The Increased Importance of Patents for Big Oil

Increasingly, big oil companies use their Intellectual Property to achieve competitive advantage over their state-owned rivals (NOC’s). Why is that so? More than 80% of the world’s oil reserves are in the hands of state-controlled companies. Big Oil is loosing its grip on those energy rich countries and their NOCs. NOCs learned over the years how to handle their natural reserves themselves, using service companies like Schlumberger and Grifco. Rob Cox and Cyrus Sanati suggested three options for the industry to counter this (in “Big Oil, Big Problem” in BreakingViews.com)

“There at least three logical responses by the oil majors to the rise of National Oil Companies (NOCs). The first, already underway, is to invest in countries where they're unlikely to see assets expropriated. The second is to consider buying service firms themselves. Lastly, they could seek mega-mergers, along the lines of an Exxon-Chevron or BP-Shell, to counter the increasing heft of the NOCs.”

The better one, I would say, is using their extensive patent portfolios more aggressively against NOCs and when necessary, also against these service companies. Technological advances and R&D achievements are crucial for the international oil companies to optimize the extraction of oil from the reserves under their control while convincing the NOCs to let them help exploit their resources. By doing so they could more actively rely on their IP, alleging infringement against NOC’s and their service industries.

“Patents will be as valuable as reserves in the future, particularly for the International oil companies”, said Robin West, chairman of PFC Energy. “Technology is critical to unlock the value of reserves”.

A survey by the Financial Times shows an sharp increase in R&D spending by many oil companies. Shell increased their Technology R&D budget 50% over the past three years to US$ 1.2 bn in 2006. Chevron’s R&D has more than doubled over the last 5 years. It is very likely that those increased R&D spending has translated in increased IP portfolios. The strategy behind it must be to provide a greater grip on NOC’s and oil service providers to shield against attempts to cut them out of national reserves exploitation, nationalization and other threats to their market position. By using IP more as a offensive competitive weapon, the oil companies can extend their market share. I expect to see an increase in licensing activity, and, as licensing does not provide the competitive edge, infringement claims may be on the rise in oil and gas the industry.