Big Oil Finds Hurdles in Trump's 'America-First' Tax Plan
Domestic output may gain other incentives as well, as the legislation raises barriers to multinational companies that seek to transfer some income outside the U.S. The impact will be complicated, though, by the international nature of huge oil companies. Explorers with global reach such as Exxon or Hess Corp. also own some of the largest footprints in U.S. shale fields these days.
Representatives from Exxon and Hess declined to comment. Chevron said it’s evaluating the new rules and its plans to invest $8 billion in the U.S. this year are unchanged.
Under the new rules, the amount of interest a company can deduct cannot exceed 30 percent of its adjusted taxable income. Before, companies could deduct all of their net interest expense.
“That’s likely to hit a fair number of those highly-leveraged companies,” Marcus said. “It’s definitely a big negative.”
The law ends a production tax credit that allowed refiners to deduct 6 percent of “qualified" activities, including refining, processing, transportation and distribution of oil, gas or petroleum products. The credit was so broad it likely sheltered more taxable income for many companies than the benefit they’ll get from more capital expensing, according to BI.
Still, refiners are in a better position to take advantage of tax changes than explorers or oilfield service companies, which have struggled to make money in recent years, Guy Baber, a Piper Jaffray & Co. analyst, said last month. Refineries have enjoyed healthy profit margins thanks to cratering prices for their main feedstocks, oil and natural-gas.
“The refiners are unique in that they have generated positive pre-tax income,” Baber said. “If you’re losing money, it doesn’t really matter what the tax rate is.”
With assistance from David Wethe. To contact the reporters on this story: Alex Nussbaum in New York at firstname.lastname@example.org; Kevin Crowley in Houston at email@example.com. To contact the editors responsible for this story: Reg Gale at firstname.lastname@example.org Christine Buurma, Joe Carroll.
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