The major oil companies have been under siege recently from environmentalists, investment firms and the U.S. government.
This type of pressure makes companies consider and evaluate alternative business opportunities. Two common diversification opportunities for oil companies are petrochemicals and alternative energy.
Petroleum was formed from organisms living in the sea. As these organisms died, their bodies settled at the bottom of the sea and got covered with layers of sand and clay. Over millions of years, the absence of air, high temperature and high pressure transformed the dead organisms into petroleum and natural gas.
Many useful substances are obtained from petroleum and natural gas. Termed ‘Petrochemicals’, these are used in the manufacture of detergents, fibers (polyester, nylon, acrylic etc.), polyethylene and other man-made plastics. Hydrogen gas obtained from natural gas is used in the production of fertilizers (urea). Due to its great commercial importance, petroleum is also called ‘black gold.’
Some large oil companies already have major petrochemical businesses including Exxon, Shell and Saudi Arabia’s Aramco with SABIC. Expansion of existing petrochemical facilities must be handled with forethought particularly since plastics products manufacturing is also being scrutinized.
There are currently seven primary sources of renewable/alternative energy sources:
- Tidal Energy
Major oil companies that are looking to the alternative energy sector for diversity including Total of France which just purchased a solar portfolio in Texas, and BP the well-known Fortune 50 oil company. Shell has just announced a major offshore wind transaction in the Netherlands with Amazon. We have recently written a series of Fabbaloo articles on alternative energy sources including wind and geothermal. We also analyzed European companies that are seeking to capitalize on the opportunities in the U.S. alternative energy market – Total and BP are both European headquartered companies.
The examples are endless. Instances where major oil companies are looking for more innovative strategies to enter the new dawn of emerging technologies.
Recently the U.S. Biden Administration announced $8 billion in funding for power-grid upgrades. These high voltage upgrades are intended to facilitate the transmission of clean alternative energy. It’s likely this investment will trigger further investment into alternative energy systems by petrochemical companies, and that may spur increased interest in 3D printed solutions during implementation.
The Research & Development Tax Credit
Whether it’s used for creating and testing prototypes or for final production, 3D printing is a great indicator that R&D Credit eligible activities are taking place. Companies implementing this technology at any point should consider taking advantage of R&D Tax Credits.
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Since 2016, the R&D credit has been used to offset Alternative Minimum Tax (AMT) for companies with revenue below $50MM and, startup businesses can obtain up to $250,000 per year in payroll tax cash rebates.
Large oil companies now have a greater need to diversify. The 3D printing industry should monitor these developments because the oil company purchasing departments increasingly have a wider range of 3D printing solution needs as opposed to when they were strictly oil patch business operators.