Depletion

Depletion is defined as the decline in a natural resource such as petroleum, timber and minerals.  Natural resources subject to depletion can be identified via two main features:

• The asset can be completely consumed
• The asset can only be replaced by nature

In order to calculate depletion, the company must first calculate the depletion base or cost of the natural resource.  These costs generally fall into three categories:

• Cost to acquire the resource
• Cost to develop the resource
• Costs associated with exploration of the resource

There is considerable controversy surrounding the depletion base for oil and gas reserves due to the difficulty in estimating recoverable reserves.