Halliburton takes fracing fight from oil field to patent office

WASHINGTON D.C., HOUSTON and WILMINGTON, Delaware (Bloomberg) -- Halliburton isn’t content to limit its battle for market share with Schlumberger to the oil field these days. It’s opened a new front in an unlikely place: the patent office.

The Houston-based provider of drilling services is waging an aggressive campaign to persuade the U.S. Patent and Trademark Office to cancel some of Schlumberger’s fracing-related patents, telling the agency they’re not inventions but old ideas repackaged. At the same time, Halliburton is pursuing more patents and was awarded 35% more in 2017 compared to the previous year.

“They’re the two big dogs in the space,” said J. David Anderson, an analyst at Barclays. “Halliburton and Schlumberger have been battling for that top spot in North American services for a decade, so the fact they’re going after each other with patents is not surprising.”

Halliburton has long been the top North American contractor while Schlumberger has dominated international markets, but they’ve been increasingly encroaching on each other’s turf as crude recovers from its worst crash in a generation.

In North America, Schlumberger is directly challenging Halliburton’s title as the top fracer after recently acquiring roughly 1 million horsepower-worth of rock-crushing pumps from Weatherford International Meanwhile, Halliburton grew at a faster pace in all international markets than Schlumberger in the final three months of last year.

Fracing, also known as hydraulic fracturing, blasts water, sand and chemicals underground to release trapped oil and gas.

Oilfield service providers such as Halliburton and Schlumberger are being asked by their customers for greater technology to help them do more with less so they can be more prudent with spending and return cash to shareholders.

“Everybody’s fighting for that small little edge,” said James Wicklund, an analyst at Credit Suisse in Dallas. “You’re already so deep in technology it’s ridiculous.”

Patents can help provide an edge and Halliburton has racked up some early wins. Since December, the Patent Trial and Appeal Board has agreed to review the validity of six Schlumberger patents after making a preliminary finding that Halliburton had shown a “reasonable likelihood” of winning its arguments.

Schlumberger has given up on one of the patents; and the board is considering Halliburton challenges on four others. Final decisions on the patents under review are expected by the end of the year.

Among the Schlumberger patents Halliburton has challenged are those covering the use of fiber optic tools to monitor interior well conditions, sensors to collect temperature readings across a broader area and ways to more precisely control where the fracing fluid goes.

Halliburton, in several petitions, said the patents are simply “a classicsituation where known elements are combined according to known methods to yield predictable results.”

Emily Mir, a spokeswoman for Houston-based Halliburton, said the company focuses its own research “on products and services that will improve efficiency and enhance production while reducing costs for its customers.” As for the Schlumberger patents, the company “cannot comment on pending disputes,” she said.

Schlumberger, in filings with the patent board, rejected Halliburton’s characterizations. In individual responses, one patented invention provided “many advantages and efficiencies” while another was “a significant advance” over earlier techniques, company lawyers wrote.

Officials with Schlumberger, based in Houston and Paris, didn’t immediately return messages seeking comment.

There’s no guarantee that the patent board will invalidate Schlumberger’s patents, despite its reputation as a “death squad” with a high rate of ruling against patent owners. Baker Hughes tried to challenge one owned by Schlumberger’s Smith unit, for a drill bit to widen a hole. In a Feb. 1 decision, a three-judge PTAB panel said Baker Hughes hadn’t proven its case.

Even as it attacks Schlumberger’s patents, Halliburton is on a record pace to obtain its own, putting it in the neighborhood of tech heavyweights like Oracle and Micron Technology. The company received 738 patents last year, making it No. 44 in the list of recipients, according to a study by IFI Claims Patent Services, a unit of Fairview Research LLC.

It was the only oil-and-gas company in the list of IFI’s top 50 recipients, which was dominated by companies involved with electronics, software and automobiles. Baker Hughes, now controlled by General Electric, was No. 74 on the list, with 496 patents, and Schlumberger was 86, with 434 patents.

“It is striking how fast Halliburton has grown” since 2009, said Larry Cady, a senior analyst with IFI who took a look at Halliburton’s patenting. Schlumberger and Baker Hughes “do not show the same trend.”

Among the patents Halliburton received last year were ones for modeling software to improve the efficiency of fracing, a downhole tool that limits hydraulic pressure, and a gel breaking system that Halliburton says is more environmentally acceptable.

It can take two or more years to obtain a patent, so the new ones reflect years-old investments. Halliburton also is getting patents through acquisitions as it tries to keep up with the next-generation upstarts that are developing new ways to boost output and avoid downtime in old wells.

So far, there’s no sign that Schlumberger is striking back at Halliburton’s patents. Instead, in October it challenged a patent owned by EnerPol LLC, founded by a former ExxonMobil researcher, that had filed a patent-infringement suit over technology to create wide fractures near the wellbore.

Schlumberger said in its petition that fracturing for oil and gas wells is a 70-year-old technology, and EnerPol’s patent covers “well-known fracturing steps.”

Other suits last year included ones by Canada’s Trican Well Service against Preferred Proppants LLC, over the material that keeps the fractures open once they’ve been created. Technologies that have been the subject of patent disputes also include a type of equipment called a dart that creates a seal, a step required for fracing. The patented method allows for higher hydraulic pressure than known methods.

Those types of disputes have been going on for decades and rarely result in any definitive blow against a competitor, Wicklund said. That doesn’t mean they don’t have value to the challengers.

“The longer you can keep your opponent off balance, then the more opportunity you have to grab that small part of market share,” Wicklund said.