Expenditures on physical equipment for a well (casing, wellhead, tanks, etc.) that have salvage value. These costs are capitalized and recovered through depreciation over time.
Tangible Drilling Costs are the portion of drilling and completion expenses spent on equipment and materials that retain value. This includes steel casing and tubing, wellheads (Christmas trees), tanks, and other hardware installed during well development. Unlike IDCs, tangible costs cannot be fully expensed in the first year. Instead, they are capitalized and then depreciated or amortized over a period of years (e.g., seven years under standard tax depreciation schedules). TDCs usually make up the remainder of well costs not covered by IDCs and represent the investment in physical assets at the well site.
Tangible costs determine how much of a project’s capital outlay is tied up in equipment that must be depreciated rather than immediately deducted. Investors need to account for the slower recovery of these costs, as it affects cash flow and the timing of tax benefits.
