The Impact of Innovation on Texas’ Oil Industry

 

In 2016, the oil industry was reported to be in its deepest downturn since the 1990s. The cause was cited to be the plunging price of a barrel of oil, which dropped more than 70 percent since June 2014. The specific figures reveal oil prices as high as $115 dollars a barrel in 2014, compared to just $26 dollars a barrel in February. This price drop has ultimately resulted in heavy job losses across the sector. Generating the question, how can oil and gas companies succeed in an industry where supply is limited and expectations are high?

Primarily, it comes down to supply and demand. United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home.  Furthermore, in an increasingly technologically-driven world, the oil and gas industry is changing in two fundamental ways. Firstly, with majority of the world’s ‘easy oil’ already exhausted, the importance of utilizing sophisticated technologies to find and produce tomorrow’s hydrocarbons is becoming increasingly imperative. Secondly, high-profile disasters such as Shell’s Brent Spar Incident in 1995 or the recent Deepwater Horizon accident (Perrons, 2014), has resulted in a significant shift in the expectations of the oil and gas industry in regards to safety, environmental stewardship, and human welfare. Thus, in the face of these challenges, technology and innovation will play a pivotal role in the success or failure of the future of oil and gas firms.

Indeed, the oil and gas economy in the United States is at a critical juncture and innovation is what is going to push the economy forward. Without a doubt, investing in R&D to create new and improved technologies is vital in enabling the industry to meet global energy demand. As noted above, with traditional forms of energy becoming harder to find, investing in new technologies will be paramount in meeting the needs of an increasingly urbanised population and to combat environmental challenges in the decades ahead.

In addition, several companies may already be partaking in R&D activities and may not be aware of how the federal and state governments seek to support them through the R&D Development Tax Credit. Initially, the R&D tax credit was primarily used for technological and biomedical research when it was introduced by congress over thirty years ago. Since its first introduction the tax credit has evolved, now it encompasses multiple industries, including the oil and gas industry.

Overall, R&D is the lifeblood of technological advancement and could greatly assist companies in the oil industry grow in a seemingly difficult time. In 2006, the IRS broke out numbers to show that $388 million in R&D credit was claimed on individual tax returns, including pass-through income from smaller companies organized as S corps or partnerships. Ultimately, businesses of all sizes can benefit from utilizing the R&D tax credit to grow their organization, maintain a competitive edge in the industry, and add new jobs. If you want to discuss how you can take advantage of the R&D tax credit, contact Texas Tax Credit to talk to one our specialist R&D Tax Advisors.