How R&D Benefits Texas’ Oil & Gas Production

Due to assistance from research and development (R&D), Texas crude oil production has tripled since 2010. This occurred due to the development of hydraulic fracturing (‘fracking’) combined with horizontal drilling – both processes made viable through R&D. Texas is the source of approximately 55% of the incremental U.S. oil production since 2008, which has transformed the international market. Furthermore, in today’s news it was announced that a Chinese investment holding company signed a letter of intent to purchase oil fields in Texas for $1.3 billion through a limited liability partnership. Indeed, Texas’ oil and gas industry is enormous, spanning both nationally and internationally.

However, Spiderman hit the mark with the sentiment, “with great power comes great responsibility”.   Oil prices have been dropping due to increased production and exports, resulting in more competition, and thus, the producers are forced to drop prices. Moreover, the energy sector is changing due to a technologically-driven economy and a limited supply of ‘easy oil’. Therefore, it is imperative that executives and leaders in the oil and gas industry invest in innovation to develop technology advances to find and produce the future hydrocarbons. Oil and gas is a vital source of energy for the world and will likely remain so for many decades to come, thus innovation will be critical in combating environmental challenges.

One way of driving innovation is by investing in R&D to create new technologies, products and processes. In 2012, the energy sector spent $17.9 billion on global R&D, more than $6.6 billion of which was undertaken in the U.S. For companies in the industry, these innovations are their strategic objective in keeping competitive. Conversely, many companies are unaware that they may be undertaking qualifying R&D activities already.

petrol-996617_640Oil and gas companies endeavoring to cultivate or progress products, processes, or software to facilitate the exploration, production, extraction, transportation, and refinement of oil and gas are likely appropriate for federal and state R&D tax credits. These credits can add up to 15% or more of qualified spending costs.

Yet, if these credits offer so much value and for activities many organizations are already partaking in, why do many firms choose to not take advantage of the incentive? The most prevailing reason is that many businesses, particularly smaller ones, wrongly believe they do not qualify. However, the R&D tax credits are an incentive for businesses, large or small, by the government to encourage innovation. Unsure if you qualify? Have a chat with us today to find out if your activities could be eligible.