#energy

I don't know if it is intentional or not, but this appears to be misrepresentation of the situation. The "truck to transport supplies to a well" is not an operating cost. It's a capital expense since it is expense directly going into creating a long-term, income-producing asset (the well). Sticking with his fast-food example, "trucking ingredients from a distributor to the restaurant" to be eaten by patrons in a couple days is most certainly not a long-term, income-producing asset, so it is an operating cost.

Contrasting the expenses included in “intangible drilling costs” with intangible assets shows how intangible is a misnomer in the case of IDCs. An oil producer hiring a truck to transport supplies to a well is clearly not analogous to, say, a company buying up the intellectual property rights to a beloved children’s cartoon character, or the trademark of a fast-food brand. To stick with the fast-food company example, the analogous cost to trucking supplies to an oil well would be trucking ingredients from a distributor to the restaurant—an everyday operating cost of doing business.

Intangible drilling costs are called “intangible” to distinguish them from tangible drilling costs, namely drilling equipment, but it would be more accurate to call IDCs operating drilling costs. Allowing companies to fully expense operating costs is an uncontroversial feature of the tax code across industries, and IDCs are just how operating costs are categorized in the context of oil and gas extraction.

Over the past century, the federal government has pumped more than $470 billion into the oil and gas industry in the form of generous, never-expiring tax breaks. How it all got started:

2013 Despite talk of everything being “on the table,” oil’s tax perks survive the fiscal-cliff negotiations. Congressional Democrats introduce five bills targeting tax giveaways for oil and gas companies. Their death is all but assured, especially in the Republican-controlled House. In April, Obama introduces his 2014 budget, which includes $23 billion for renewable energy and energy efficiency over 10 years and permanent tax cuts for renewable power generation. It also would end “inefficient fossil fuel subsidies.” In contrast, the gop budget proposed by Wisconsin Rep. Paul Ryan targets “federal intervention and corporate-welfare spending” by cutting subsidies for renewables. Tax breaks for oil are left untouched.

The oil depletion allowance in American (US) tax law is a tax break claimable by anyone with an economic interest in a mineral deposit or standing timber. The principle is that the asset is a capital investment that is a wasting asset, and therefore depreciation can reasonably be offset (effectively as a capital loss) against income.

The allowance encouraged people who were taxed at a high marginal rate to invest in, perhaps risky, oil ventures. If the venture failed, then the costs would effectively reduce income, so the effective loss at a 90% marginal rate would only be 10% of the actual investment. Conversely if the venture was successful, an amount up to initial investment (under cost depletion, see below) would be tax free. Under the percentage depletion method the amount could potentially be even greater. The oil depletion allowance has been subject of interest because one method (percentage depletion) of claiming the allowance makes it possible to write off more than the whole capital cost of the asset.

Percentage depletion: With this method, a fixed percentage of the gross income is treated as deductible. The percentage is dependent on the nature of the resource being extracted. It is possible under this scheme for the total deductibles (or indeed the annual deductible) to exceed the original capital investment.

Over the nine decades of its existence since 1916, the oil depletion allowance has benefitted oil companies and the petrochemical industry by more than $470 billion as of 2014, everything else being equal.

Federal tax concessions for oil and gas are the largest of all incentives, amounting to over 70 per- cent of all tax-related allowances for energy. Regulation of prices on oil for stripper wells or new wells, and related incentives, comprises the second largest amount of incentives aimed at a partic- ular energy type. In the R&D category, nuclear energy received about 45 percent of the expenditures since 1950, coal about 23 percent, and renewables about 17 percent of the total. Some additional observations on the data:  Oil and gas received 54 percent ($554 billion) of federal spending to support energy since 1950. Oil alone received three-fourths ($414 billion) of this amount.

Average Price of Electricity to Ultimate Customers

Net Metering is the agreement utility customers enter with their electric utility provider to save money on their electricity bill with solar energy systems. Any excess electricity generated is fed back into the grid, spinning your meter backward and earning credits that offset future electricity consumption, effectively lowering overall energy costs. The rate at which you export energy is the same as the rate at which you purchase, a 1:1 rate. These credits roll over monthly but reset annually on March 31, aligning with solar generation patterns to optimize the utilization of solar-generated electricity.

Seems about right. Interesting metrics on startups too:

• Foundation Model Labs: Revenue must grow faster than Compute Costs.
• Enterprise AI Platforms: High Gross Retention because of high AI Feature Adoption.
• Application Layer: Net Revenue Retention (NRR) > 120% and CAC Payback < 12 months.
• Inference API Players: High Revenue per GPU-Hour (pricing power).
• Energy/Infrastructure: Structural Energy Cost Advantage and high utilization.

Energy infrastructure, unlike GPUs that become obsolete in five years, compounds in value over decades.

Consider the math: A single large AI training cluster can require 100+ megawatts of continuous power — equivalent to a small city. The United States currently generates about 1,200 gigawatts of electricity total. If AI compute grows at projected rates, it could demand 5-10% of the nation’s entire power generation within a decade.

And unlike fiber optic cable or GPU clusters, power infrastructure can’t be deployed quickly. Nuclear plants take 10-15 years to build. Major transmission lines face decades of regulatory approval. Even large solar farms require 3-5 years from planning to operation.

The companies prepping themselves to survive scarcity aren’t just stockpiling compute—they’re building root systems deep enough to tap multiple resources: energy contracts locked in for decades, gross retention rates above 120%, margin expansion even as they scale, and infrastructure that can flex between training and inference as market dynamics shift.