Oil & Gas Companies Earn More with R&D Tax Credits

In the U.S., up to $280 billion is spent on Research and Development in private sectors per year.  A significant portion of this money spent by companies could qualify for the R&D Tax Credit.

In 2012, 20% of the $6 billion spent on Research and Development in the energy sector was conducted by small to mid range private companies. For oil & gas organizations, many activities would fall under “qualified research” such as geological and geophysical analytics processes, well drilling, fuel combustion testing, waste water treatment solutions and infrastructure development as a few examples.  The R&D tax credit encourages solving customer’s problems using established scientific purposes and encourages applied science.

The quality or magnitude of the product is not what counts towards the credit but rather the nature of the activity performed which should promote enhancements and improvements to a product or process.  In addition, wages supplied to employees who are conducting or supervising qualified research are included in the tax credit.

Requirements of the Activity

  • must be technological in nature
  • activity must contain a significant amount of development uncertainty
  • activity must have a permitted purpose that can improve a business component (process, software, technique, formula)
  • activity must contain experimentation

Understanding and evaluating which processes can quality for the R&D Tax Credit should be an ongoing process for your company.   This process should include examining analytics and intellectual property as well as equipment and physical processes.  When identifying a possible process, companies need to find out how the costs are tracked.  How are supplies, materials and evaluations recorded and tracked? Keeping a log of these processes will help for the future.

Experimentation and research are vital parts of any oil and gas company in order to make capital investments worthwhile.  This R&D tax credit allows companies to understand and realize tax benefits that can be obtained from these processes. Read a case study that exemplifies qualifying research activities as they apply to the oil and gas industry. 

Contact a Texas R&D Tax Credit Solutions specialist who can help determine your eligibility.