R&D tax credits offer an option to boost upstream innovation

As upstream oil and gas companies ramp up spending on exploration and production to meet global demand, research and development (R&D) tax credits present an often overlooked opportunity to offset costs and spur innovation. 

R&D tax relief and the new R&D expenditure credit (RDEC) can provide benefits of up to 18.6% of qualifying expenditures inside the ring fence. Eligible costs include salaries, consumables, contract staff, software licenses, and more.

Many upstream activities qualify for R&D incentives but are frequently missed, such as reservoir modeling to improve underperforming fields, developing new drilling and subsea technologies for challenging environments, and creating new production techniques to meet stringent safety and environmental regulations. 

To be eligible, projects must involve developing a new product or process, have technical uncertainty, and use a technological process of experimentation to evaluate success.

R&D credits provide a dollar-for-dollar reduction in federal tax liability, with no limitations on the amount claimed annually and the ability to carry credits forward for up to 20 years. Some states also offer R&D credits to offset state taxes. 

By capitalizing on these incentives, upstream companies can potentially save up to 10% on annual R&D costs, and invest those savings into further advancing the industry through cutting-edge technologies and improved efficiencies.