Tillerson may have lost his job, but not his tax deferral

Tillerson may have lost his job, but not his tax deferral
Rex Tillersons Golden Parachute
Exxon Mobils top U.S. refining executive, Jack P. Williams, told investors last week the company was close to a final investment decision on a $1.5 billion expansion at its Beaumont, Tex. plant, to roughly double capacity and make it the largest refinery in the country, overtaking Saudi Aramcos Motiva plant at Port Arthur, Tx. Exxon also is planning new units at other plants along the Gulf Coast.

IHS Markits downstream analyst, Rob Smith, says the expansion plans aim to reconfigure plants to enablethem to take more of the light/ultra-light shale crude, the output of which is growing rapidly, including from Exxons recently acquired acreage in the Permian Basin.

The former CEO of Goldman Sachs GS, -1.77% took office as Trumps director of the National Economic Council on Inauguration Day, Jan. 20, 2017. Cohn has a certificate of divestiture on file with the Government Ethics Office dated March 8, 2017, giving him the benefit of the tax deferral on gains from the sales of 23 million shares of Industrial and Commercial Bank of China 601398, +0.78% and 872,712 shares of Goldman Sachs, among many other holdings.

“Effectively, the Gulf Coast refinery system as currently configured is at maximum absorption for that light or ultra light crude…that is why the US is now exporting well over 1m bpd, at the same time as big refineries like Beaumont are still importing lots of heavy crude,” Smith says.

In his ethics agreement, dated Jan. 3, 2017, Tillerson agreed to cash out of all of his holdings in 156 companies, and in a fund called HF Renaissance EQ LLC, and to resign as the managing member of two private ranching and real-estate companies he owned, Bar RR Ranches LLC and R2 Real Estate LLC. He continued to receive and pay tax on the passive investment income from those two companies while in office.

“Whether integrating with their own growing equity crude [from fast-growing shale plays, including the acquired XTO subsidiary and Bass assets], or from other shale sources, if they want to process [the light shale crude] they will have to invest.”

Tillerson asked ahead of time for the special waiver that allows presidential appointees required to sell assets that might create a conflict of interest when performing their official duties to defer the tax liabilities until the substitute, nonconflicted assets purchased with the proceeds are sold.

Exxon exec confirms Gulf Coast oil refining expansion plan

Its not all about the shale supply though, as Valero, the countrys largest independent refiner, is adding a coking unit at its Port Arthur facility to process heavy crude, which is also growing in supply form Canada and elsewhere.

From here, though, it still looks like oil and gas will be a big part of the world’s energy needs, for better or worse. And that should be enough to keep Exxon Mobil in position to drive some growth. If Exxon hits its targets, great. If not, with downside risk internally hedged, a dividend over 4%, and its cheapest valuation in years, even “some growth” is good enough.

The broader strategic aim for large refiners is to be more complex so as to run a wider slate of crudes and create a wider slate of products — integrating refining with petro-chemicals operations — particularly to take advantage of growing middle distillates (diesel, eg.) and petchems markets in Latin America.

Assuming XOM hits those targets, and earnings then moderate, DCF calculations suggest XOM stock should trade in the range of $100 — about 35% upside. As Brumley writes, investors don’t trust the targets, but that’s precisely the point. At less than 16x forward EPS, investors are pricing in basically zero growth at all for Exxon Mobil.

Tillerson Has 180 Million Reasons Not to Return to Oil Industry

“Gasoline probably hit the high mark last year,” in North America, “and middle distillates will probably turn in the US in the next few years,” says Smith. “The rationale is to look south. Latam is growing already, a third of U.S. diesel production is going there and an increasing chunk of gasoline.”

So if an investor sees energy prices moving higher, producers are the wiser choice. (I still think Chesapeake Energy Corporation (NYSE:CHK) is the best, if highest-risk, play on that thesis.) Among diversified players, XOM has disappointed. Heck, over the past five years, even including dividends, Exxon shareholders have barely got their money back.
Rex Tillersons Golden Parachute
Rex Tillersons Golden Parachute

(First Oil reports are produced by MT Newswires global team of oil reporters. This story is also disseminated in real time to energy industry professionals via the First Oil Chat service on the ICE Instant Message application.(Tony McAuley, firstoil@mtnewswires.com) )

Exxon created a payout plan in January 2017 for Tillerson, who had led Exxon since 2006 before serving in the Trump administration, to compensate him for more than 2 million unvested shares and stock units while removing any conflicts of interest. Tillerson surrendered his stock awards in exchange for a cash payment to an independently managed trust — the trust then distributes money to Tillerson according to a schedule that mirrors Exxon’s long-horizon vesting schedule, which can last as long as 10 years.
Exxon Mobil Corporation Stock Is Too Cheap to Ignore
Exxon Mobil Corporation Stock Is Too Cheap to Ignore

Exxon Mobil Corporation (XOM) has a value of $75.24 per share While Tellurian Inc. (TELL) is stand at $8.51

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tillerson’s ethics agreement also helped him to avoid an immediate federal income tax bill of as much as $72 million, according to tax specialists who reviewed his plan at the time. Ordinarily, cash payments made in lieu of unvested stock awards would trigger an immediate income-tax liability for the recipient. Instead, the former secretary of state was just subject to ordinary income tax payments as the payouts trickled in, instead of all at once.

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Tillerson was able to defer the immediate tax bill because of Internal Revenue Service rules governing the type of trust created. The beneficiary — Tillerson — must face a "substantial risk of forfeiture" of the trust’s assets to defer payment. Tillerson’s lawyers have argued that because he risks losing it all if he works for a competitor, that risk exists — an argument that some tax experts have questioned.

Rex Tillerson is having a bad day, but a glance at the share price of Exxon Mobil might make the day of his firing a tad better.

Posted in World