Oil and Gas Extraction - Oil wells

The question is.  When you sell oil and gas extraction (the commodity of oil and gas).  a large portion of the revenue goes into drilling of oil and gas wells. When you look at the oil and gas extraction sector as a whole, there is NO drilling of oil and gas wells in the indirect.  My understanding is that is due to oil wells are classified as a capital expense.  Where is that money accounted for.  You need to drill a well to produce and sell oil and gas. 

The extraction company would be the owner of the well.  Typically paying somebody else to drill 

Hello again!

Thanks for the clarification here. From the perspective of the oil and gas extraction sector, these dollars are not going to be accounted for in the Industry Spending Pattern as you have noted. Generally speaking, large investments are not included in an Industry Spending Pattern because these are periodic purchases - i.e. not assumed to be spent on an annual basis or vary based on Industry production levels. A good example of this is new construction, which is not included in any Industry's intermediate purchases because it is a component of final demand, not intermediate demand.

The Intermediate Input purchases detailed in these Industry Spending Patterns are comprised of the Commodities needed for production in said Industry, which would include the maintenance on the investments but not the investments themselves. Regarding the amount that oil and gas extraction spends on investment (such as drilling a well - i.e., the well is not "consumed" in the year to make the final goods, rather it lasts for multiple years) in terms of underlying data: We do not have the data available in IMPLAN to separate investment by a specific Industry. We only display the total investment in locally produced capital goods by all Industries (you can see this in the IxC SAM where the Capital Column pays the foreign trade row). However, I can see that in the State of Texas and US Totals Social Accounting Matrices, about half of Other Property Income is being paid to Capital. 

If you want to model the economic impact of these wells as it pertains to the oil and gas extraction sector - there are a couple of different approaches we can take. We would need to either edit the Spending Pattern for this Industry 20 within an IIA Event, to incorporate those investments as a spending amount that will vary by level of production, or model this as a separate event (if that is the goal).The following article should help: Analyzing Capital Investments.

Hope this helps!

Michael Nealy