Energy industry: Growth opportunities in IoT, AI, IRA and M&A

The benefits of harmonized technology systems

One Grant Thornton multinational energy client was using various localized systems in its land management efforts that made centralization of data impossible.

After Grant Thornton helped integrate the different systems and migrate the data into one shared platform, users throughout the organization were able to work with the same shared source of accurate data. With all the organization’s important documents in one location, Grant Thornton helped the client optimize further by enabling additional technologies, including optical-character recognition, natural-language processing and machine-learning capabilities.

“One of the biggest outputs was being able to understand the adjacent properties for their onshore land operations,” said Grant Thornton Technology Modernization Services Managing Director Supreet Singh. “Which of the adjacent properties could they start to acquire? This really helped speed up decision-making and made their decisions more data-driven.”

The cloud is the foundation

Whether your organization is using on-premise software or is already in the cloud, it’s helpful to think of cloud applications as the foundation for an integrated technology effort. Cloud technology enables energy companies to store, process and share critical information seamlessly in a centralized location, enabling real-time access and improved decision-making.

The cloud provides scalability, flexibility and remote access so multiple departments can work on a unified data platform and tear down the silos that prevent organizational collaboration. But this wide-ranging access after moving from localized systems to cross-departmental networks creates a need for virtual security around cloud networks to replace the physical security that existed with the legacy systems.

IoT in the field delivers key data

From drilling equipment to transmission lines, IoT provides for real-time monitoring from anywhere of almost any aspect of energy operations. Dashboards in the corporate office now can provide critical data for monitoring of pipelines and emissions as well as optimization of drilling.

One Grant Thornton energy client with operations in the northern U.S. found that digital meters literally brought warmth — and efficiency — to their operations.

“When they didn’t have digital meters, someone would have to go out in sub-freezing temperatures to take a meter measurement,” Whatton said. “They’d come back to the control office, warm up, and then log the data to figure out what that meant from an operating perspective.”

With digital meters, those readings are available for real-time analysis to drive impactful decisions in a timely manner. To get the most out of all these IoT-enabled devices, equipment and programmable logic controllers need to be standardized across the organization to ensure consistency in the data fed into corporate systems. When that happens, the results are powerful.

“Whatever the strategic objective of the organization, whether it’s to increase throughput, decrease costs or increase margins, you have that real-time field data available for your business decision-makers and leaders to be able to adjust to market conditions as quickly as possible,” Whatton said.

Data analytics produces results across the enterprise

Energy companies that incorporate some of these technologies are finding that an immense amount of rich data is available to them. Data from IoT devices, financial systems, procurement, HR performance systems, and even sales teams provides incredibly valuable insights — only if it can be collated, reviewed, modeled and distributed in a controlled manner to end users who ultimately derive insights from the data.

IRA credit transferability drives growth despite hurdles

Although the transferability of energy credits in the IRA creates new opportunities for financing, there are some drawbacks project owners need to consider:

• The full value of the credits can’t be captured because they are sold at a discount.
• Absent further structuring, project owners can’t get a step up in the tax basis to fair market value.
• Project owners can’t monetize the depreciation in the credits.
• Cash can only change hands in these credit transfers when a project — which could take multiple years — is complete.

These drawbacks have encouraged the emergence of tax structures that enable project owners to commence construction while providing returns for investors in the credits. These include:

• A hybrid traditional partnership flip structure that requires the tax equity investor to have skin in the game and provides the tax credit buyer with benefits from due diligence and underwriting performed by the investor.
• A step-up partnership structure that can provide a sponsor or minority investor with a preferred return and enables depreciation to be allocated between the partners as part of a step-up transaction.
• A direct transfer structure via an underwriter that provides the sponsor with a commitment for the credit sale in advance while the ultimate credit buyer is identified.
• A transfer-to-partnership structure that is more advantageous for credits generated over time rather than at a point in time. This structure involves a direct transfer of credits to a partnership, which then allows the partners to invest for different periods by allowing them to enter and exit the partnership to match the timing and value of the credits that are purchased by the partnership.

M&A volume is high in energy

Forty-five percent of webcast respondents said deal activity in the energy sector will accelerate in 2025, and just 9% predicted that deal activity will decline.

Grant Thornton Transaction Advisory Services Managing Director Philip Christy said stable oil prices since late 2022 have enabled oil and gas companies to achieve strong cash flows and fortify their balance sheets. Meanwhile, renewable energy development isn’t occurring fast enough to meet rising demand.

“Renewable energy sources are just not adequate yet to meet the current and near-future demands of our energy requirements,” Christy said. “Traditional oil and gas is going to be necessary for years to come, and it’s going to require companies to shore up their core positions.”

Up-C structures are popular in energy M&A

For tax purposes, some energy companies are finding that umbrella partnership C corporation (Up-C) equity rollover structures can help them monetize some of the benefits that come from exiting a flow-through structure while allowing for tax deferral and continued flow-through taxation on rollover equity consideration.

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