OILFIELD SERVICES, BLOCKCHAIN SMART CONTRACTS AND INTELLECTUAL PROPERTY ISSUES
| Jurisdiction | Derecho Internacional |
OILFIELD SERVICES, BLOCKCHAIN SMART CONTRACTS AND INTELLECTUAL PROPERTY ISSUES
David Issa
[Page 17A-1]
RICARDO COLMENTER is a Director of Entra Consulting. He was previously General Counsel for the Western Hemisphere of Weatherford International, a member of Halliburton law department, a Partner at Johnson and Cato, and a Legal Director of the Venezuelan Patent and Trademark Office. He holds a Juris Doctor (JD) degree from the Universidad Catolica Andres Bello, a Master of Laws (LLM) degree in International Intellectual Property from Lund University in Sweden, and an LLM in Intellectual Property and Information Law from the University of Houston Law Center. Mr. Colmenter is an adjunct professor at the University of Houston, guest professor at the Universidad de Nuevo Leon and lnstituto Tecnologico Autonomo de Mexico and participates as Lead Chairman and Program Director for advanced training courses for the legal and business development departments of national oil companies (NOCs) (such as Pemex, Petrobras, Petroecuador, and Ecopetrol) and regulators (Mexico's Comision Nacional de Hidrocarburos (CNH), Argentina's Energy and Mines Ministry, and Secretaria de Hidrocarburos del Ecuador) sponsored by the University of Houston, the lnstituto Tecnologico Autonomo de Mexico, Colombia's Universidad de la Sabana, NOCs and international oil companies (IOCs). In addition, he is the author of law books and law articles regarding international oil transactions, technology transfers in the oil industry, and oil and gas international business. Mr. Colmenter actively participates as a speaker at international seminars, symposiums, and colloquiums, and as an expert in workshops for oil production countries organized by the U.S. Department of Interior's Bureau of Ocean Energy Management (BOEM) and the U.S. Department of Commerce. His practice centers on transactional law with a strong business view, which involves structuring multi-milliondollar energy integral services contracts, mergers and acquisitions in the oil industry, and sophisticated oil and gas projects. He has more than 20 years of international business experience in the oil and gas industry, with a very extensive international network and very strong negotiation skills based on his experience as the Venezuela representative before the Andean Community and the Free Trade Area of the Americas (FTAA).
Introduction
Blockchain smart contracts are the only existing effective method by which smart agreements can work without a centralized checks-and-balances system relying on the distributed ledger, enabling counterparties in the oil and gas industry, in general, and in oilfield services, in particular, to automate transactions optimizing tasks that are typically performed manually, including, among many, supply chain transparency; waste management; regulatory compliance; well equipment identification and maintenance; workforce security and quality training certification;2 and the verification of the origin, development, use and ownership of the technology used by the contractor and subcontractors. Blockchain smart contract mechanisms can result in
[Page 17A-2]
integrated processes that are faster and more accurate and cost efficient for all parties involved, thus maximizing profitability for all and mitigating disputes.
What is Blockchain?
Briefly, "Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network."3 In English and by analogy, Blockchain is a note pad.4 Unlike a regular notepad however, Blockchain can be shared by the whole world at the same time and if anyone tries to change any of the information in the leger, warnings go off everywhere making it effectively impossible.5 The block in blockchain is analogous to a page in the example. The blocks are linked in a chain in order to keep the information safe and orderly.6 The order allows a network to store chunks of the information and to validate what is being stored. As a side benefit, providing storage services can get you bitcoins as compensation.7 All sorts of stuff gets encoded in the block where it can be referenced in future. Because you can't really erase or change content, this is a safe, permanent record of a transaction.8
Application in Oil & Gas Transactions
The upstream segment of the oil and gas industry is regarded as one of it's most complex and technology-intensive portions, with oilfield services companies deploying the majority of the applicable technology. Services companies invest a large amount of money on research and development; acquire new companies with big intellectual property asset portfolios; and seek new technology from universities and laboratories, competing for the best and the most efficient solutions to problems in the exploration and production of hydrocarbons for their operator clients.
[Page 17A-3]
In addition, during the provision of oilfield services, a large amount of confidential information (including seismic, geological, petrophysics and production data owned by the parties) are exchanged among them and such information must be delivered to regulatory agencies that control the upstream activities in the jurisdiction in which the services are performed. By allowing lots of individualized transactions, Blockchain smart contracts offer obvious possibilities, including evidence of creatorship, delivery of data, intangible property ownership and provenance authentication, registering and clearing intellectual property rights, and solving very common problems in the provision of services and products in the oil and gas industry. In addition, applying blockchain technology and smart contracts is the most efficient method of controlling and tracking the distribution of (un)registered IP and geological and production data, along with providing evidence of genuine and/or first use in or during the exploration and production of hydrocarbons. The sheer size and volume of contracts and transactions necessary to execute an upstream oil and gas project has historically caused significant intellectual property reconciliation, validation and tracking issues, including the exchange of technology and trade of intellectual property assets among operators, contractors, subcontractors and suppliers, in addition to significant challenges in managing logistics for supplies and tracking orders, and deploying inventory and exchanging proprietary data.
Here we analyze the benefits and challenges for business actors in the upstream oil and gas industry to adopt blockchain smart contract technology in upstream project activities, along with some intellectual property issues that may arise in technology and data transfer during the provision of such oilfield services. These issues will be examined under the context and perspective of both the operator and services companies in order to help understand the reality of smart contract technology and its potential use in upstream activities.
[Page 17A-4]
Oilfield Service Contracts
Services contracts can be classified in several ways, starting from the simplest contracts of pure services, as they are known in the industry, to the most sophisticated, complex and structured contracts, where management and execution of services are integrated with complex forms of compensation, and possibly financing, and may even assume or share production risks, in some cases.
The simplest form of services contract is a contract for pure services ("discrete services contracts"). These contracts can be defined as agreements in which a services company, acting as a contractor and on behalf of the operator, undertakes to provide a service related to the exploration and/or extraction of hydrocarbons in favor of the operator, for an agreed price. Classic examples of these contracts include contracts for drilling, cementation, testing and casing. In these cases, the services are provided individually by a services company that performs its services in an area where other contractors exist or provide similar services. By contrast, the operating company coordinates, manages, decides and orders when, how and where such services will be executed in relation to the other activities and/or services provided in the area. The operator is thereby fulfilling its drilling or development plan, whichever may be the case.9 Among many other benefits, the use of smart contracts for discrete service projects maximizes transparency, expedites payments and verifies compliance with the technical obligations in the contract. Done correctly, smart contracts can also reduce negotiation and facilitate understanding of the contract terms among the parties. Oilfield services companies that are performing discrete services are often not efficiently compensated after fulfilling their obligations
[Page 17A-5]
under the service contracts because they have to prove that such obligations or tasks were performed under the terms, conditions and satisfaction of the client ("operator"). Such proof relies on the performance of a separate team, other services companies or individuals, to prove completion of their tasks in order for the operator to compensate them. This causes a tremendous backlog in the reconciliation process, making staggering amounts of money liable as companies wait for compensation. By additionally not always contracting clearly such that the terms are well defined, the problem is exacerbated. With a blockchain smart contract as a shared, accessible ledger that collects and structures data, manages identity and ensures transparency, the financial reconciliation process would be more efficient, thus cutting down compensation time10 and fulfilling payment terms in the discrete services contracts.
Given the existence of large services companies that integrate a number of product and service...
To continue reading
Request your trial