Billions from tax cuts supercharge fossil fuel sector
OILMEN, wildcatters and particularly refiners are reaping billions in gains from President Donald Trump’s tax overhaul, helping boost the staying power of old- style energy even as the world searches for cleaner fuels.
The tax adjustments come as crude prices have rallied 54 per cent since June. Together, the price rise and the new tax code have supercharged the oil industry in ways that could test the resolve of money managers who’ve vowed to divest from companies that have powered the world’s economic engines for two centuries. The top four refiners this week reaped US$ 7 billion in gains, led by a US$ 2.7 billion jump announced on Friday by the biggest, Phillips 66.
Meanwhile, the tax overhaul appears to be a mixed bag for solar purveyors and wind farms. They could face higher borrowing costs because the federal tax credits they retain probably won’t be as attractive to large banks that now have lower tax liabilities.
“Oil is a resilient industry and it isn’t going away any time soon,” said Irving Levine, who manages US$ 120 million as chief executive officer of Copley Financial Services Group in Fall River, Massachusetts.
“Tax reform, in the long run, only increases their profitability.”
While corporate America has praised Trump’s tax cuts for creating jobs and reviving flagging industries, its the icing on the cake for industries that revolve around oil. Crude prices are at levels last seen in 2014 and everyone from supermajor oil titans to family- owned businesses were already gung-ho on US oil and gas.
The tax windfall? Simply an added bonus.
ExxonMobil Corp., the world’s largest publicly traded producer by market value, on Monday praised the “pro-growth business climate here in the US” as it announced plans to spend US$ 50 billion over five years and triple production in the Permian Basin.
For Murphy Oil Corp., a much smaller driller than Exxon, the overhaul makes it easier to repatriate foreign cash and will “significantly lower tax in the future” on drilling in the Gulf of Mexico and Texas shale fields, said John Eckart, the Eldorado, Arkansas-based company’s chief financial officer, on a conference call on Thursday.
“We have great returns with the 21 per cent rate and compete internationally well now,” he told analysts on a conference call. “So it’s a big help for us this tax reform, very positive.”
Refiners are among the biggest winners from the reforms.
For Phillips 66, Valero Energy Corp., Marathon Petroleum Corp. and Andeavor, the four biggest independent oil refiners, the US tax code overhaul has been more profitable than their actual business.
They posted one-time tax gains of US$ 7 billion combined in the fourth quarter, matching their net incomes for all of 2016, according to data compiled by Bloomberg.
Marathon’s board was so enthusiastic it approved a 15 per cent dividend increase. Even without the tax gain, Phillips 66 beat earnings estimates by 19 cents. It’s an extra boost to an industry already riding high from fat margins after from turning raw crude oil into fuels and strong worldwide demand for gasoline and diesel.
For US explorers, the law should mean a US$ 190 billion boost in asset values, researcher Wood Mackenzie said in a estimate released on Tuesday.
That will more than compensate for other changes in the law that could limit deductions for past losses or encourage individual states to raise fees on local production. —