Depreciation, Depletion and Amortization (DD&A)

The oil industry is unique, in that, because of its strategic importance, drilling and recovery offers numerous tax incentives for exploration. Accounting for oil and other resource industries involves separate category entries. The natural gas, logging, mining, and other industries have similar accounting terms.

Depreciation refers to the breaking down of the cost of an asset, i.e. equipment, over its useful operational life on an industry average. A percentage is deducted against taxes each year, as permitted by the IRS.

Depletion is a metric used to reference extraction costs as well as percentage of the asset extracted from the estimated reserves.

Amortization refers to allocation of costs over intangibles, such as licenses, patents, permits, leases, and related items.

DD&A are often compiled as a single combined accounting entry with resource company P&L and income statements.

DD&A is not to be confused with DDA, which references carnal activity not mentionable here.