Amortization of Geological and Geophysical Expenditures

Geological and geophysical expenditures are the costs oil and gas companies incur when gathering data used to determine where oil and gas is located, and in what amounts, as well as where drilling may be most appropriate. They include seismic surveys, electromagnetic surveys, other types of remote sensing, shallow test drilling and bottom sampling. Amortization is a method of depreciation that recovers investment costs evenly (i.e., straight line depreciation) over the recovery period. Independent oil and gas companies are allowed to amortize these costs over two years, while integrated oil companies may amortize exploration costs over seven years. The shorter amortization period allows smaller oil and gas companies to recover their costs faster. The provision was originally enacted in the Energy Policy Act of 2005.