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of <h1>State Oil Contracts May Prescribe Special Allowances for Exploration Costs, Transfers, Depletion and Tax Treatment</h1> Where the state contracts to participate in or associate with a business for prospecting, extracting or producing mineral oil, the agreement may prescribe special allowances-in lieu of or in addition to ordinary tax allowances-covering infructuous or abortive exploration expenses for areas surrendered before commercial production, specified drilling/exploration costs and related physical assets, and depletion allowances from commencement of commercial production; such allowances are computed as the agreement specifies, modifying other Act provisions as needed. On transfer of the business or an interest therein, the agreement governs whether remaining unallowed expenditure is deductible, treated as taxable profit to the extent of excess proceeds, or disallowed; special rules apply to amalgamation or demerger. 'Mineral oil' includes petroleum and natural gas.
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