President Muhammadu Buhari has stated that the Nigerian National Petroleum Corporation (NNPC), the national oil company will be divided into two successor entities under his administration, one of the successor companies will be an independent regulator, the second would run as an investment vehicle for the country.
The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr. Emmanuel Ibe Kachikwu is reported to have stated that “We are doing a lot of work in terms of repositioning, restructuring, getting the right people in key places and setting a culture of accountability and service delivery so that the new NNPC that you are going to see will be a different institution altogether”.
“It’s a three-pronged process that I am pursuing. There’s a people aspect which we are dealing with now; there is a process aspect; after the people at the right places, you are going to get forensic audit done so that we know clearly, proper forensic audit that will cover us all the way to 2014, 2015, that will be able to say to you, this is the state of the company”.
The new NNPC boss said under his watch, processes and control are going to be put in place. He also said the NNPC is going to embark on retraining and repositioning.
Without dwelling on the legal ramification or ethical considerations of the above reforms, this paper will attempt to highlight the possible Intellectual Property (IP) dimensions of the proposed NNPC reforms.
What does IP have to do with Oil and Gas?
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 and technology 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 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.
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 refining, gas processing, LNG facilities, instrumentation, production data capture, horizontal drilling, multilateral wells, hydraulic fracturing, or fracking, and deep-water-drilling methods. Technology breeds IP which often gives rise to market dominance or influence.
Who are Getting Oil and Gas Patents?
Nearly everyone in the oil and gas industry is getting patents.
Schlumberger is one of them. Schlumberger’s technological dominance in the oil field servicing landscape is reflected in its formidable patent portfolio. A search on Espacenet, an international database operated by the European Patent Office, for Schlumberger reveals more than 36,000 patents linked to the firm. A search for Halliburton yields 25,000, while Baker Hughes, the third-largest in the sector has 20,000 patents.
ExxonMobil had over 10,000 active patents at the end of 2011. Shell had over 20,000 patents at the end of 2012.
Over the past 35 years of GTL development Shell has filed some 3,500 patents, the company’s world-scale undertaking in Qatar is bringing new discoveries and challenges
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 with R&D that leads to technology which breeds IP that gives rise to increased profitability.
Interestingly, oil prices have fallen and with IP, companies will be able to make more profits. For example the sands project method described in (U.S. Patent No. 6,158,510) was patented by ExxonMobil in 2000. ExxonMobil licensed it to Baker Hughes in 2012. ExxonMobil collected more than $129 million in 2011 from licensing its intellectual property to third parties, and this number is increasing every year.
A “trade secret” is 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! Hydraulic fracturing is also heavily protected by trade secret protection. Despite regulatory pressure to show the contents of hydraulic fracturing fluids, companies that ‘frack’ have failed to show the full content of hydraulic fracturing fluids.
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.
The first barrel in any great oil and gas company is a good name. It should be registered as a trademark. The oil and gas industry seems to have overlooked the power and value of branding as many executives may not appreciate how brands work to create economic value.A brand is a collection of trademarks, trade names, logos, signs, symbols, domain names, copyright and creative material which stand for values and character in the minds of stakeholders which positively influences their behaviour towards the subject company. According towww.brandfinance.com Shell is described as having the most valuable brand in the oil and gas industry.
Interestingly host community hostility has driven some oil majors from onshore operations offshore, perhaps due to negative branding with regard to environmental issues. In addition not all IP-branding endeavours are successful as BP recently lost its battle to trademark the colour green in Australia.
Economic Benefits of IP in Oil and Gas
The oil and gas industry has become aware of the benefits of IP in Oil and Gas and the dangers of its neglect. This awareness has been accelerated, by the sudden growth in the extraction of difficult oil and gas reserves (leading to increased profitability for some oil and gas companies) as made possible by technological innovation such as hydraulic fracturing, or fracking, and deep-water-drilling methods in the oil and gas industry as well as a changing competitive landscape, characterised by low prices and increasing supply that seems to have changed the oil and gas industry’s dynamics. The good thing is that technology breeds very valuable IP.
QatarGas engaged in intensive research and development leading to technology innovation backed by patents that enabled it to build Liquefied Natural Gas plants on a very large-scale. QatarGas has 20 trains thus it processes more gas at a cheaper rate and is able to sell at lower rate, thus selling more gas and making more profit despite the seeming downturn.
Oil and gas companies have recently boosted their research and development (R&D) spending and innovation to stay relevant. From 2002 through 2011 the top ten oil and gas companies increased their spending on R&D by nearly 10 percent annually yielding favourable results. In the Boston Consulting Group’s recently released list of the world’s most-innovative companies, three oil and gas companies ranked in the top 50: Shell at 26, Exxon Mobil at 40, and BP at 44.
Global IP in Oil and Gas Competition is increasing
Efforts to protect IP in oil and gas through patents, trade secrets, and other means have clearly increased. Globally, patent activity in upstream oil and gas rose by about 20 percent per year from 2009 through 2012. However, the downstream sector which comprises of IP-intensive businesses such as refineries has had steady patent activity.
Innovation has the potential to drive oil and gas companies’ profitability and influence their relationships with national oil companies and oil-field-service companies. This may be the reason the Chinese government is encouraging “home-grown” innovation and facilitating “patenting” in oil and gas through tax incentives.
From 2006 through 2010, Chinese oil and gas companies have increased R&D spending by 29 percent and upstream patenting activity by 66 percent. In downstream, the Chinese energy conglomerate Sinopec is amassing a large patent portfolio, at home and abroad (excluding Nigeria I guess).
Nigeria may consider encouraging innovation in oil and gas backed by IP in its oil and gas companies. The NNPC may very well lead the way in this regard by laying the regulatory framework for IP in oil and gas to thrive in Nigeria.
The Need for IP reforms in NNPC
There is a need for Nigeria, the NNPC and Indigenous Oil and Gas companies to pay attention to IP which is catalysing growth in the Oil and Gas industry. The Oil and Gas industry is intensely innovative and technology driven and this technology is protected by patents and other IP owned by companies who either directly take part in Oil and Gas projects or license out their IP including patents to others to use for a hefty fee.
National Oil Companies are driven by IP-The Petronas Paradigm
Malaysia’s national petroleum corporation is called Petroleum Nasional Berhad (PETRONAS). It was incorporated in 1974 under the Companies Act (1965) and is owned by the Malaysian government. Just like it is in Nigeria, the entire ownership and control of petroleum resources in Malaysia rests with PETRONAS through the Petroleum Development Act (1974).
Clear IP Centred Research and Development Policy
PETRONAS uses sound technology to run world-class plants to create new products or improve existing products. PETRONAS receives grants for commercialization of research and development (R&D), and for developing prototypes or pilot plants leading to valuable patents and IP. Its R&D partners include universities, institutions of higher learning, government research institutes, private consultants, and other companies.
NNPC’s research and development policy is a bit unclear, the number of patents or IP it owns are not easily ascertainable.
Intellectual Property Management
IP increases the profitability, growth and business development of PETRONAS. The need to protect PETRONAS’ intangible assets/IP motivated it to set up a separate IP division within its legal department consisting of lawyers who understand the IP implications of oil and gas. The IP division has the function of protecting PETRONAS IP rights (IPR) against the competition, preventing infringement, and commercialization of IP asset by sales or licensing.
The IP Division is also in charge of everything about corporate IP matters like the development of IP guidelines and IP process flow. Conducting IP awareness programs on the value of IP/intangibles and the registration of PETRONAS trademarks and patents, for the units within PETRONAS.
Owning a patent (and other IPR) makes it easier to attract investment. Venture capitalists often seek entities that own IP to invest in. Strategic patenting by NNPC can help raise funding, increase profitability, help avoid prosecution for patent infringement, also IP portrays a company as innovative.
Trademarks and Branding
PETRONAS has more than 200 trademarks spread out over 65 countries. PETRONAS has registered 110 trademark applications in 45 classes with the Malaysia Intellectual Property Office. PETRONAS brand promotional activities have made customer loyalty the most important target.
PETRONAS has invested a significant amount of money and time in creating and promoting its brand name, both nationally and internationally. A number of internet websites are operated by the company and its subsidiaries. Petronas has successfully challenged cyber squatters at least three times.
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 IP. Commercialisation of IP needs careful analysis of a number of factors to pick the best strategy. IP may be licensed, sold or even exploited in a joint venture. Perhaps the inclusion of IP in the NNPC reforms would pave the way for “the IP in Oil and Gas” revolution to begin in Nigeria which should help nudge the indigenous oil and gas companies and the Industry in the right direction IP wise.
Olufola Wusu Esq. © 2015
I work with companies seeking to invest in Nigeria. I solve legal problems and help monetize I.P. & Oil and Gas.