Canada oil patent suits stir fears of technology slowdown

CALGARY, Alberta Wed Mar 26, 2014 12:55pm EDT

1 of 5. Rows of steam generators line a road at the Cenovus Energy Christina Lake Steam-Assisted Gravity Drainage (SAGD) project 120 km (74 miles) south of Fort McMurray, Alberta in this August 15, 2013 file photo.

Credit: Reuters/Todd Korol/Files

CALGARY, Alberta (Reuters) - A subtle shift is under way in the Canadian oil industry, where collegial collaboration over vital new extraction technology is yielding to corporate protectionism in the race to profit from the world's third-largest reserves.

Canadian energy companies are filing four times more oil and gas technology patents than they did a decade ago and are increasingly turning to the courts to protect the processes and innovations that can make the difference between a profitable oil sands reservoir and an idle tract of land.

The change is in some ways predictable. Oil sands development has raced ahead over the past decade as conventional resources around the world decline, and companies are spending billions of dollars to develop better and cheaper methods to extract the heavy bitumen trapped underground.

But the more secretive approach threatens to discourage a long tradition of collaboration among the tight-knit community of petroleum engineers in Calgary, Canada's oil center, many of them working within an eight-block-square grid downtown.

Engineers say the increased use of patents means they must proceed more carefully with research. To avoid lawsuits or potentially expensive licenses, they need to ensure they don't use techniques or technologies already patented.

The new caution dampens the human interaction that aids the industry's evolution, say industry officials.

"This has had the effect of slowing a lot of innovation down and a lot of meaningful practical day-to-day improvements have been delayed," said Merle Johnson, chief operating officer at Connacher Oil and Gas Ltd (CLL.TO). He declined to identify any specific techniques due to fears of lawsuits.

Patent litigation is on the rise. The number of cases in Federal Court doubled in 2013 from a year earlier.

Some say the patent fears have contributed to slower development of steam-assisted gravity drainage (SAGD), the industry's most widely used system for extracting oil sands. A method used to enhance SAGD recovery, known as wedge well technology, was the subject of a Federal Court case between Cenovus Energy Inc (CVE.TO) and rival Suncor Energy Inc (SU.TO).

Others, especially smaller firms, worry that even basic "common sense" techniques that may already be widely used in Western Canada are now being patented, raising legal risks that would have been unimaginable a few years ago.

Glen Schmidt, chief executive officer of privately owned Laricina Energy, said it was up to Canadian authorities to ensure companies were not patenting fundamental processes as well as inventions.

"The patent office needs to allow companies to protect their intellectual property without interfering with the evolution of the business," Schmidt said.

Despite the rise in patents, some larger producers point to the formation of the Canadian Oil Sands Innovation Alliance in 2012 as an example of collaboration in the industry. But the alliance of 14 major producers is focused on environmental issues and does not share extraction methods.

PATENTS OFFER NEW REVENUE

Technological innovation has rarely played a more important role in the global oil industry than it does today, experts say.

In recent decades, success or failure often hinged on political access to resource-rich nations, seismic expertise or simply good luck drilling multimillion-dollar wells.

Now, both in Canada and U.S. shale patches like the Bakken of North Dakota, it is no longer a question of finding the resources, which are abundant, but developing smarter, cheaper ways to extract them.

Northern Alberta's oil sands have an estimated 174 billion barrels of reserves - the world's largest deposits behind Saudi Arabia and Venezuela - but also some of the highest operating costs globally. As with other major energy deposits, technology has played a critical role in making them more economical.

Most lawyers argue that safeguarding intellectual property is needed to help stimulate innovation, encouraging more companies to spend more money on research with the confidence that their investment will be returned.

Oil and gas research and development spending in Canada grew at an average annual rate of more than 15 percent between 2001 and 2012 to C$6.46 billion ($5.76 billion). The industry accounts for more than 4 percent of Canada's total industrial research and development spending, according to a 2013 report by the Canadian Council of Academies, a non-profit research organization.

The number of oil and gas technology-related patents granted in Canada rose to 881 in 2013, up from 240 in 2003, according to figures compiled for Reuters by Borden Ladner Gervais intellectual property lawyer Tim Webb.

The number of patent applications is even higher. In 2011, 1,538 applications were filed, according to Webb's analysis of data from the Canadian Intellectual Property Office (CIPO).

Industry players said bigger companies with resources to invest in intellectual property departments and pursue licensing agreements are the ones benefiting most from increased patent creation. But even then, patenting can suck time and money away from research and innovation.

"It costs around C$200,000 to C$500,000 from a patent lawyer's perspective, but to us it's more expensive than that because it's how much time our technical folks put into writing the patent," said Harbir Chhina, Cenovus's executive vice-president for oil sands.

Last year Cenovus resolved its dispute with Suncor over the patent on wedge wells. Suncor objected to the patent filing, saying the method was already being used.

Cenovus denied the allegations and Suncor eventually agreed to drop its legal challenge in return for an oil sands land swap and a license to use the technology. ($1 = 1.1217 Canadian Dollars)

(Editing by Jeffrey Hodgson, Jonathan Leff and Ross Colvin)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article