Regulatory changes more worrisome than tax reform

According to EY's 2013 Energy Tax and Policy Survey

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Mar 12, 2014, 09:00 ET

HOUSTON, March 12, 2014 /PRNewswire/ -- Accounting, tax and finance professionals in the energy industry believe that environmental regulations – not tax reform – will have the greatest impact on capital investment decisions in the coming years.

That is one of the findings of EY's 2013 Energy Tax and Policy Survey. The survey of professionals in oil and gas, power and utilities and mining and metals industries covers a broad range of issues related to government policies at the federal, state and local levels. Of the 169 respondents, 48 percent represented companies with energy and supply operations only in the US, with another 34 percent representing companies that are based in the US with both US and foreign operations.

Survey respondents said that most of the base broadening options being considered by Congress would essentially have little or no effect on their companies' domestic capital spending plans. For example, 71 percent said the repeal of IRC Section 174 would not impact their companies at all, while 26 percent said that a repeal of IRC Section 199 would increase their companies' federal tax liability.

"The conventional wisdom is that the energy industry is fearful of changes to the tax structure," says Andy Miller, Americas Mining & Metals Leader. "But the response to the questions in this survey shows something different. It shows respondents recognize that Congress is not likely to pass meaningful tax reform during a time of slow economic growth."

In general, most participants believe that the coming years will bring new regulations to the business of natural gas production. For example, 88 percent said efforts by the Environmental Protection Agency to regulate hydraulic fracturing will impact natural gas development, and 93 percent of oil and gas respondents said the EPA will slow or even stall domestic production. Sixty percent of participants believe the industry will deploy technologies to comply with new regulations.

And while most respondents believe state and local taxes will increase for natural gas producers, most believe they will not negatively impact overall domestic production. What many predict will happen is that those companies will shift operations away from high-tax localities to those with more favorable conditions.

The survey also covered liquefied natural gas exports, issues facing renewable resource production, greenhouse gas emission regulations, business tax reform and international competition.

"One of the major takeaways from this survey is that these major energy sectors – oil and gas, power and utilities and mining and metals – are united in a belief that the US needs comprehensive energy and environmental legislation that defines a clear path for the future," said Deborah Byers, the Oil & Gas Leader for Ernst & Young LLP in the US. "A common theme we hear is that it is difficult for companies to plan and invest for the long-term without regulatory and tax certainty."

About Ernst & Young

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This release has been issued by Ernst & Young LLP, an EY member firm serving clients in the US.

How Ernst & Young's Global Oil & Gas Center can help your business

The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY's Global Oil & Gas Center supports a global network of more than 9,600 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors.

The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively. For more information, please visit www.ey.com/oilandgas.

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SOURCE EY