their full time to testing oil and gas prospects. Smaller operators may employ independent G&G firms on a fee basis to perform this work for them. Oil companies can pay for and own G&G information or license desired G&G information from a person that owns it. The tax treatment of G&G costs has varied over time.
This article, first in a two-part series, discusses the kinds of costs included in G&G costs and the historical and current tax treatment of G&G costs, including capitalization versus deduction.
Read the second article of this two-part series A Primer on Domestic Oil and Gas, Part II: Intangible Drilling and Development Costs