Oilfield equipment and energy service companies — firms that produce equipment, tools, or services for oil and gas, renewable energy, or other energy applications — may perform activities that warrant analysis under the federal R&D tax credit. This page explains what development work may be relevant. It is educational and is not individualized advice. For the foundational framework, see our page on qualified research.
What R&D May Look Like in Oilfield Equipment and Energy Services
Oilfield and energy development may involve equipment and tool development, materials, process development, and performance and reliability targets for harsh environments. Work directed at resolving genuine technical uncertainty in these areas may warrant review. Routine operations, service, and standard practice do not, by themselves, constitute qualified research.
Industry-Specific Examples of Technical Development
- Developing equipment or tool designs to achieve a specified performance, reliability, or cost target where the appropriate design is uncertain.
- Testing alternative materials to meet a performance, durability, or corrosion-resistance target where the capability is uncertain.
- Developing processes to achieve a specified efficiency, safety, or environmental target where the method is not established.
- Developing approaches for difficult downhole or environmental conditions where the appropriate method is uncertain.
- Testing alternative designs or materials to meet a specified pressure, temperature, or fatigue target where the capability is uncertain.
- Developing monitoring or control systems to achieve a specified performance target where the appropriate approach is uncertain.
Technical Uncertainty Examples
- Whether an alternative equipment design can achieve a specified performance target in a harsh environment.
- Whether a new material can meet a corrosion-resistance and durability target for a specific application.
- Whether a modified process can achieve a specified efficiency or safety target.
Process-of-Experimentation Examples
A process of experimentation may involve building and testing prototype equipment with alternative designs and measuring performance, testing alternative materials and evaluating durability and corrosion resistance, or running process trials and measuring efficiency and safety.
Potential Business Components
Potential business components may include a new or improved equipment or tool design, a new or improved material, a new or improved process, a new or improved monitoring or control system, or a new or improved approach for difficult conditions.
Employee and Contractor Work
Employees whose work may warrant analysis include mechanical and petroleum engineers, materials engineers, process engineers, and quality engineers. Contractor work may include outside testing laboratories, material suppliers, or engineering firms performing development work on behalf of the company.
Activities That Generally Require Caution or May Not Qualify
- Routine operations, service, and maintenance.
- Ordinary quality control or inspection.
- Simple material or design substitutions without a technical development question.
- Routine equipment operation and setup.
- Ordinary troubleshooting without an identified uncertainty and evaluative process.
Documentation That May Help
Records that may help include equipment design drawings, prototype test results, material test data, process trial records, and records connecting personnel and materials to specific development projects.
Example Hypothetical Project
The following is a hypothetical example for illustration only.
An oilfield equipment company is developing a tool intended to achieve a specified performance target in a high-pressure, high-temperature environment. The technical uncertainty is whether an alternative combination of material, design, and manufacturing process can achieve the specified performance and reliability target. The team builds prototypes with alternative approaches, conducts performance and durability testing, and evaluates the results. Professional review is still needed.
Questions to Ask Internally
- What specific equipment, material, or process was being developed or improved?
- What technical uncertainty existed at the outset?
- How does this differ from routine operations or service?
Relationship to the Four-Part Test
The four-part test applies the same way as in any industry. The work must satisfy all four elements: permitted purpose, technological in nature, elimination of uncertainty, and process of experimentation. Funded-research considerations may apply to customer-funded development; see our page on funded research.
Key Takeaway
Oilfield equipment and energy service companies may perform activities that warrant analysis under IRC §41 — particularly work involving equipment and tool development, materials, process development, and performance and reliability targets. Routine operations and service do not automatically qualify. Because these determinations are fact-specific, professional review is appropriate. For related industries, see industrial equipment manufacturing and agriculture and farming.