Oil & Gas Roundtable for December 2025

What I Focused on Last Month and Why It All Connects

Last month, the same conversations kept coming up. Not because investors weren’t paying attention, but because oil and gas has a habit of being explained in pieces instead of as a system.

Most of the questions that surfaced weren’t really about risk. They were about why oil and gas is treated differently, how ownership changes outcomes, and where the tax benefits actually come from. So the focus last month was walking through those mechanics publicly, one piece at a time, so it was easier to see how they connect.

What follows isn’t a recap of videos. It’s the bigger picture of what was covered last month, why these topics matter together, and how they show up in real projects.

Intangible Drilling Costs, Why They Exist in the First Place

Early last month, I spent time breaking down intangible drilling costs, or IDCs, because they’re often misunderstood right out of the gate.

When you drill a well, not every dollar buys something you can touch or resell. Labor, fuel, drilling mud, and site preparation are gone once the bit hits the ground. The tax code treats those expenses differently because they’re real, necessary costs of drilling activity.

What matters isn’t just the deduction itself. What matters is who actually pays those costs.

I covered this in more detail in our educational breakdown:
Intangible Drilling Costs (IDCs) in Oil & Gas: Why They Matter

Working Interest vs. Royalty, Same Well, Different Seat

That IDC conversation usually leads into the next question: working interest versus royalty ownership.

Two people can be tied to the same well and have completely different experiences. A working interest owner shares in both the income and the costs. A royalty owner shares in revenue only. That single difference drives how income is treated, how deductions work, and how reporting is handled.

This distinction is outlined in plain language here:
Working Interest vs. Royalty Interest: What’s the Difference?

Understanding this structure upfront clears up a lot of confusion later, especially when tax time comes around.

Active vs. Passive Income, Why the IRS Draws the Line

This question came up repeatedly last month. Why is some oil and gas income active and some passive?

The answer goes back to risk and participation. If you’re paying your share of drilling and operating costs, the IRS treats that activity differently than income where you aren’t exposed to those expenses.

I explained this more fully in:
Active vs. Passive Income in Oil & Gas Investing

What Your 1099 Is Really Telling You

Later last month, a lot of time went into clarifying oil and gas 1099 reporting, because this is another area where people often make assumptions.

For working interest owners, a 1099-MISC reports gross production revenue before expenses. That number ties directly back to your monthly operating statements, deductions, and elections made at the tax level.

If you want a deeper explanation of how these documents connect, we’ve laid it out here:
How Your 1099 Explains Your Oil & Gas Working Interest

Depletion, Recovering What’s in the Ground

Once a well starts producing, the conversation naturally shifts to depletion.

Depletion is the oil and gas equivalent of depreciation. Cost depletion allows you to recover your investment as reserves are produced. Percentage depletion, where applicable, allows a fixed percentage of gross production income to be deducted over time.

We break this down in detail here:
Cost vs. Percentage Depletion in Oil & Gas: What Investors Should Know

The Patterns That Kept Coming Up

Looking back across everything covered last month, a few patterns stood out clearly.

First, risk and cost drive tax treatment. That principle connects IDCs, activity status, 1099 reporting, and depletion.

Second, timing matters more than totals. When deductions occur and how income is reported depends on where a project is in its lifecycle.

Third, most confusion comes from structure, not complexity. Once ownership and participation are understood, the rest of the system starts to make sense.

What This Means for Investors

This isn’t about chasing deductions. It’s about understanding how you’re participating before drilling starts.

When investors understand their role, they’re better equipped to ask informed questions, work productively with their CPA, and avoid surprises later.

Clear education upfront leads to better decisions down the road.

Looking Ahead

These topics don’t stop after year one. As wells mature, new questions emerge around ongoing operations, decline, and long term tax treatment.

Over the next month, I’ll be spending more time on how these same mechanics show up after drilling—once projects move into sustained production—and what investors should expect as that transition happens.

That matters more right now because 2026 is shaping up to be an important year for oil. Years of underinvestment—driven in part by policy choices that discouraged capital—have left supply behind a demand curve that keeps growing. Robotics adoption and the steady build-out of data centers are both energy-intensive, and those loads are being added month after month. If this imbalance tightens further, bottlenecks could show up sooner than most expect, and price volatility across energy could follow.

At the same time, globalization appears to be retreating and geopolitical tension is rising. Many governments are already shifting toward energy independence and domestic energy security. That policy turn can increase friction between nations, and investors should treat energy access and control as a real variable again.

Oil prices may also be facing artificial suppression in an effort to contain inflation. History suggests those interventions don’t fix supply constraints. They tend to delay the adjustment, and then the market reacts quickly when the pressure releases.

That’s where understanding the full system really pays off.

Statement

The information provided in this article is for informational purposes only and should not be considered legal or tax advice. We are not licensed CPAs, and readers should consult a qualified CPA or tax professional to address their specific tax situations and ensure compliance with applicable laws.