Editor Greg Ettling's thoughts on happenings in the well drilling industry.

There's added incentive to purchase new equipment this year. Photo courtesy of Schramm Inc.

New Equipment Purchase Incentive

Loyal reader Richard Clarke (SIMCO Drilling Equipment Inc.) contacted us to inquire whether we had given any coverage to the depreciation bonus that was part of the Jobs and Growth Tax Relief Reconciliation Act, signed into law last year by President Bush. We'll do that right here as it's tax season, that oh-so delightful time of the year when people who work for a living are reminded - with great vengeance - that they probably could spend their money more wisely than the government will.

The Jobs and Growth Act can help purchasers of new equipment reduce their tax liability - if they act by the end of this year. The folks at the Associated Equipment Distributors and the Association of Equipment Manufacturers have an obvious interest in this issue and laid out the basics for us:

Because you now can write off more of the cost of new equipment during the first year, the depreciation bonus can substantially reduce your tax liability for the year in which you buy the equipment. That can improve your near-term cash flow. Let's say you purchase a new piece of equipment that costs $100,000. Under the old rules, you could only write off 20 percent of the cost the first year. Now you can write off 50 percent immediately and you also can write off the 20 percent of the remaining 50 percent of undepreciated value that you were entitled to deduct under pre-2003 rules. For a $100,000 machine with a six-year depreciation life, that means you can depreciate $60,000 in the first year for a tax savings of $16,000. You'll still ultimately pay the same amount in taxes, but your tax liability for the first year is reduced and your cash flow will be improved. To qualify for the depreciation bonus, you must make the purchase before Jan.1, 2005.

Some people will always buy new equipment, citing warranties, lower operation costs, less maintenance and lower interest rates as viable reasons. Others are in a position that buying used makes the most sense for their operations so that's what they do. But for those who weigh the decision case-by-case, this nine-month window before the tax law changes might tip the scales to the buy-new strategy. That, in turn, will put more used equipment on the market, which could be coming at a good time. While there was indeed a glut in the used equipment market, most of the good stuff was snatched up pretty quickly.

For more information about the depreciation bonus, visit www.depreciationbonus.org.

Atlas Copco Purchases I-R's Drilling Solutions

Ingersoll-Rand has agreed to sell its Drilling Solutions business unit to Atlas Copco AB, headquartered in Stockholm, Sweden, for approximately $225 million. The transaction, which is expected to be completed in the second quarter of 2004, is subject to government regulatory approvals.

The Drilling Solutions business, which dates to Ingersoll-Rand's origins in 1871, manufactures drilling equipment and accessories for the worldwide construction, mining, quarrying and water-well drilling industries. It had 2003 revenues of approximately $300 million and employs approximately 950 people.

The transaction will include production facilities in Garland, Texas; Roanoke, Va.; Yokohama, Japan; and Xuan Hua, China; and Ingersoll-Rand Equipment Stores in Knoxville and Nashville, Tenn.; and Clarks Summit, Pa. The transaction does not include Ingersoll-Rand's France-based Montabert business unit, which manufactures hydraulic rock-breaking equipment.

“Drilling Solutions is a perfect strategic fit, since Atlas Copco is a global market leader in underground drilling, while Ingersoll-Rand is strong in surface drilling, especially in the United States,” says Björn Rosengren, senior executive vice president, Atlas Copco Construction and Mining Technique. “The acquisition will give Atlas Copco a more complete product range, stronger aftermarket organization and better geographical coverage, allowing us to meet the needs of the global mining and construction companies better. What's more, Drilling Solutions employees have a great deal of valuable knowledge and experience, which complements that of our own people.”

A new division will be created within the Construction and Mining Technique business area, with the name Atlas Copco Drilling Solutions. Initially, customers will continue to see the Ingersoll-Rand brand name on Drilling Solutions' products.

Where the Heck Is That?

Wayne Nash comes up with a seemingly endless list of ideas, both big and small - several of which have actually had merit. Such is the case with his proposal that an area code locator map would be helpful for most people, particularly those checking out the classified ads inNational Driller. With all the new codes, it's difficult to keep up and know where they all are. We don't have the space to include one in every issue but we can let you know where to find a really good one that's available for free. Go to www.aegisbooks.com and click on “telephone area code map.” You'll find a well-organized map with the area codes cross-referenced in numerical order for quick identification. Print out the map and keep it handy by your telephone for easy reference.