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Egbin Power Plant plans to build a liquefied natural gas terminal to solve a severe shortage of gas

Megathos Law Practice

Liquefied Natural Gas (LNG) for export is great… However, LNG to power has become imperative for an energy starved Lagos!
Light Up Lagos!

Lagos is reported to have a population of over 20 million people and is still growing, Lagos is said to consume over 40% of the premium motor spirit consumed by Nigeria as a whole on a daily basis. Governor Akinwunmi Ambode has been drumming up support for his light up Lagos plan, this liquefied natural gas terminal might just be the tipping point for him…

Lagos has the opportunity to become the LNG import hub for Nigeria and Africa as a whole.
Egbin to the rescue…

Owners of Nigeria’s largest power plant located at Egbin Power Plant near Lagos are planning to build an LNG import terminal, as it seeks to solve an acute shortage of gas according to Chief Executive Officer Dallas Peavey.

What is LNG?

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Egbin Power Plant plans to build a liquefied natural gas terminal to solve a severe shortage of gas

Liquefied Natural Gas (LNG) for export is great… However, LNG to power has become imperative for an energy starved Lagos!
Light Up Lagos!

Lagos is reported to have a population of over 20 million people and is still growing, Lagos is said to consume over 40% of the premium motor spirit consumed by Nigeria as a whole on a daily basis. Governor Akinwunmi Ambode has been drumming up support for his light up Lagos plan, this liquefied natural gas terminal might just be the tipping point for him…

Lagos has the opportunity to become the LNG import hub for Nigeria and Africa as a whole.
Egbin to the rescue…

Owners of Nigeria’s largest power plant located at Egbin Power Plant near Lagos are planning to build an LNG import terminal, as it seeks to solve an acute shortage of gas according to Chief Executive Officer Dallas Peavey.

What is LNG?
LNG is gas frozen to liquid reducing its original size by 1/600. LNG is a liquid which can be shipped in, this might give Egbin some respite from the constant attacks on pipelines, which has reduced its gas supply, switching to LNG may also open Egbin up to multiple suppliers of LNG struggling for new markets. It is plausible that Egbin may be able to ensure the stability of gas supply to the market with a floating LNG terminal for importation.

What is an LNG Terminal?
An LNG terminal is a purpose built port used exclusively to export or import LNG.

“LNG import terminals” as a service?
The LNG terminal can be used strictly for Egbin or/and for other players who may also want access to LNG.
Egbin has the opportunity to champion the use of LNG import terminals for its sole use, or the use of LNG import terminals as a service to other gas consumers…

LNG Pricing
Concerns about LNG prices rising are a real concern, it is hoped that the price indexation/decoupling of LNG prices may have ended.
Historically there has been some relationship between the price of crude oil and that of natural gas that is, barring any unforeseen occurrences like natural disasters etc.

Decoupling of prices is usually temporary. However three factors tend to point to a possible permanent decoupling of prices and a possible dip in some areas. They are:
1. The globalization of natural gas
2. Specialization in all parts of oil and gas industry by companies
3. The emergence of Shale Gas.
Quite a number of industry experts agree that LNG prices change with time, thus, Egbin may consider benchmarking its projections on possible higher prices or hedge against a rise in LNG prices.

Egbin may do well, to avoid the mistake some indigenous oil companies made; those oil companies banked on higher crude oil prices, which eventually fell.

Egbin should be wary of banking on low LNG prices, which may eventually rise, when demand rises or supply falls.
Egbin should avoid limiting its LNG supply to “local sources”. Our “local sources” of LNG may be given a right of first refusal, but at no point should Egbin limit itself, as our “local sources” of LNG may be fixated on export of their product…

Buyers Market v Sellers Market
It is now a buyer’s market in the LNG world; sellers are aggressively wooing buyers…

Qatar LNG recently gave a huge discount to India, waived a penalty and has been selling on the “spot market” too.
“The new formula between the two companies is in the interests of a win-win. Where the previous contract meant that Petronet had to buy LNG at $12-13 per mmBtu, the new contract means a price of $6-7 per mmBtu,”.

Iran has started supplying LNG to Kenya, Tanzania and South Africa.
Long Term Contracts v Spot Markets
Egbin should try spot markets and negotiate a long term deal if the price is right, preferably with a major player like Qatar Gas LNG or a player like Iran keen on gaining market share.

Long term LNG contracts have given way to spot markets, it’s no longer a seller’s market, it’s now a buyer’s market. There are quite a few LNG projects on the ground, floating and in the pipeline but consumption is not spiking per se.

India renegotiated a long term LNG contract recently and got a 50% discount. I believe Egbin should negotiate for the best deal it can get, since it’s building an LNG terminal.
Egbin may consider prospecting for a seller, willing to finance the construction of the LNG terminal…

Hydraulic fracturing has increased the supply of natural gas available. It has been reported that, 5 (five) LNG export terminals are being built along the U.S. East Coast alone, making the possibility of an LNG glut more feasible. Egbin LNG import terminal will be very handy for gas exporters from the U.S.A, Qatar and Iran to enter the Nigerian market.
In Africa, it is reported that there are at least 5 (five) planned LNG import terminals , Cotonou LNG Import Terminal, Benin, Ghana FSRU LNG Import Terminal, Ghana, Jorf Lasfar LNG Import Terminal, Morocco, Mombassa LNG Import Terminal, Kenya and Mossel Bay LNG Terminal, South Africa.

The Croatian Paradigm

Land Based LNG terminal v Floating LNG terminal

Croatia has been reported to have opted to go for an FLNG (Floating LNG) terminal to commence LNG import over a land-based LNG terminal.

This FLNG import terminal is expected to reduce the construction costs of an LNG terminal and will require only two years to be fully operational. It will be the world’s first offshore LNG regasification terminal. It is 47-metre (154 ft) high, 88-metre (289 ft) wide, and 180-metre (590 ft) long.

It was reported that, the FLNG terminal will be operated by Qatar Terminal Ltd., a subsidiary of Qatar Petroleum and some other companies.

Conclusion
The benefits of an LNG import terminal may far outweigh its cost, avoiding gas supply disruptions due to ruptured pipes may be the least of such benefits, while the possibilities range from security of gas supply, to the possibility of long term storage tanks, to opening the window for the use of gas for transportation and helping a nation complete its energy circle.

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos
Olufola Wusu Esq. © 2016
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NNPC takes the lead in safeguarding Intellectual Property in the Oil and Gas Industry

 NNPC imagesIt was reported in the news that the Nigerian National Petroleum Corporation (NNPC) Retail Limited has sued the Natural Network Petroleum and Gas Company (NNPG) Limited and two others over infringement on its trademark.  NNPC had in a suit joined Corporate Affairs Commission (CAC) and the Registrar of Trade Marks, Patent and Designs as second and third defendants respectively.

From this action, it would seem that the NNPC is keen on taking the lead in safeguarding Intellectual Property (IP) in the Oil and Gas Industry in Nigeria. It remains to be seen whether indigenous oil and gas companies will follow suit of their own accord or await regulatory changes, making IP Asset development, research & development mandatory, thus leading to IP and Innovation development.

This article attempts to highlight some key IP Issues indigenous Oil and Gas Companies may need to note.

The need for Innovation/Intellectual Property Commercialization

A report issued by PricewaterhouseCoopers in 1999 found that the global IP licensing market totalled more than US$100 billion, giving an idea of how economically important IP assets are today. Right now the total worldwide IP licensing market is estimated to be $250 billion annually.

ExxonMobil is reported to have collected more than US $129 million in 2011 from licensing its IP to third parties, and this number is increasing every year.

IBM alone generates nearly $2 billion a year from out-licensing its IP. The asset value of patents worldwide is estimated at $1 trillion.

U.S. IP licensing revenues were estimated at $120 billion in 2003 and are expected to have reached $500 billion by 2010. University licensing royalties in the U.S. total nearly $1 billion annually.

In 2013, the Shell Oil Company received 189 patents from the U.S. Patent and Trademark Office. Research with patent portfolio analysis tools shows that Shell was assigned 207 U.S. patents in 2014 held by Royal Shell. Shell spent $1.2 billion on R&D.

The Chinese government paradigm

The Chinese Government is fostering home-grown innovation and IP commercialisation through tax incentives. From 2006 through 2010, Chinese oil and gas companies cumulatively boosted R&D spending by 29 percent annually and upstream patenting activity by 66 percent annually. In downstream, the Chinese energy conglomerate Sinopec is amassing a large patent portfolio, at home and abroad.

 

 

Nigeria’s Window of Innovation

For our industries to thrive we need Governmental support for our local industry, government has given some support in the Nigerian Local Content Act? However technological growth and development does not happen by chance, in this writer’s opinion our local companies have a duty to take full advantage of governmental support by actively innovating and commercialising their resulting innovation and Intellectual Property.

Nigerian companies may need to pay a little more attention to research, development and the resulting innovation that increases profitability which should be protected and commercialised by IP possibly Patents, Trademarks, Copyright  and Trade Secrets etc.

During exploration, extraction and transportation of Oil and gas, value is added to the unrefined Oil and Gas by technology, and other business practices that help process the extracts into useful and valuable consumer products.

The innovation, technology and business processes (Intellectual Property Assets) involved, are often protected by IP and become valuable assets to Oil and Gas companies, when they are registered and competitors prevented from accessing and using proprietary innovation for free.

Owners of such IP Assets may actively commercialise their assets by licensing them to companies willing to use these IP Assets in exchange for a license fee.

Trademark as an IP Assets in the Oil and Gas industry

The first barrel in any great oil and gas company is a good name. It should be registered as a trademark.  A trademark is a symbol or a sign which differentiates the goods and services of one business from another one. A trademark provides protection to the owner of the mark by ensuring the exclusive right to use it to identify goods or services, or to authorize another to use it in return for payment of license fees.

The Oil and Gas Industry is particularly susceptible to trademark issues as internal and external consumers rely on their trademarks to purchase goods and services from them.

Filling Stations and Trademark lawsuits

The Managing Director of NNPC Retail Limited, Mr. Fagbola Ladipo was reported to have alleged that the infringement on the NNPC trademark by the first defendant had begun to cause a dwindling in the sales of NNPC in Ondo State. He also alleged that the first defendant was imitating the NNPC logo by using its colour combination of red, yellow, green, uniform, emblem and the acronym NNPC…

The Russian Legal Information Agency (RAPSI/rapsinews.com) reported that sometime in 2003, a court awarded Rosneft oil company $95,000 in its trademark infringement lawsuit against EKA-AZS fuel company, which operates a large chain of filling stations.  The parties told the court they entered into a franchise agreement in 2005 for a term of 5 years, under which EKA-AZS paid $1,000 for the right to use Rosneft’s trademarks to sell fuel at 40 filling stations. Rosneft maintains the defendant illegally used trademarks for five months after the contract expired on September 29, 2010.

Sometime in 2015 LUKOIL North America filed a lawsuit in U.S. District Court for the Eastern District of Pennsylvania against R.K. Keystone Mobile Mart Inc., Gurmeet Singh, As Airport Texaco Inc. and Swapnesh Sharma, alleging trademark infringement and trade dress infringement.

According to the complaint, the defendants own and operate the former LUKOIL fuel station at 3575 Airport Road in Allentown even though the station no longer is a franchise under the LUKOIL name.

Sometime in 2011, it was reported by Bloomberg that BP filling station operators in the western U.S. sued BP Plc. seeking $200 million in damages over allegations the company’s sales and inventory software they are forced to use is “an unmitigated disaster.”

Branding in oil and gas

Oil and Gas companies seldom attempt to suggest that they have perfectly “green credentials”. It may be more prudent to emphasise their capacity for innovation which benefits society in future and their importance in providing energy for today’s society.

 

The world’s most valuable Oil & Gas brands

Please find below a table of the world’s most valuable Oil and Gas Brands, at number 8 is Petronas, a national oil company just like the NNPC.

 

Rank 2015 Brand Name Domicile Brand Value ($) 2015
1 Shell Netherlands $30,716,000.00
2 ExxonMobil United States $18,242,000.00
3 Chevron United States $18,163,000.00
4 PetroChina China $17,521,000.00
5 Sinopec China $16,135,000.00
6 Total France $15,203,000.00
7 BP UK $14,743,000.00
8 Petronas Malaysia $9,480,000.00
9 Eni Italy $8,037,000.00
10 Gazprom Russia $ 6,961,000.00
11 Statoil Norway $6,528,000.00
12 ConocoPhillips United States $6,062,000.00
13 Petrobras Brazil $5,945,000.00
14 Mobil United States $4,696,000.00
15 CNOOC China $4,523,000.00
16 Esso United States $4,471,000.00
17 Enbridge Canada $4,340,000.00
18 Exxon United States $3,995,000.00
19 Schlumberger United States $3,994,000.00
20 PTT Thailand $3,681,000.00

 

Interestingly, some Energy brands operating in Nigeria’s upstream sector are struggling to erase negative perceptions especially as it concerns environmental compliance. We have recently seen a number of IOCs divest assets onshore possibly due to a whiplash from host communities over alleged unacceptable environmental practices. All these point to the importance of IP to an Oil and Gas company’s profitability.

 

Conclusion

The challenges facing our oil & gas industry ranging from the fall in crude oil prices to the perception of oil & gas companies by the local populace and the changing global energy landscape make it needful for active collaboration between all stakeholders. In addition, for our Local Oil and Gas companies to grow they may need to take their Research and Development and resulting IP like patents and trade secrets seriously, they may also wish to leverage on the advantages conferred on them by the local content policy currently being pushed by the government. It goes without saying that technological development does not happen by chance, it can be encouraged by good policies like the local content policy serving as a spring board for the inventiveness of our local companies to flourish. 

[1] Source http://www.eregistration.copyright.gov.ng/? last accessed on 30/03/2015

Olufola Wusu Esq © 2015

fola@megathoslaw.com

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos

OLUFOLA WUSU IS NOTED FOR HIS “DYNAMIC PRACTICE” AND “COMMERCIAL ACUMEN”. HE IS PRAISED FOR HIS “FIRST-RATE SKILLS” IN ASSISTING CLIENTS…

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NNPC Reforms: Review of Production Sharing Contracts between the NNPC and IOCs

The Nigerian National Petroleum Corporation (NNPC) has disclosed that it would renegotiate the fiscal terms of existing Production Sharing Contracts (PSCs) entered into with international oil companies (IOCs).

The review is aimed at bringing the PSCs in line with present day realities in the global oil and gas industry.

Production Sharing Contract (PSC)

In a PSC, the NNPC engages a competent contractor usually an International Oil Company (IOC) to carry out petroleum operations on NNPC’s wholly held acreage. The contractor undertakes the initial exploration risks and recovers his costs if and when oil is discovered in commercial quantities and extracted.

Primary Legal Regime regulating Production Sharing Contracts

DEEP OFFSHORE AND INLAND BASIN PRODCUTION SHARING CONTRACTS DECREE NO 9 1999 ACT. CAP. D3. LFN 2004.

This is in addition to the individual contracts signed with the individual companies.

History of production sharing contracts

Indonesia pioneered the first PSC in 1966 through Permina, the state oil company. The contract system was evolved due to the imbalance in the traditional concessionary system regarding Government Take.

Possible issues to be looked at in a Review of NNPC’s PSCs with IOCs

In reviewing a PSC, it might be wise to use a basic checklist that covers issues like; who are the Parties to the contract? What exactly, is the subject of the PSC? Is there a renegotiation clause? What are the triggers and have the conditions been fulfilled?

Amazing Fiscal Incentives

In 1993, Nigeria entered into deep water drilling and awarded over 20 oil blocks in the deep water to various IOC’s.

Nigeria was not very familiar with deep-water drilling and its possible yield. Thus the fiscal terms for deep offshore in Nigeria were unbelievably generous to point of occasioning loss to our national treasury. The PSC had an unbelievable graduated rate of royalty payment dependent on water depth.

The rates are as follows:

  • 205-500 meters water depth: 12%
  • 501-800 meters water depth: 8%
  • 801-1,000 meters water depth: 4%
  • Above 1,000 meters water depth: 0%

Considering the fact that these rates regulate deep water drilling, it was not particularly prudent on Nigeria’s part to have based the royalty rates on drilling depth, ignoring indices like production levels, oil prices etc. Even more alarming is the fact that deep offshore reserves are more prolific than land based reserves.

Interestingly, it was reported in 2005, that Oil and gas production began in the 200,000 barrels per day capacity Bonga field, Nigeria’s first deep-water development in water depths of over 1,000 metres.

It was also reported that Erha deep-water development, including the Erha field and Erha North satellite field, was completed in 2006.The fields are located approximately 97km offshore Nigeria, in water depths ranging from 1,000m to 1,200m.!

It was also reported that the Agbami-2 appraisal well was drilled in 4,800ft of water to a total depth of 15,683ft.

The Egina field lies within the block Oil Mining Lease OML 130 and covers an area of around 500 square miles. It is situated at a water depth of ranging from 1400m to 1,750m.

Thus it can be easily deduced that Bonga and the above mentioned deep water fields fall under the 1000 metre royalty rate of 0 (zero) percent!

The petroleum tax payable under the PSC arrangement was fixed at 50% flat rate of chargeable profits for the duration of the production sharing contracts against the rate of 85%, prescribed by the Petroleum Profit Tax Act operable in the Joint Venture arrangement.

Like every major energy contract, the PSC’s that Nigeria signed contains possible renegotiation clauses in case the project dynamics change for better or worse. In Nigeria’s case the project dynamics have changed for better, Deep water fields have proven to be quite prolific, a fact the IOC’s based on their vast deep water experience may have known from the world go.

Production Sharing: The PSC provides for how the International Oil Company (IOC)/contractor will recover his costs, the allowable percentage of recovery and how production will be shared. Common items found in PSCs are royalty oil, cost (recovery) oil and profit oil.

Tax: The PSC states the taxes that the International Oil Company (IOC)/contractor would be subjected to. 

Enforcement of Abandonment/Decommissioning clauses

The PSC provides for a Decommissioning clause for each Development Area. This is quite commendable as the IOC is under obligation to properly clean up after operations.

Contractual Terms and Environmental Protection

There is a possibility that basic contract review and negotiation can help stem the tide of pollution and environmental degradation… by making sure we negotiate and include clauses that enact stringent conditions for environmental protection.

Contract terms are very important because they determine how much Nigeria as a producing country earns from it natural resources; and they can strengthen the regulatory power of government to enforce environmental, health and other standards, if standard legal and regulatory systems are not well established…

Agreed damages clause for pollution

There might be a need to insert a clause stipulating the minimum fine for every barrel spilled, especially after a certain period of grace.

Model PSC for Non-Associated Gas

The scheduled review might be a good opportunity to develop a model Production Sharing Contract for Non-Associated Gas fields. Which in turn might help kick start the much awaited natural gas revolution.

NNPC images

The funding arrangement is beneficial for an NOC participating in the project. The good thing is that even after production begins and the NOC is required to finance the project payments are made from crude oil production rather than cash. However the PSC’s did not make adequate provisions for times when oil prices rise. Thus governmental take did not rise in proportion to oil price. 

Curbing Artificial Expenses

The IOC may decide to slow down the pace of production, be wasteful or extravagant in its exploitation especially when the operator knows his expenses would be fully met by the crude produced. Such behaviour is also called gold plating.

Social Normative Norms in Oil Pollution?

Lax enforcement of the law in the area of environmental degradation eventually results in whiplashes and hostility from the host communities targeted at the International Oil Company.

Conclusion

Renegotiating a Production Sharing Contract requires legal knowledge, foresight and common sense. The number of model clauses successfully incorporated modified in the renegotiated Production Sharing Contract depends largely upon negotiating power of the parties involved. Even so, the information contained in this piece will enlighten the Government and International Oil Company (IOC)/contractor as to some possible alternatives, and possibly foster frank discussion between the Government and the Oil Company.

Olufola Wusu Esq. © 2015

fola@megathoslaw.com

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…

@OlufolaWusu_IP

Olufola Wusu is a Commercial, Oil and Gas and IP Lawyer based in Lagos.

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NLNG panics as US, Australia enter gas market

Punch newspaper recently reported thus: “NLNG panics as US, Australia enter gas market” http://www.punchng.com/business/business-economy/nlng-panics-as-us-australia-enter-gas-market/

Its this analyst’s opinion that this might be the perfect opportunity for Nigeria LNG Limited and Nigeria to rethink its commercial strategy on gas and LNG use.

It may no longer be appropriate for LNG to be entirely export centred.

We may need to continue with the export of LNG while pushing for domestic use/African use of LNG/Natural Gas.

We should also consider LNG storage tanks for rainy days and to make our production mix more nimble, Floating LNG  may just be the way forward. Thankfully Shell has shown the way via its Prelude FLNG in Browse Basin, Australia.

Brass LNG may consider using Floating LNG, it should be cheaper as it does not require land and all the attendant costs like compensation and community relations.

All over the world traditional fossil fuels like petrol and diesel are being replaced with natural gas as it is seen as a cleaner and cheaper alternative.

In America LNG/Natural Gas provides :

a. 76% of the residential and commercial sectors’ energy needs

b. 40% of the industrial sector’s energy needs

c. 18% of electricity generation

d. 3% of the transportation sector’s energy needs
Over 110,000 transit buses, taxi cabs, package delivery trucks and other vehicles operating in the U.S. are fueled with clean-burning natural gas, according to the Natural Gas Vehicle Association.
Heavy duty trucks, trains and ships now run on LNG as it affords them the opportunity to store more fuel using less space!

Japan is pushing LNG for its transportation needs, it intends to use LNG  for its buses, trucks and ships while dumping diesel.

There are so many innovative uses of LNG Nigeria that Nigeria may freely adopt. Going by the huge sums of money spent on subsidy and importation of petrol and diesel I dare say that there is a ready market for gas utilisation in Nigeria. Either way the dwindling prices of LNG and the entry of bigger and nimble players offering lower prices into the global LNG market may just be the incentive needed to jump start the natural gas revolution in Nigeria.

There is no point spending money on importing petrol and diesel when we have so much Gas!!!

Olufola Wusu

I work with companies seeking to invest in Nigeria. I solve legal problems and help monetise I.P. & Oil and Gas .

Listed in the prestigious directory of “Who is Who Legal” Nigeria.

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NNPC Reforms-The IP Dimension

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.

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 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.

Trade secrets

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.

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.  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.

Patents

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.

Domain Names

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.

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 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.

fola@megathoslaw.com

Please connect with me on LinkedIn http://www.linkedin.com/pub/olufola-wusu/22/317/587

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Filed under BUHARI, Dr Emmanuel Ibe Kachiukwu, Intellectual Property, NNPC, Oil and Gas

LEGAL ISSUES IN ANIMATION-10 THINGS TO NOTE

I grew up watching “Snow White and the Seven Dwarfs”, “Hercules”, “Bugs” like most Nigerians my early memories are filled with watching foreign cartoons. However, recently Thisday Newspapers published a story about Mrs Damilola Solesi, an enterprising Nigerian who runs Smids Animation Studio.

Mrs Dami Solesi was quoted has having said: “Primarily, what we do is to provide animation services to brands and agencies,” “We do commercials, documentaries, visual animation, motion graphics, and all that. We primarily use three media – core 3D animation, motion graphics, and visual effects. We are also working on some of our own content. We have a short movie we are working on, which is almost done; and we are looking to turn it into a web series.”

Animation has multiple uses beyond entertainment; it is also useful for socialisation and other forms of information dissemination.

However Nigeria seems to lack enough productive capacity to produce the animation it needs. Thus individuals and companies in need of animation have had to source for animation outside the shores of this country.
However, without dwelling on the propriety or otherwise of the seeming absence of local content in Animation in Nigeria this paper will attempt to examine the Intellectual property ramifications of Animation and the benefits of Innovation to Animators and Animation Companies in Nigeria and beyond.

Animation Intellectual Property;
Research and operations in the Animation industry produce new ideas, procedures, software, compositions, equipment and plenty of data.

This make up the basic intellectual properties of the industry which has potentially transformed the Animation industry from a commodity market to knowledge/innovation/intellectual property based industry.

Intellectual Property becomes a valuable asset to Animation companies, when it is registered and steps are taken to prevent competitors from accessing and using it for free.

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

Benefit of Animation Intellectual Property;
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.

Copyrights
A copyright gives the holder of such copyright the exclusive right to control exploitation, production and adaptation of such a work for a certain period of time.
Copyright exists in a work on the basis of originality and fixation. Copyright protection is particularly important to the Animation industry in the protection of its script, movies, 3-D animation and software used for animation.

Trademarks
The first scene in animation is a good name. It should be registered as a trademark. The crux of trademark infringement is the “likelihood of confusion.” The analysis would revolve around whether or not the allegedly infringing mark is likely to cause confusion in the eyes of the public. Whether registered or not, a name is a valuable asset that can be protected under the tort of passing off. A strong trademark is virtually mandatory for all Animation brands.

Animation brands In Nigeria
An Animation brand can be defined as a name, term, sign, symbol, design or a combination of colours intended to identify an Animation Company or studio and differentiate it from that of other Animation Companies. In Nigeria many of the Animation Brands we know are foreign.

Animation Brands, Social Media and Information Technology
All over the world Animation Brands are proficient with the use of the internet (yes websites and all) and social media in promoting their unique identities.

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 in Nigeria are of limited duration, typically providing protection for a period of 20 years from the filing of the application for patent grant.
Patents cover things like Apple’s page turning animation and other cutting-edge technologies used in Animation.

IP Protection “fathered” the Animation Industry
It goes without saying that companies in the Animation industry, would probably not have been formed and would not continue to exist today without protection of its intellectual property!
If its creative products were not protected by IP, they would have been priced as a commodity and not as a brand. If the products had been priced as a commodity, they may not have been developed and made available to the industry. Spider-Man 3 was reported to have cost $258,000,000.

Why Nigerian Animation companies are yet to fall in love with IP…
Is Innovation necessary?
They don’t need to, because they are so busy creating animation (i.e. commodity trade) that no one thinks that there is a need to innovate, animation creates good publicity so why bother. Well… because with IP animation will create more value.

How significant is our market?
The market in Nigeria may be perceived to be so inconsequential that they do not see a need to secure IP rights in animation they produce. The animation companies may not have seen the need to generate revenue outside Nigeria.

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.
Contractual Protection for Trade Secrets
Trade secrets are more appropriately protected by contract. The contract should define the trade secret as explicitly as possible. Contracts like “non-disclosure agreements” (“NDAs”) need to have sharp definitions of trade secret boundaries just as patent claims are required to have definite boundaries.

Animation IP Transactions
Formal accounting procedures for IP assets are fast evolving, but they are generally not on the balance sheet of the average companies that own them, and they are sometimes ignored by financial analysts.
Creating and exploiting intellectual property is a key part of Animation. Crucial issues that need to be addressed include IP strategies, patent valuations, licensing and litigation.
Animation companies need to have in house counsel who understand and have the expertise to help them manage, enforce and extract value from Intellectual Property Portfolios.
The value of I.P. is a monetary compensation that is expected to be received from licensing of I.P. or from sale or exchange of other intangible assets.

Conclusion
The Global Animation Industry has been described as a “knowledge industry” because of new technologies coupled with Supercomputers have taken their place causing the industry to develop 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.
Intellectual Property becomes a valuable asset to anybody and industry, when it is utilized to enhance everyday activities, registered and steps are taken to prevent competitors from accessing and using it for free.

Olufola Wusu Esq. © 2015

I help monetise Intellectual Property and make complicated Commercial and Oil & Gas Legal Problems simple.

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