Deep beneath the muskeg and forest of northern Alberta lies an untapped treasure. Call it the impossible oil sands, a vast pool of crude that lies beyond the reach of current technology.
Of the 1.7 trillion barrels of crude buried in the oil sands, the industry currently believes it can produce just 170 billion, or one out of 10 barrels.
But the Alberta government believes nearly double that number could some day be liberated if there are enough breakthroughs to figure out how to do it profitably.
Now, the battle to reach those impossible oil sands has opened a new front: the patent office.
As Canada's oil and gas companies pour billions into ever more challenging oil and gas reserves, they find themselves in a growing technological arms race that has produced a surge in patent applications from an industry that has historically paid little attention to protection of intellectual property.
Oil sands companies have long been criticized for an overly cautious approach to innovation that has left them dependent on decades-old methods to extract crude. Some critics have also suggested that the sector has failed to grasp an opportunity to make Canada a world leader in the development of new energy technology.
But change is beginning to take root. The past decade has brought seismic changes in the business of energy. Instead of succeeding based on their ability to find hidden pools of oil and gas, much of the oil patch now lives and dies according to its skill in drawing out greater volumes of energy from massive pools of known reserves, like the oil sands, which don't easily give up their riches.
The result: a substantial shift in the attitude of energy companies toward seeking patents for their discoveries. Rather than discard such measures as unnecessary or a waste of money, a broad cross-section of industry, from giants like Suncor Energy Inc. to small new junior companies, are working to shield their best research from competitors. The change has brought strong growth to legal firms that work in patents, produced a clash of titans -- Suncor is currently fighting a patent battle with Cenovus Energy Inc. - and created an expectation of new profits, as companies seek to develop new licensing revenue streams.
On some measures, such as the percentage of revenue devoted to research, the oil patch remains well behind the rest of Corporate Canada. Alberta also lags more innovative provinces like Ontario and Quebec in the number of patents its companies apply for and receive. What's more, only one of Canada's top 10 corporate filers is an oil and gas company. Schlumberger Canada Ltd. - the northern subsidiary of the U.S. company - is sixth on the list, behind companies like Research In Motion Ltd. and Procter & Gamble Co.
But the mounting interest in intellectual property points to a shift in the attention energy companies are paying to research - and hints at a future where Calgary could become, on a small scale, a sort of Silicon Valley North for the petroleum industry.
"There's a real focus on technology," said Doug Ramsay, chief executive officer of Calfrac Well Services Ltd., which has sought intellectual property protection for new liquid solutions it has created to help penetrate oil-bearing rock in high-tech new wells. "Are people going to the patent office more and doing more applications? You bet they are."
The past decade alone has seen a substantial shift. An analysis by The Globe and Mail examined patent filings by a basket of 10 energy companies - including Suncor, Imperial Oil, Nexen, Calfrac and Laricina Energy Ltd. - and found that those companies applied for 2.5 times more patents between 2005 and 2010 than between 2000 and 2004.
Companies have moved to protect advances in numerous areas, from new chemical cocktails that are used to make oil flow more quickly, to methods for speeding the cleanup of toxic effluents, to novel ways of squeezing thick crude from oil sands reservoirs.
The advances are big and small. Suncor, for example, has applied for patents related to advances in conveyor belts and hand railings. Imperial Oil has sought patents on steel wire rope lubricants. Both companies have also sought protection for much more significant developments, such as new solvents for extracting bitumen, methods to recover heat and water from oil sands waste streams, and ways to biologically detoxify oil sands effluent water.
Though the numbers plummeted in the past two years, when the recession forced companies to focus on cash preservation, 2007 saw more patent filings than any other year in the past two decades among those corporations. And the average rate of annual filing by those oil- and gas-focused companies in the past five years is triple what it was a decade earlier, though it remains low compared to many pharmaceutical and high-tech companies. Still, it's growing fast: In that same time, the Canadian average has grown by just over 25 per cent.
"It's clearly indicative of the fact that these companies have woken up to the importance of intellectual property, and it has moved towards the top of the corporate agenda," said Kevin LaRoche, a lawyer with Borden Ladner Gervais who has watched in recent years as the natural resources sector has become the second-largest source of patent litigation. The firm's own growth is proof of the change: Six years ago, it did not have a single Calgary-based partner in patent law. Today, it has five.
"These companies obtain these patents because they perceive that there's value," Mr. LaRoche said. "And they're right. They have a defensive value. They have an economic, or licensing, value."
Untapped profits lie not only in the oil sands, but in the natural-gas-drenched shale fields the industry has only recently begun to tap. Despite huge quantities of gas locked underground, companies expect to tap just 5 to 10 per cent of what's there using current technology. As with the oil sands, the prize is substantial for effective new methods.
In fact, so much is at stake that some companies have developed substantial research programs. Cenovus Energy Inc., for example, has scientists working on 50 separate projects. The company has historically taken a cautious approach to patenting, which is a costly and lengthy process that can take scientists away from the work of making and perfecting new discoveries.
The company is currently in the midst of a substantial change, however, as it looks to patents as a potentially lucrative new source of revenue. Patented technology has already proven its value to Cenovus, which has used patents as a negotiating tool in deals: Cenovus has offered to throw in its patents as an extra value to strengthen its hand in land swaps. To ensure it can continue doing that in the future, it is preparing to educate staff on the importance of patents. That marks a substantial shift for a company that has, in the past, not patented some of its most important advances.
"Our goal historically wasn't to make money off these things. We didn't know how successful we would be," said Harbir Chhina, executive vice-president of enhanced oil development and new resource plays for Cenovus. "Going forward, do I believe we can make money off this? Yes. So I'm geared toward more patenting going forward."
It's a mandate from the company's top leaders.
"One of the first things our board of directors asked me for when Cenovus was formed [in late 2009]was research and development and technology development," Mr. Chhina said. "So that focus has really increased. The term we use is the status quo is unacceptable, and we have to continue to find better ways to recover this oil with less energy, environmental impact and greenhouse gases."
If Cenovus succeeds, it can potentially boost its profit margins - and shut out other companies from doing the same. That prospect has already triggered a legal battle between it and Suncor. In February of 2010, Cenovus was granted a patent for techniques related to steam-assisted gravity drainage, or SAGD, which uses high-pressure injections of steam into underground wells to melt out oil sands bitumen without mining it. Two months later, Suncor brought a legal challenge, claiming that the patent "is and always had been invalid and void." It accuses Cenovus predecessor Encana Corp., which filed the patent, of effectuating "fraud on the Patent Office" by trying to patent something it shouldn't be allowed to patent.
Cenovus, in a statement of defence, says that with few exceptions, it "denies each and every allegation" made against it by Suncor. The matter has yet to go to trial, but the fact that Suncor is attempting to quash a patent illuminates the power intellectual property has conferred upon those who obtain it.
"There's so many more players in the oil sands that people really do have to protect their technology in order to have a competitive advantage," said Roseann Caldwell, a lawyer with Bennett Jones LLP who serves as the secretary of the Intellectual Property Institute of Canada.
"If you look traditionally at the oil and gas area, people were kind of like good old boys, and so people did business on a handshake - and patenting was the same way," she said. "Today, people are much more sophisticated. They realize that in the business world, you need to build a patent portfolio as an asset."
Still, even some of the most innovative companies in the industry remain reluctant to pursue patents. Product development sometimes moves so fast that by the time a patent is issued, a technology is outdated. The constant movement of staff between firms makes it hard to keep anything proprietary in a city like Calgary. Firms sometimes stand to gain more by sharing than protecting technology - as oil sands firms demonstrated late last year when they agreed to give away the results of expensive research programs into effluent cleanup, in hopes that what's good for the entire industry is good for each individual company. And patenting is not always worth the cost.
"Sometimes you're better not to patent stuff. It takes time and effort. And when you're done, you reveal everything," said Mr. Ramsay, with Calfrac. "The other side is, if you're going to patent something, you better have the will to protect it and fight it."
But larger issues are also at stake. Though major intellectual property cases have shown the huge value that patents can unlock, such as the $612.5-million settlement NTP Inc. was able to secure from Research In Motion Ltd. in 2006, Canadian firms remain well behind their U.S. counterparts. In the past decade, U.S. patent filings have doubled. In Canada, the rate of growth has been a quarter as strong.
The oil and gas sector has also been criticized for its lack of research spending, despite its increasing reliance on innovation.
"A typical pharmaceutical company will spend 15 per cent of revenue on research and development. Canadian oil and gas companies are spending half a per cent," said Stephen Larter, a professor of petroleum geology at the University of Calgary who serves as chief executive officer of Gushor Inc., a university spinoff company.
Most oil sands firms, for example, are using "technologies that came out of the 1980s," he said. "We're using 30-year-old recovery process technologies. You don't drive a 30-year-old car or use a 30-year-old computer."
He faults, in part, industry for counting on the rising price of oil to paper over inefficiencies. There is little incentive to invest in better ways of extracting crude when $100 (U.S.) oil will make everything profitable, he said. And though the recent surge in patents suggests change is coming, Mr. Larter believes much more needs to be done.
"We need to be technology providers, not just oil and gas providers," he said.
For this country to truly succeed as a global energy leader, rather than a mere exporter of crude, it will take annual research spending of about $15-billion, or roughly 1 per cent of the country's annual gross domestic product, he said.
That is, he points out, far less than the 2 per cent of the economy that is devoted to Christmas spending.
"To me, this whole energy technology area is one where Canada should be leading the world. That means we might have to put our hands in our pockets. So let's spend half of Christmas," he said. "The [oil and gas]resources are here. This will take an organizational and strategic decision, and that means leadership at the very top."
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TOP 10 PATENT APPLICANTS IN CANADA
Only one of Canada's top 10 corporate filers is an oil and gas company
1. Research In Motion 458
2. Procter & Gamble 389
3. General Electric 337
4. Qualcomm Inc. 289
5. BASF SE 224
6. Schlumberger Canada Ltd. 216
7. 3M Innovative Properties 196
8. Novartis AG 188
9. Boston Scientific Ltd. 184
10. F. Hoffman-LaRoche AG 176
Source: Canadian Intellectual Property Office
Nathan VanderKlippe