Geopolitical Risks & U.S. Energy Stability

WTI Pushes Back Above $95 on Fresh Hormuz Tensions
WTI crude strengthened this morning, climbing to about $95.85 per barrel, as traders reacted to renewed security risks in the Strait of Hormuz and tighter-than-expected U.S. fuel inventories. Reuters reported that multiple vessels were hit by gunfire in the strait and Iran seized two container ships, keeping supply disruption fears elevated. At the same time, President Trump’s indefinite ceasefire extension remains in place, but peace talks still appear stalled and there is no clear sign of Iranian acceptance. After hovering below its 20-day EMA earlier, WTI has regained upside momentum, with geopolitical risk once again driving price action

Iran Shock Lifts Stakes for U.S. Oil and Gas
The Iran war and Strait of Hormuz disruption have created a historic global oil supply shock, removing more than 12 million barrels per day from the market and intensifying pressure across crude, gas, and refined products. For U.S. oil and gas, the setup can be constructive: higher and more volatile WTI tends to strengthen domestic well economics, support producer margins, and increase the strategic value of U.S. supply as customers seek more reliable barrels outside the Middle East. 

Global Oil Inventories Near Historic Lows
Global oil inventories are moving toward record lows as the Middle East war continues to disrupt production and tanker traffic through the Strait of Hormuz. Analysts say that even if the strait reopens soon, inventory declines are likely to continue through May and June. The conflict has already taken millions of barrels per day offline, damaged more than 80 oil and gas facilities, and created a severe supply squeeze. Experts warn that restoring normal production could take months, with some countries needing much longer than others to recover.

Energy Market Perspective

JAPEX’s U.S. Expansion Is a Good Sign for American Oil and Gas
JAPEX’s decision to put a large share of its future investment into the United States is a positive sign for U.S. oil and gas producers. It shows that a major international energy company believes American oil and gas assets are still some of the safest and most attractive places in the world to invest.

Global capital is still coming into U.S. energy, supporting the idea that American oil and gas remains valuable, especially for companies with strong assets and solid production potential. It can also help support asset values and create more interest from buyers and investors over time.

The bigger takeaway is that energy security matters more than ever. With global uncertainty still high, companies want stable and reliable supply, and the U.S. continues to stand out in that environment. For planners looking at energy as part of a broader investment strategy, this is another sign that U.S. oil and gas can still offer long-term opportunity.

Ask the "Tax Guy"
Tax treatment is one of the most important, and often most overlooked, aspects of oil and gas investing. From deductions and income classification to timing and reporting, the structure and activity of an investment can meaningfully affect an investor’s overall outcome. For accredited investors evaluating opportunities in this space, understanding how tax rules apply is just as important as understanding the asset itself. We asked our EVP of Tax, Rex Gifford:

Q. Current Year Non-Cash Deductions Considerations and Comparison: Depreciation and Depletion; what are the similarities and differences? 

A: Both Depreciation and Depletion current year deductions represent “Non-Cash” Deductions. For income tax purposes, both deductions reduce the cost basis of the Partnership’s assets. For Depreciation, the Lease and Well Tangible Costs reported on the Partnership’s Balance Sheet is reduced annually by the amount of the Depreciation Deduction. Also, for the Depletable Assets reported on the Partnership’s Balance Sheet, is reduced annually by the Depletion Allowance.

With regard to Depreciation deductions, any tangible, physical assets acquired and placed in service during the current tax year requires the computation of a new depreciation deduction (allowance) for these tangible assets acquired. Typical oil and gas tangible equipment consists of below the surface and surface components. Examples of below the surface are 1.) all sizes of downhole casing, generally cemented in place, 2.) downhole assemblies and spacers, 3.) tubing, usually 2 3/8” or 2 7/8”, and 4.) rods. Examples of surface components are: 1.) wellhead, 2.) flow lines, 3.) pumping units and applicable electric motors, 4.) electric panel controls and boxes, 5.) separator or heater treaters, and 6.) other applicable tangible equipment.

Depreciation Deductions are usually computed by applying a useful life to a specific tangible equipment item and then applying an approved depreciation method for computing the annual depreciation. For oil and gas tangible equipment, the useful life required is typically seven years and the most common method of depreciation is MACRS (Modified Accelerated Cost Recovery System). This depreciation method was developed and became IRC Section 168. With the passage of the Big Beautiful Bill as of July 4, 2026, the provisions of IRC Section 168 (k) was modified. This modified section was permanently modified to allow for 100% of tangible costs, with useful lives under twenty years, to be deducted in the current tax year by claiming “bonus depreciation” for the tangible equipment acquired and placed in service in the current tax year. Claiming “Bonus Depreciation” for tangible equipment eliminates the requirement to depreciate the tangible equipment over the usual seven year useful life applying MACRS as the depreciation method.

With regard to Depletion Deductions (Allowances), the greater of either 1.) cost depletion or 2.) percentage depletion may be claimed annually, thereby reducing the Depletable Assets reported on the Partnership’s Balance Sheet. IRC Sections 611 – 614 provides the authority, computation, and limitations for claiming depletion deductions. Examples of Depletable Assets capitalized are 1.) Cost of acquiring oil and gas mineral rights through the negotiation of an oil and gas mineral lease or oil and gas mineral acquisition, 2.) acquiring an economic interest in the oil and gas minerals, and 3.) other such costs which are required for the right to drill within the boundaries of a specified area. Depletable Assets do not include the acquisition of surface rights.

Depletion deductions are computed on an annual basis and the greater of 1.) cost depletion or 2.) percentage depletion (subject to specific limitations) may be claimed. Refer to the comparison of the two methods below:

Percentage depletion can continue even after the entire cost basis has been recovered (i.e., Percentage depletion deductions may be claimed annually as long as the well commercially produces). In other words, the Depletable Assets Balance Sheet amount could be reduced to zero by previous claimed depletion deductions. Subject to the limitation, stated above, of being limited to 50% or possibly 100% of the taxable income from the property, percentage depletion may be claimed annually until the well ceases to commercially produce. This percentage depletion deduction, therefore, provides an annual reduction of taxable net production income equal to 15% of the gross production income.

As stated above, both depreciation and depletion deductions provide the method for claiming annual deductions for the cost of either tangible equipment or the acquisition of oil and gas mineral interest which conveys the right to drill within the boundaries of a specific oil and gas mineral lease.

Have a tax question you’d like covered in a future issue? Email it to theupside@kingoperating.com.

DISCLOSURE: For educational purposes only. Not tax, legal or accounting advice. Please consult your tax professional before making any investment or tax-related decisions.

Happening at King