The Reagan administration has decided to keep intact one of the principal tax breaks for the oil and gas industry, administration sources said yesterday.
Write-offs for intangible drilling costs -- drilling expenses other than labor or permanent assets -- would remain as they are in present law.
Without the intangible drilling provision, the cost of items such as drilling mud could not be deducted immediately. The administration originally had proposed amortizing such expenses over the life of the well.
Some question remained about whether the tax-simplification plan, to be announced by President Reagan Tuesday, would apply the one year write-off to producing wells as well as to the more common dry holes.
Another key tax break for independent oil and gas producers -- the deduction of a flat percentage of gross income to cover depletion -- would be cut back in the plan.
All producers except owners of small wells would have a five-year period to switch to amortizing their depletion costs over the life of the well.
The use of intangible drilling costs as a deduction would be limited under the 20 percent minimum tax that is also to be part of the tax package. But that limitation would apply only to individuals and firms with very low tax liabilities, and would not cover all costs.
The provisions are less stringent than the changes proposed in the Treasury Department's original simplification plan, issued last November.
Independent oil producers lobbied hard against the Treasury plan, meeting with Treasury Secretary James A. Baker III several times and with Reagan once. Baker and Vice President Bush, both Texans, are reliably reported to have sympathized with the producers' pleas that the changes would harm an ailing industry and damage national security. Reagan also raised concerns about national security.