Annual Oil and Gas Update Sheds Light on Current State of the Industry

The oil and gas industry in the United States has been somewhat depressed of late, with a decline in the number of active rigs from the record highs of previous years, and numerous calls for increases in taxes and regulations, which have led to instability in the market. Since last year, for instance, over 100 U.S. oil and gas companies have declared bankruptcy. That said, nationwide production has remained steady, despite the presence of relatively low gas prices. Locally, Pennsylvania’s natural gas production continues to rise since the discovery of the Marcellus Shale district, primarily in the southwestern portion of the state. With 6,888 unconventional wells currently producing 4.5 trillion cubic feet per year of natural gas in Pennsylvania alone – or about 20% of total U. S. production – the effort has so far been a boon for regional consumers, who’ve seen steady decreases in household electric costs.

It was against this backdrop that Schneider Downs recently held its annual Oil and Gas Update, a daylong event that covered a wide range of topics including the general state of industry, issues surrounding depreciation, depletion and amortization (DD&A) and property, plant and equipment (PPE) as well as impairment, and capped by a talk from featured speaker David J. Spigelmyer, President of the Marcellus Shale Coalition.

Participants discussed, in detail, industry matters as changes in prices, drilling costs exceeding expectations, significant increases in DD&A rates, production difficulties and lease expiration in the near future, as well as derivative and hedge accounting, taxes and revenue recognition. Conversations regarding PPE, DD&A and impairment proved particularly beneficial in understanding reporting issues relevant to those areas, including understanding how to determine which depreciation method oil and gas clients should be using and determining which triggering events may cause impairment of clients’ assets.

Guest speaker Spigelmyer wrapped up the day, touching on many aspects of the oil and gas industry as a whole and Pennsylvania operations, in particular. After explaining the key difference between conventional and unconventional drilling – conventional involves drilling straight down into a reserve while unconventional drills horizontally through the shale – Spigelmyer described how Pennsylvania is helping to streamline delivery of the retrieved natural gases through the construction of several pipelines that will run from the gas-rich markets to other markets throughout the state and country. With trucking expensive, these pipelines can go a long way in significantly reducing costs.

Spigelmyer concluded his message by addressing a common misconception, namely that oil and gas companies “don’t pay taxes,” by explaining how those companies are hit with massive fees instead. As an example, the licensing fee to start a well – once only $100 – is today over $3,000. In addition, oil and gas companies pay an “impact fee” for unconventional wells.

Despite the oil and gas industry’s ongoing challenges, Spigelmyer expressed optimism about its future as a whole, not only for Pennsylvania, but for the world. For more information on the current state of the oil and gas industry, contact us.      

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2023 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
IRS Announces No Marginal Well Tax Credit for 2022 Tax Year
IRS Introduces Safe Harbor Method for Accounting Expenses in Natural Gas Infrastructure
Convenience Stores Should Start to Adapt to a Less Fuel Dependent Future
Postcard from the PIOGA and Washington County Chamber of Commerce
Sales and Subleases of Unproved Properties
Bring Extra Water to Put Out That EV Fire
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.