Recent Tax Proposals and ESG Trends Affecting the Energy Industry

By Keith Wong

Tax proposals along with environmental, social and governance (ESG) considerations are increasingly impacting the oil and gas market. During a recent webinar titled “Oil & Gas Investing: Incentives, Risks & ESG,” Haynes Boone joined EisnerAmper to discuss the topic.

The panelists included from Haynes Boone, Vicki Odette, a partner in the Investment Management Practice Group as well as partner Michael Threet; and our own Richard Stepler, a partner and our Oil & Gas Services Leader, and Crystal Shin, a director who moderated the virtual discussion.

A few topics discussed included:

Recent Tax Proposals

• The proposal of a corporate minimum tax of 15% by Senate Democrats, which would affect taxpayers who currently utilize the immediate intangible drilling costs deduction to lower their tax liability.
• The proposal of a wealth surtax starting at 5% for taxpayers who earn above $10 million of income and an additional 3% for those who earn above $25 million of income. This would affect all taxpayers whose income meets or exceeds the thresholds mentioned above.
• The proposal of a methane tax for those invested in oil and gas based on production. This would affect all taxpayers invested in oil and gas production.

ESG Trends

• Many oil and gas companies are focusing on becoming carbon neutral. They are doing this by buying carbon offsets or carbon credits, investing in renewables, or planting trees.
• Companies are purchasing more energy efficient equipment and looking for technology that’s associated with ESG.
• ESG is becoming a profitable investment and is here to stay.
• There are many ESG frameworks being released and the hope is to see more oil and gas industry specific standards in the future.

Outlook and Predictions

• Although these tax proposals have been made public, there is still a likely possibility that they will not be included in Biden’s final Build Back Better proposal.
• There’s a lot of change and risk involved in the oil and gas industry and investors should be prepared to handle these fluctuations as things keep moving.
• The attitude towards the energy industry is shifting with the current trend and focus being on climate change. This shift is driving the energy transition we are all seeing as ESG becomes a higher priority for potential investors.