The rapid rise of shale gas as a force to be reckoned within the global energy sector has led to an increasing number of innovative production technologies and techniques used to extract the resource. Neil Coulson, a partner in the Intellectual Property Group at international law firm Baker Botts, looks at the trends that have been leading the firms providing these solutions to find ways to best protect their intellectual property.
Hydraulic fracturing, or ‘fracking’, has become one of the most valuable sectors of the energy industry and has catalysed a new era of innovation by energy extraction, drilling services and chemical engineering companies. This has necessitated quick and thorough protection of these innovations. The technical nature of the extraction and the chemicals used lend themselves to patent and trade secret protection. As with any industry, there are unique sector-specific issues.
Shale gas is a natural energy source that cannot be extracted by conventional well bores due to the low permeability of the surrounding sedimentary rock. Fractures in this rock allow for gas extraction.
Artificial fractures have been created since the 1940s, but modern technology has contributed to the technique of ‘fracking’. This involves drilling into the shale reserves, often horizontally, and inserting highpressure liquids to create many miniature fractures. These allow shale gas to migrate to the well for extraction.
The USA has been at the forefront of the industry, increasing its shale gas production by almost 1,600 per cent during the period between 2004-2014 to 9.63 trillion cubic feet.(1) The Energy Information Administration believes, however, that China holds the largest reserves and that also, outside the USA, continental Europe, South Africa, South America and the United Kingdom also contain economically significant quantities of shale.
The first ‘modern’ fracking patent was applied for in 1948 by Stanolind in the USA. In 2013, 706 patent applications were filed worldwide in respect of fracking technology, up from 236 in 2008.(2) This increase is not matched by related technologies such as well completion or horizontal drilling and therefore fracking is fuelling its own innovation rather than following a general trend.(3)
The established norm for patent protection has become protection of innovations in fracturing fluid composition, pressure and use. The fluid used is primarily water (~90 per cent) and sand (~9 per cent) with the remainder comprising chemicals. A survey in the US in 2010 found that more than 750 different chemicals were used by US fracking companies in their proprietary fluids.(4) Patents may also cover the inclusion of proppants (solid materials used to keep fractures open), gelling agents and acids (to help open fractures), surfactants (to reduce surface friction) and biocides (to kill bacteria contained in the water).
Fluids are not the only patentable inventions relating to fracking. Patents have been filed for methods for estimating the size of fractures, systems to provide power to isolated wells and methods for preparing fracking fluids without electricity. Also, the holders of fracking patents vary from energy supermajors to international service companies to smaller material and proppant suppliers. Therefore, although the technology has matured and innovations are now occurring on an incremental basis, the scope for patent protection is wide.
Trade secrets are also key protections. An effective programme of trade secret protection necessitates comprehensive non-disclosure agreements with employees and third parties as well as careful control of access to physical records and equipment. There is, however, a balancing act if trade secrets rather than patents are to be the core protections for technical developments as there is an increasing clamour for the disclosure of technical details to regulators to combat public health concerns. In particular, this has manifested itself in a desire to see disclosure of chemicals used in fracking fluid. For companies, this presents issues for trade secret protection and also the risk of patent infringement actions from competitors if they disclose their formulations publically. To combat this risk, many try to limit disclosure to the chemicals themselves, but not the actual formulation.
Lastly, the technology has largely developed to date in the manner required by the geology of the USA. As the technology spreads around the world and national regulators and legislators begin to permit fracking, it is likely that there will be a new raft of fracking innovations to deal with specific obstacles such as fault lines, increased depth of reserves, a lack of pipeline infrastructure and differing rock formations.
This makes it imperative for those in the industry to protect and enforce their innovations and we are likely to see a sustained increase in patent applications for incremental improvements to extraction processes, and/or the combination of existing patented technology with trade secrets specific to differing geologies.
(1)http://www.statista.com/statistics/183740/shale-gas-production-in-the-united-states-since-1999/
(2)http://share.thomsonreuters.com/assets/newsletters/Inside_Oil/IO_May_27_2014.pdf
(3)page 290 http://repository.law.umich.edu/mwg-internal/2535425/progress?id=bW5cRmq+2W&dl
(4)page 291 ibid
