WSJ: Energy Firms Keep Taxes at Bay

[question everything]

The Wall Street Journal

Energy Firms Keep Taxes at Bay

Need for Gasoline -- and Jobs -- Limits Resistance to Incentives
By JOHN M. BIERS and JESSICA RESNICK-AULT
July 18, 2006; Page A5

Despite public frustration over high pump prices and flush industry profits, major refining companies are seeking and winning large local tax breaks for their refinery-expansion plans with little political opposition.

The reasons: The Bush administration is encouraging refiners to produce more gasoline to help keep prices down, while local communities fear the companies will take jobs elsewhere if they aren't offered inducements to stay. The various incentives, combined with a federal tax-break package last year, can offer refiners savings that reach hundreds of millions of dollars, though estimating a total is difficult given the range of federal and local levying agencies involved.

(snip)

Companies that stand to benefit from the tax breaks include Chevron Corp.; ConocoPhillips; Marathon Oil Co.; and Motiva Enterprises LLC, a joint venture of Royal Dutch Shell PLC of Britain and the Netherlands and Saudi Arabia's government-controlled Saudi Arabian Oil Co., known as Saudi Aramco. Former Louisiana senator J. Bennett Johnston, who now heads a Washington lobbying firm, said refining companies still remember the years they were plagued by overcapacity that depressed returns and discouraged investment. "The fact that companies are making record profits does not mean they will make investments where the reward will not compensate for the risk," he said.


(snip)

The assortment of incentives means that a project like Motiva's $3.8 billion expansion in Port Arthur, Texas, could result in nearly $700 million in reduced federal tax payments, plus more than $600 million in local abatements. The federal incentives allow refiners to expense 50% of the costs of refinery investments that increase plant capacity by at least 5% or boost production of key products like gasoline by at least 25%. Tax breaks are among the factors Motiva has taken into account in going ahead with its Port Arthur expansion, said Motiva spokesman Stan Mays. "Like any business, we'll look at all opportunities to help the economics of a project, and those are avenues certainly to explore," Mr. Mays said of the incentives.

The refiner has applied for a lower assessment from the Port Arthur Independent School District, one of two major tax-collecting bodies in the industrial East Texas city, said Dan Casey, a partner at Moak, Casey & Associates, an Austin-based consultant retained by the school system. If the tax break is granted, Motiva will pay annual taxes on just $30 million of project costs -- instead of the $3.8 billion total -- during the project's first eight years of operations, a shift that could save the company more than $50 million a year during that stretch under the current tax rate. "The school district's concern is that if there's not consistent expansions, they'll see those jobs go elsewhere," said Mr. Casey.

(snip)

URL for this article:
http://online.wsj.com/article/SB115318615754409385.html (subscription)