Field trials and SR&ED: How can O&G technology providers offset risk for their E&P partners? www.tsgi.ca
Getting your technology to field trial Rapid technological advancements coupled with a low-price environment has driven a wave of innovative, entrepreneurial companies seeking to improve the ROI for hydrocarbon production. There is unmet demand for E&P partners willing to trial unproven technologies, and many innovative oil and gas service companies regularly inquire to see if (and how) SR&ED tax incentives can be leveraged by E&P companies to offset financial risk and get their technology to field trial. Development vs. use of new technology At its core, SR&ED is intended to support the development of new technology 1. This differs from the use of new technology, even if that technology is unproven. In the most common scenario, ServiceCo would independently develop a new technology (an infinitely shiftable sleeve, for example) and seek out an E&P willing to participate in a field trial. Even though E&PCo takes on significant financial risk by trialing the technology in their well, they did not participate in the fundamental technology development, and thus would not be eligible to claim SR&ED. Although ServiceCo would be able to claim their costs related to SR&ED, it won t help them get the field trial and ultimately commercialize their technology. The opportunity you can leverage For E&PCo to benefit from SR&ED for a field trial of ServiceCo s technology, there are several possible scenarios. In all cases, it s important to note that for both parties to benefit, E&PCo must utilize ServiceCo s technology to test their own, independent hypothesis. 2
Making your field trial a win-win As one example scenario, let s say ServiceCo has developed the aforementioned infinitely shiftable sleeve technology. Each company has an independent research objective. For ServiceCo, they seek to prove out the mechanical function at reservoir temperature and pressure. E&PCo agree to trial the technology and pay ServiceCo, but for them it presents an opportunity to test their theory that sequential cycles of opening and closing sleeves will result in superior draw-down and a greater Estimated Ultimate Recovery (EUR) 2. E&PCo has a SR&ED claim opportunity not for simply using a new technology developed by someone else, but rather they have their own R&D goals which are facilitated by ServiceCo s new technology. Each company has the opportunity to claim their costs associated with attempting to achieve their own technological advancement. For ServiceCo, this includes the development costs and any field costs not covered by E&PCo. Meanwhile, E&PCo could claim for the amounts paid to ServiceCo as well as any internal costs (operations, data analysis, etc). Furthermore, there is no double-dipping ; the companies are paying for and claiming separate costs. The end result is that both companies are able to benefit from new knowledge, offset by the incentives available through SR&ED. Note: 1 This a simplistic definition of SR&ED and should not be interpreted as being the sole criteria. 3 2 This is a generic example for illustrative purposes more detail is required to determine SR&ED eligibility.
Takeaways There is great demand for new technological solutions in the energy industry, and knowing how to leverage SR&ED not only for yourself but for your end user may just tip the scales enough to get your technology into a coveted field trial. To explore the size of the opportunity for your company please contact us for a free assessment. Michael Bosdet, BSc, PhD President TSGI Corporation michael.bosdet@tsgi.ca (403) 451-3373 4
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