Olufola Wusu

Fola Wusu

Featured Video

The Chief Executive Officer/Managing Director, NLNG, Mr Babs Omotowa, was reported as having said the government was losing $5bn in revenue yearly as long as the pending gas projects remain uncompleted.

During the just concluded 2014 Nigerian Oil and Gas Conference in Abuja He delivered a paper titled, ‘Global LNG Developments: What are the opportunities for Nigeria?’ He decried the fact that the 10 million metric tonnes Brass LNG had been delayed for four years; the 12.8 million metric tonnes OKLNG had suffered a three-year delay while the eight million metric tonnes NLNG Train 7 was yet to get the final investment decision after five years.

Mr Babs Omotowa was quoted as having said that “With additional 30MT per annum, Nigeria can generate additional $15bn revenue annually. Revenue to the Federal Government will increase by $5bn per year and 50,000 construction jobs from the three projects.”

The FID on the Brass LNG project suffered a major setback when ConocoPhillips, in 2013, announced the intention to divest its Nigerian assets. “As a result, Brass LNG is now seeking third-party investors to take on the remaining 17 per cent stake,”

Oil and Gas Intellectual Property;

The basic types of Intellectual property prevalent in the oil and gas sector are the following; Patents, Trademarks, Copyrights, Trade Secrets and Others like brands, Know-How, Know – Who and Professional Credentials & Credibility.

In protecting innovation, a key benefit of an intellectual property system is that a contractual right is only enforceable against the person who entered into contract with you; while a property right is enforceable against the whole world! Reports have however shown a strong correlation between the presence of intellectual property in oil and gas companies, especially service companies, and their profitability.

What does IP have to do with Oil and Gas?

Patents

A patent is a document issued, upon application by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent. Patents cover things like cutting-edge technologies used in instrumentation, production data capture, horizontal drilling and multilateral wells.

Why Nigerian Oil and Gas companies are yet to fall in love with Patents …

They are so busy making money selling oil and gas (i.e. commodity trade) that no one thinks that there is a need to innovate; there is enough money to go around so why bother. Well… because with IP there will be lots more to keep.

Trade secrets

A “trade secret” is defined as any product, operating formula, pattern, device or other compilation of information which is used in a business, which gets its economic value from being kept secret, and gives the business a competitive advantage. The upstream oil and gas industry depends heavily on trade secret protection. The duration of trade secret protection is potentially perpetual, as it continues as long as you can keep your “trade secret” secret!

Commercialisation of Patents and Trade Secret

Patents are public documents which disclose information about the invention (technology) in exchange for state protection, which is the exact opposite of trade secret protection. However trade secrets are licensed along with patent rights, in what is called a “hybrid” license.

Copyrights

Copyright exists in a work on the basis of originality and fixation. Copyright protection is particularly important to the oil and gas industry in the protection of software, databases and maps, the results of a 3-D seismic survey which would include aspects of each.

Trademarks

The first barrel in any great oil and gas company is a good name. It should be registered as a trademark.

F. I. D. on Brass LNG project-IP

The seemingly endless delays in signing the Final Investment Decision on the Brass LNG project seem to highlight the need for Nigeria, International and Indigenous Oil and Gas companies to pay attention to the Intellectual Property involved in Oil and Gas transactions. IP though invisible cannot be wished away.

LNG is intensely technology driven and this technology is protected by patents and other IP owned by companies who either directly participate in LNG projects or license out their IP including patents to others to use for a hefty fee.

At the onset of a joint venture the members of a JV contribute resources to make the JV successful, some members usually have Intellectual Property that they have developed, own or license and which they ostensibly intend to contribute to the joint venture…

Intellectual Property in LNG Joint Ventures?

Intellectual Property in LNG Joint Ventures becomes a valuable asset to the Oil and Gas companies involved in a LNG-Joint Venture when the parties are aware of the potential issues related to Intellectual Property and its value. It is even more valuable when it is registered and steps are taken to prevent competitors from accessing and using it for free, more value is derived when the owner of such Intellectual Property actively seeks to commercialise his intellectual assets by synergising with companies willing to use his LNG-Intellectual Assets for a fee in exchange for a license…

Some Questions arise…

How should IP contributed by different members be managed when a JV is terminated or a member pulls out? Is the party exiting the JV under obligation to grant a favourable license to its IP to the JV on exit? Is there a mechanism to gather royalties for IP licensed by a former JV member? If the exiting party gives unfavourable conditions to license its JV, what should the JV do? Is the exiting party under obligation to exit the JV in a timely manner? Are there provisions for compulsory licenses? Do they apply? Is a reactive or proactive strategy preferable?

Joint or Individual Ownership of JV-IP?

There is a clear need to clearly identify what intellectual property the members of a JV own, what they intend to share, license, contribute to the joint venture and under what terms?

Who owns Improvements on JV-IPs?

The members of a JV need to envisage possible improvements and then agree on who will own improvements to prior intellectual property and fresh intellectual property that emerges while the joint venture is on, who will protect that intellectual property and how it will be shared among the members of a JV if the member owning the IP leaves.

IP Management When JV is Terminated or a Member(s) Pulls Out

This is a key issue that should be addressed at the formation of the JV and not when a member owning crucial LNG-IP pulls out leaving the other members at the risk of having to sign a harsh license agreement with a former member, or worse still the LNG-IP owning member, may partially pull out making it difficult for a new entity to enter the JV… To resolve the current impasse shall we explore the possibility of compulsory licenses? Shall we use alternative technologies…?

Conclusion

The upstream oil and gas industry has been described as a “knowledge industry” because of new technologies such as three-dimensional acoustical sounding, horizontal drilling, and deep offshore drilling. Cutting edge technologies coupled with Supercomputers have taken their place with the industry developing a big interest in Intellectual Property. Commercialisation of intellectual property needs careful analysis of a number of factors to pick the best strategy. I.P. may be licensed, sold or even joint ventured. Perhaps the National assembly should do well by including provisions on Intellectual Property and Hydraulic Fracturing in the long awaited Petroleum Industry Bill, which should help nudge the Industry in the right direction IP wise.

Olufola Wusu Esq. © 2014

Commercial/Gas Lawyer and Intellectual Property Consultant