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What is percentage depletion?

United States Tax Code Sections 611, 613, 613A

This is a 15% deduction allowance against taxable income utilized by independent producers and royalty owners. Itís limited to the first 1,000 barrels/day of production. Congress eliminated percentage depletion for major oil companies more than 30 years ago.

Why itís important: Percentage depletion has been available to independent producers since 1954 as an incentive to stimulate continued investment in a high-risk industry. It provides the capital and outside investment small producers need to maintain marginal wells. These wells make up 20% of our production.

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