Leveraging R&D credits in a cash-tight environment- TSGI Corp

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Every energy company is feeling the pressure of today’s low-price environment on their business. Asset teams are competing for scarce capital and making the most of every dollar. But what if your budget could go further by receiving approx. one quarter of project costs back, without adding to your team’s workload?

Most E&P companies evolve over time by investigating how to best exploit their assets year over year. With the right approach, producers can recapture a portion of their budgets by taking advantage of SR&ED credits (Scientific Research & Experimental Development). In Alberta, the program returns up to $400K in cash to offset the cost of eligible projects.

While certain capital costs are not eligible under the SR&ED program, producers can get a substantial return on their development plans – without a budgetary expansion for R&D. Producers recoup 23.5% of costs, including technical staff wages, contractors, and overhead costs. Often, producers benefit the most by claiming completions and other field costs, especially if the project attempts to advance the company’s understanding of frac behavior and reservoir exploitation.

E&P example

ProducerCo experiments with new slickwater frac designs and is uncertain how the targeted geological setting will respond to stimulation.

The company has limited experience with the associated physical parameters, and they do not have access to data generated by peers in this region of the reservoir. The trial is performed in two horizontal wells with a modified perforation design and chemical program, hypothesizing that this approach will cause the frac to extend further into the formation. This approach is a departure from the completion design of other wells on the pad. The pilot isolates the effect of the frac treatment such that the company gains an understanding of the stimulation’s effect on frac geometry and stimulated reservoir volume.

Eligible SR&ED expenditures ($4M)

Eligible SR&ED expenditures include the incremental perforation and completion costs for the two wells, microseismic for evaluating frac geometry and stimulated reservoir volume, incremental operator time collecting non-routine data and wages for technical staff to analyze the results ($4M total).

ProducerCo’s Return = $940K (23.5% of expenditures)

ProducerCo receives a return of $940K in Investment Tax Credits (ITCs). A portion is returned as Federal “non-refundable” ITCs ($540K), while $400K is returned as Provincial “refundable” ITCs (i.e. cash).

Our clients are advancing their company’s understanding of their assets and pushing the boundaries of their respective fields (e.g. completions, geophysics, reservoir engineering etc.). If your team is working on an interesting project, we’d love to talk and see if we can help your team boost your ROI and recoup some of your budget.

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