Capital Definitions

Capital cost definitions are customizable in Enersight.  To change the capital definitions, go to "Administrator - Capital Definitions."

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The following Capital Cost Definition screen is displayed:

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To change your Capital definition:

• Copy an existing set (or create a new record)
• Name the Capital set
• Click on "Add Definition" to create additional rows of capex
• Select the Depreciation category
• Specify whether or not it is an eligible royalty deduction
• Provide a description (optional)
• Save when you are done
• You must modify the economic model to link your new definitions to your economic models.

The capital definitions map to the depreciation categories (development, facilities, etc.). There are six hard coded categories, plus twenty user categories (capClass1, 2, 3...). The depreciation method for each of these categories must be defined. The available methods include:

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Declining Balance - Takes a constant percentage each year.  E.g. 30% declining balance on $1,000 is $300 for the first year).  The tables below show some examples for declining balance depreciation.

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Straight Line - Divides the capital by the number of years and claims the same amount each year.  Eg 5 year straight line is $200/year (20%) on $1,000.
Class 41a - Alberta heavy oil Capital Cost Allowance (CCA) which allows for capital which is a minimum of 5% of current revenue (such as a major facility upgrade) to be expensed (100% depreciation) in the year that it is spent.
Straight Line Useful Life - This is a straight line method (see above), but instead of the useful life being fixed by the capital definition, it is set by the user in the case.
MACRS 5, MACRS 7- Modified Accelerated Cost Recovery System (MACRS) Double Declining balance switching to straight line.  MACRS 5 switches to straight line in year 4, while MACRS 7 switches to straight line in year 5.  The double declining balance is twice that of the equivalent straight line method.  For 5 years that is 40% and for 7 years, 28.57.  The 1/2-year rule is used in the first year and last year. 
The depreciation schedules are as follows:

Year	MACRS 5	MACRS 7
1	20.0%	14.3%
2	32.0%	24.5%
3	19.2%	17.5%
4	11.5%	12.5%
5	11.5%	8.9%
6	5.8%	8.9%
7		8.9%
8		4.5%
Total	100.0%	100.0%

US2018 – A modified version of MACRS7 to match USA tax changes enacted within 2018 which included allocation of 100% of capital to Tangible Expenses till 2022 then stepped down allocation per year. Refer to this spreadsheet for interpreted calculation method.

UOP Depletion - Unit of Production (UOP).  The depreciation is equal to the Opening depreciation balance times the yearly production divided by the remaining reserves at the start of the year.
IDC - Is 70% expense (100% depreciation in the first year) and the balance as 5-year straight line with a 1/2-year rule. The resulting schedule is as follows:

Year	IDC
1	73.0%
2	6.0%
3	6.0%
4	6.0%
5	6.0%
6	3.0%
Total	100.0%

Half Year Rule - When the half year rule is used, the depreciation is limited to 50% of the yearly total in the first year.