American Oil and Gas Reporter - May 2018 - 99

API reinforces that objective," relates
NABTU President Sean McGarvey. "We
welcome the opportunity to work with
the oil and natural gas industry to help

our members be better equipped with the
necessary skills to not just attain a job,
but to find a successful career in construction. We have long been focused on

creating opportunities to strengthen and
expand America's middle class-this effort
will lead to growth in America's economy
and energy security alike."
r

Revised Tax Laws Positive For Oil, Gas
NEW YORK-Changes to the U.S. tax
code imposed by the Tax Cuts and Jobs
Act of 2017 will have impacts on the oil
and gas industry ranging from mild to
significantly positive, an analysis by
Moody's Investors Service calculates.
While the revisions are mostly positive
for the refining and marketing sectors,
which generate considerable taxable income when refining margins are cyclically
strong, the report predicts the gains will
be smaller for the much larger exploration
and production sector.
"The new U.S. tax law is a net positive
for the capital-intensive oil and gas industry,
while retaining tax advantages that companies can continue to use for deductions and
to recover certain costs," says Moody's
vice president, Amol Joshi. "However, the
law also caps the amount of interest payments
that highly leveraged companies can deduct,
potentially increasing taxes for those that
can ill afford to pay them now."
The new tax law's implications for
individual companies depend on their income-generating and spending patterns,
Joshi says. Many companies in the refining
and marketing, oil field services, and unregulated midstream sectors are encouraged to invest in property, plants and
equipment under the new law, since it increases bonus depreciation on such spending to 100 percent from 50 percent until
2030. He points out that exploration and
production companies retain their ability
to deduct intangible drilling costs and
recover certain geological and geophysical
expenses, which boosts their cash flows.
Conversely, Moody's says the new
law caps deductions of net interest expense
above 30 percent of earnings before interest, taxes, depreciation and amortization
with a change in the limit to 30 percent
of earnings before interest and tax after
four years, further restricting the level of
deductibility. For a cyclical industry such
as oil and gas, the analysis says, cash
flow volatility could depress interest coverage rates during times of low commodity
prices, with unpredictability hurting interest expense deductibility.
According to the report, the law not
only repeals the corporate alternate minimum tax (AMT) but allows companies
to recover past AMT credits. It says this
is a positive for oil and gas firms, although
most have a small eligible tax asset on

their balance sheets. However, the law
also limits deductions of net operating
losses (NOL) to 80 percent of taxable income, which it predicts will be an eventual
disadvantage for companies that deduct
significant NOLs, likely resulting in a
form of a minimum tax akin to the AMT.
Becoming Competitive
Beyond the tax measures applicable
to U.S. companies, Moody's report says
under the new law, multinational companies incur a new deemed repatriation
liability based on their unrepatriated foreign earnings as of the end of 2017. The
report says companies have eight years
to pay this liability, and beneficially will
avoid incurring any significant U.S.
federal income taxes on their future foreign earnings.
While U.S. companies operating overseas will incur this "toll charge," a shift
beginning in 2018 to a so-called territorial
system of taxation will mark a fundamental
change to multinationals' taxation, and
likely will prompt a significant change
to tax structures, Moody's says. U.S. corporate tax reduction also will help U.S.domiciled companies compete against
their foreign-domiciled counterparts.
The report notes that while it is still
early, it expects that companies will undergo changes and optimize their tax
structures to maximize their benefits. The
new tax law reduces the corporate tax
burden across the oil and gas industry,

yet the impacts will depend on each individual company's level of taxable income,
capital spending and leverage. For example, it points out bonus depreciation
may spur higher capital spending or more
asset acquisitions.
Oil and gas companies, which generally
also employ significant depreciation, depletion and amortization, likely will have
lower interest expense deductibility starting
in 2022, the report says. About threequarters of the oil and gas companies
rated by Moody's are high-yield companies-companies that lack investment-grade
ratings. This limitation on interest deduction
will affect high-yield companies disproportionately, especially highly leveraged
ones, the report predicts. It adds that companies with strong balance sheets will
not see any impact from this provision.
While unlikely, the new limitation on
interest expense deductions may prompt
some companies to reduce leverage,
similar to how they embraced leverage
when interest expenses were fully deductible, the report concludes. If a company has been highly leveraged to benefit
from full interest deductibility, capping
its interest-expense deduction removes
that incentive.
Moody's says it is evident that the capital-intensive oil and gas industry, which
has benefited from tax attributes such as
IDCs and qualifying income master limited
partnerships, will benefit even more from
the new tax law's provisions.
r

Foothills Energy Finishes Pair Of Uinta Basin Wells
DENVER-Foothills Exploration Inc.
says it has completed and flow tested
two wells in the Uinta Basin. The company
adds it has a 21 percent working interest
in both of the Utah wells.
The Stagecoach 117-20H, drilled and
operated by EOG Resources, has been
producing natural gas. EOG has classified
the well's production as confidential, with
Utah limiting the release of data, Foothills
says.
News of Stagecoach 117-20H's completion follows reports of EOG drilling,
completing and flow testing the Stagecoach
111-20H well in the Uinta Basin. Foothills
says the well has been on line for more
than 30 days, and it expects to set pro-

duction tubing in the near term. EOG
Resources also has classified this well's
production as confidential.
Foothill is thrilled with the successes of
the 117-20H and 111-20H wells, says company Executive Chairman Kevin Sylla.
"The company will continue seeking
additional opportunities to complement
its position in the Uinta Basin with acquisitions of nonoperated interests, oil
and gas leases, and operated properties,"
Sylla says. "The company's focus in
2018 is to build on the current momentum, and to acquire assets with low operating costs, existing cash flows, longlived reserves and with deep drilling inventory."
r
MAY 2018 99

American Oil and Gas Reporter - May 2018

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2018