March 12, 2014 | By Barbara Vergetis Lundin

Environmental regulations (and not tax reform) will have the greatest impact on the capital investment decisions of accounting, tax and finance professionals in the energy industry, according to Ernst & Young (EY), who surveyed the oil and gas, power and utilities, and mining and metals industries on a range of issues related to government policies at the federal, state and local levels.

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, according to EY.

"The conventional wisdom is that the energy industry is fearful of changes to the tax structure," said Andy Miller, EY's Americas mining and 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 while 60 percent believe the industry will deploy technologies to comply with new regulations, the EY survey revealed.

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. Many predict that those companies will shift operations away from high-tax localities to those with more favorable conditions.

"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 U.S. needs comprehensive energy and environmental legislation that defines a clear path for the future," said Deborah Byers, oil and gas leader for EY. "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."

For more:
- see this report
- see this article

 

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