U.S. refiners and pipeline companies are likely to embark on a capital spending spree in the next year, fueled by a provision in the recently passed U.S. tax bill that rewards investment in new projects, energy industry lobbyists and analysts tell Reuters.
On Wednesday, Congress gave final approval to the biggest overhaul of the U.S. tax code in 30 years, the first major legislative victory for President Donald Trump since he took office.
The bill contains a bonus depreciation provision that allows all companies to immediately write off the full costs of capital improvements, instead of depreciating the new asset over time.
The immediate expensing of capital costs will make less financially attractive projects more viable, and free up capital for stock buybacks and increased dividends. The benefit begins to phase out in 2023, which means companies could consider advancing projects to take advantage. “Every major refining company has a list of projects they want to get approved that are ranked by profitability and risk,” says Charles Kemp, vice president of Houston-based energy consultancy Baker & O’Brien Inc.
The bill, he says, will motivate companies to look further down those lists, “and noticeably increase capital budgets.”
