Tax reform is on the minds of US oil producers, refiners

The wave of fourth-quarter 2016 earnings calls is just getting started, but tax reform already seems to be the topic du jour for oil and gas companies.

Analysts have been asking executives how they're preparing for a potentially drastic overhaul in the US corporate tax code.

To recap, House Republicans want to cut the corporate tax rate to 20% from 35% and pay for those cuts with a border adjustment that would tax imports but not exports. The plan could raise consumer prices and upend energy and commodity trade flows.

Economists are still debating how much a stronger dollar would offset those effects. President Donald Trump has sent mixed signals about his preference for tax reform. Talks are expected to last much of the year in Congress, but companies are already lobbying for exemptions and alternative plans.

Some of the early thoughts so far from major oil and gas companies:

ExxonMobil Vice President Jeff Woodbury: "We will continue to advocate for free market principles. ... We believe the tax code should be globally competitive, it should be predictable, stable, providing investment certainty and not picking winners and losers."

Valero CEO Joe Gorder said the refiner already has flexibility in its system to adapt to a potential border adjustment. He said the company has swung from running 600,000 b/d of light sweet crude to over 1 million b/d.

"Obviously you're going to optimize your crude slate. The big question around this whole border adjustment is how are the markets going to react to it? ... Right now there's a skeleton out there that they're trying to put flesh on and we don't know exactly what it's going to look like. But I think it's fair to say we're got to continue to optimize our operations."

Gary Simmons, Valero's senior vice president for supply: "Over the last several years, our strategic objectives have been around developing feedstock flexibility and developing export markets, so we believe that puts us in a really good position to be able to handle whatever the border tax may throw our way."

Chevron CEO John Watson: "The border adjustment concept is complex. We need to take a close look at the consequences — positive and unintended consequences, consumer impact and knock-on effects. I think they'll settle on the right kind of tax reform at the end of the day. We'll have a little patience for the different ideas being put out there and hopefully we'll get to the right outcome."