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U.S. Tax Overhaul Boosts Oil Sector By Billions

Oil Industry

The U.S. tax overhaul signed into law by President Donald Trump last month will boost the oil industry by $190.4 billion, according to estimates by Wood Mackenzie released on Tuesday.

Several factors contribute to the multibillion dollar tax cut for fossil fuel players: the lower corporate tax rate, the reduced pass-through rates for partnerships on big projects, and the adoption of accelerated expensing of capital costs. Explorers with profitable assets will see their cash pile grow by almost $200 billion as a result.

"While we may not see much increase in more marginal assets, the increased profitability of valuable proven onshore and deepwater plays will likely drive more international capital towards the U.S.," WoodMac said. "Long term, it will help solve the 'trapped cash' problem where, under the old system, U.S. companies would face steep tax payments for repatriating funds from abroad."

Another major item on the tax bill is the opening of the Arctic National Wildlife Refuge (ANWR) for drilling, which would be a huge bill on its own had the tax bill not been so controversial. Republicans have pushed for years—decades—to open up ANWR to drilling, but have been stymied by opposition from the other side of the aisle.

Related: What's Behind Canada's Oil Driller Exodus?

“Proposals to lower the corporate tax rate and strengthen cost-recovery provisions can allow the oil and natural gas industry to continue investing billions of dollars in the U.S. economy and add to the 10 million U.S. jobs our industry currently supports,” Jack Gerard, the CEO of the American Petroleum Institute, said as the bill was being debated.

At the same time, environmental advocacy group Natural Resources Defense Council (NRDC) deplored the tax reform in a statement, saying that “The tax scheme protects the oil and gas industry while cutting clean energy initiatives and destroying millions of acres of nature.”

By Zainab Calcuttawala for Oilprice.com

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