Frac Shack Inc. v. AFD Petroleum Ltd.

Frac Shack Inc. v. AFD Petroleum Ltd.
Court (s) Database
Federal Court Decisions
Date
2017-01-26
Neutral citation
2017 FC 104
File numbers
T-2149-14
Decision Content
Date: 20170126
Dockets: T-2149-14
Citation: 2017 FC 104
Ottawa, Ontario, January 26, 2017
PRESENT: The Honourable Mr. Justice Manson
BETWEEN:
FRAC SHACK INC. AND FRAC SHACK INTERNATIONAL INC.
Plaintiffs/
Defendants by Counterclaim
and
AFD PETROLEUM LTD.
Defendant/
Plaintiff by Counterclaim
JUDGMENT AND REASONS
Table of contents
I. The Pleadings 4
II. Summary of the Results in this Action 5
III. Background 7
A. The Parties 7
B. Technology Background 8
(1) Hydraulic Fracturing 8
(2) Hot refueling 9
C. The ‘567 Patent 11
IV. Frac Shack Fact Witnesses 14
A. Jeffery Todd Van Vliet 14
B. Peter Chernik 18
C. Scott Van Vliet 19
D. David Lamberton 20
E. Bruce D. Garland 21
V. Frac Shack Expert Witnesses 23
A. Douglas G. Smith 23
B. Kevin P. Matiasz 24
C. Colleen Basden 24
VI. AFD Fact Witnesses 25
A. Shane R. Ohman 25
B. Dennis Brodersen 27
C. Michael Power 28
D. Dale Reimer 29
E. Mark Bader 33
F. Curtis Small 35
VII. AFD Expert Witnesses 36
A. Richard N. Berry 36
B. Andrew Colin Harington 37
VIII. Preliminary Issues – Admissibility of the Expert Reports 38
A. Infringement and Validity Reports of Douglas Smith and Kevin Matiasz 38
(1) Mohan Objection 38
(2) Improper Reply Evidence 40
B. Expert Report of Richard Berry 42
C. Conclusion – Preliminary Issues 43
IX. Claim Construction 43
A. Relevant Date 44
B. Person of Skill in the Art (POSITA) 44
C. Common General Knowledge 47
D. Prior Art 50
E. Claim Terms Needing Construction 51
(1) Automatic 52
(2) Fuel Cap 55
(3) Work Site 59
(4) Valve Arrangement 61
(5) Pump On The Line 62
X. The Law – Principles of Utility, Obviousness, and Infringement 63
A. Utility – Sufficiency 63
B. Utility – Claims Broader 65
C. Obviousness 66
D. Infringement 67
XI. Sufficiency of the ‘567 Patent 68
XII. Claims Broader in the ‘567 Patent 70
A. Fuel Level Sensor 70
B. Valve at Fueling Unit 71
C. Work Site 73
D. No Location 75
E. Threaded Fuel Cap 75
F. Dry-break Connections 76
G. Conclusion on Claims Broader Than Any Invention Made or Disclosed 77
XIII. Obviousness 77
XIV. Infringement 82
A. Pump On The Line 84
B. Fuel Cap or Fuel Delivery Connection 85
C. Automatic Valves 86
D. Controller and controller enabled automated refueling 87
E. Conclusion on Infringement 89
XV. Monetary Relief 90
A. Accounting for Profits 90
B. Calculation of Profits 93
(1) Gross Profits from Infringement 95
(2) Non-infringing alternative 99
(3) Conclusion 100
C. Reasonable Compensation for the Pre-Grant Period 100
D. Punitive Damages 103
XVI. Injunctive Relief 106
XVII. Costs 106
I.
The Pleadings
[1] This action concerns the validity and infringement of Canadian Patent 2,693,567, entitled “Fuel Delivery System and Method” (the “‘567 Patent”). The ‘567 Patent was filed on February 16, 2010; published on October 21, 2010; and issued on September 23, 2014. The owner of the ‘567 Patent is Frac Shack Inc. (“FSH”).
[2] The Plaintiffs in this action are FSH and Frac Shack International Inc. (“FSI”) (collectively, “Frac Shack” or the “Plaintiffs”). The Defendant is AFD Petroleum Ltd. (“AFD” or the “Defendant”).
[3] The Plaintiffs assert that the Defendant has infringed claims 1 to 4, 7 to 13, 15 to 23, and 26 to 38 of the ‘567 Patent, through the design and operation of a fuel delivery system known as the AFD Onsite Refuelling System (the “AFD Frac Trailer”).
[4] The Defendant asserts that the AFD Frac Trailer does not infringe the ‘567 Patent, and counterclaims that the ‘567 Patent is invalid because: (i) it is obvious; (ii) there is insufficient disclosure in the patent; and/or (iii) the claims are broader than the invention made or disclosed. At trial the defence of invalidity based on ambiguity was abandoned.
[5] The following issues are raised:
1) Preliminary issues:
Should portions of the expert reports prepared by Douglas Smith and Kevin Matiasz be struck?
Should portions or the entirety of the expert report prepared by Richard Berry be struck?
2) Patent infringement and validity:
Validity:
Are claims 1 to 38 of the ‘567 Patent invalid because the disclosure fails to provide sufficient information for the person of ordinary skill in the design of fuel storage and delivery systems to successfully carry out the purported invention?
Are any of claims 1 to 38 of the ‘567 Patent invalid because the claims are broader than any invention made or disclosed in the specification?
Are claims 1 to 38 of the ‘567 Patent invalid because of obviousness?
Infringement:
Are any of claims 1 to 4, 7 to 13, 15 to 23, and 26 to 38 of the ‘567 Patent infringed by the AFD Frac Trailer:
before September 23, 2014;
between September 23, 2014 and October 18, 2014, or
after October 18, 2014?
3) Remedies:
Are the Plaintiffs entitled to injunctive relief, damages, and/or accounting for profits from the Defendant?
II. Summary of the Results in this Action
[6] The results in this action are:
1) Preliminary issues:
The expert reports prepared by Douglas Smith and Kevin Matiasz are admitted in their entirety.
The expert report prepared by Richard Berry is admitted in its entirety.
2) Patent infringement and validity:
Validity:
Claims 1 to 38 of the ‘567 Patent are sufficient.
The following claims are broader than any invention made or disclosed:
claims 1 to 6, which fail to disclose a fuel level sensor;
claims 16 to 18 and 32 to 37, which disclose use at a work site, not use during fracturing operations at a well site; and
claims 20 to 26, which disclose a fuel delivery system, the use of which is not limited to any specific location.
The ‘567 Patent was issued on September 23, 2014. Before this date there was no infringement.
It is admitted by the Defendant that AFD infringed claims 11 and 12 between September 23, 2014 and October 18, 2014, and further the following claims were also infringed:
claim 7;
claim 8;
claim 9;
claim 13;
claim 15, as it depends on claim 13;
claim 19, as it depends on either claim 16 or 17;
claim 28, as it depends on any of claims 7, 8, 9, or 19 (as it depends on either claim 16 or 17);
claim 31, as it depends on any of claims 7, 8, 9, 19 (as it depends on either claim 16 or 17), or 28 (as it depends on any of claims 7, 8, 9, or 19 (as it depends on either claim 16 or 17)); and
claim 38, as it depends on claim 32.
claim 7;
claim 8;
claim 11;
claim 13, as it depends on claim 11;
claim 15, as it depends on claim 13 (as it depends on claim 11);
claim 19, as it depends on either claim 16 or 17;
claim 28, as it depends on any of claims 7, 8, or 19 (as it depends on either claim 16 or 17);
claim 31, as it depends on any of claims 7, 8, 19 (as it depends on either claim 16 or 17), or 28 (as it depends on any of claims 7, 8, or 19 (as it depends on either claim 16 or 17)); and
claim 38, as it depends on claim 32.
The following claims were infringed by AFD after October 18, 2014:
Claims 1 to 15, 19, 27 to 31, and 38 of the ‘567 Patent are not obvious.
Claims 7 to 15, 19, 27 to 31, and 38 are valid.
Claims 10, 27, 29, and 30 are valid, but not infringed by the AFD Frac Trailer.
Infringement:
3) Remedies:
The Plaintiffs are entitled to injunctive relief, an accounting of profits for infringement, and reasonable compensation for use prior to September 23, 2014 from the Defendant, as specified below.
III. Background
A. The Parties
[7] FSH is an Alberta-incorporated company, which carries on business as a manufacturer and operator of oilfield equipment, including fuel delivery systems for the oil and gas industry. Its products include the Frac ShackTM fuel delivery system (the “Frac Shack System”), which is an embodiment of the ‘567 Patent. FSH is the owner of the ‘567 Patent.
[8] FSI is a corporation incorporated pursuant to the laws of Canada, which carries on business as an operator of oilfield equipment, including fuel delivery systems for the oil and gas industry. FSI is a wholly owned subsidiary of FSH and at all material times has been a licensee of FSH, in respect of the ‘567 Patent and the Frac Shack System technology. The Plaintiffs market and operate the Frac Shack System in Canada.
[9] AFD is an Alberta-incorporated company, which carries on business as a designer, manufacturer, operator, distributor, and seller of fuel delivery systems for the oil and gas industry. Its products include the AFD Frac Trailer.
B. Technology Background
(1) Hydraulic Fracturing
[10] Hydraulic fracturing is the process of pumping fluids down into a subterranean wellbore to create pathways which enable the oil or natural gas to flow to the surface, so as to maximize the extraction of oil or natural gas. Hydraulic fracturing is typically used on “unconventional formations”, in which horizontal drilling is used to extract oil and natural gas that is unable to flow naturally to the surface.
[11] Creating these horizontal wellbores requires a high volume of hydraulic fracturing. Current unconventional formations require many stages of hydraulic fracturing for the wells to become economically viable. This is generally done through the use of multi-stage, high rate and high volume hydraulic fracturing treatments.
[12] A hydraulic fracturing operation at an unconventional formations requires large quantities of supplies—fuel, fracturing fluids, chemicals, and proppants (solid materials designed to keep an induced fracture open)—and many large portable pieces of equipment. The portable equipment, which generally includes at least one diesel engine and at least one diesel fuel storage tank, is transported on trailer units to the location by diesel tractors. The typical unconventional gas hydraulic fracturing operation would have between 24 to 30 tractor-trailers on location.
[13] Fracturing operations at unconventional wells sites usually involve multiwall pads, which can contain 2 to 24 or more wells, to increase their economic viability. Ideally, these fracturing operations would operate 24 hours-a-day. However, a logistical constraint on the operation requires the delivery of fuel to each piece of equipment used at the location. While a fuel shortage may merely result in down time while the equipment is refueled; it may also result in significant wellbore problems—such as, damage to the formation resulting in an inability to complete the fracture treatment—if the shortage occurred during one of the fracturing treatments.
[14] In order to minimize the risk of fuel shortages, fuel levels are continuously monitored and fuel tanks are refueled as needed. The fuel tank used on most fracturing equipment allows the unit to operate three to four hours under normal operating conditions. Refueling is ideally done between fracture treatments. However, in some operations the fuel tanks have to be refilled while the equipment is operating due to the length of time needed to complete the fracture treatment. Refueling while the fracturing equipment is operational is known as “hot refueling”.
(2) Hot refueling
[15] Prior to 2010, refueling of fracturing equipment was done by a worker pulling fuel-laden hoses to each piece of equipment’s fuel tank and manually discharging diesel fuel into the tank (“manual hot fueling”). Manual hot fueling was and is a dangerous and difficult task as it typically requires workers to refuel as the equipment is operating, working between equipment that is spaced about a meter apart, with pumping equipment that is operating at high pressures.
[16] Due to the difficulties created by the fracturing environment and the equipment layout, manual hot fueling often requires a three-person crew: (1) a hose operator, who discharges the fuel into the tank; (2) a hose carrier, who helps drag the hose between the equipment; and (3) a fire watcher, who is equipped with firefighting equipment in case of an accident. Occasionally, there is a fourth worker, who is operating the fuel pumping equipment, and can shut down the fuel pump if necessary.
[17] The risk of fire using manual hot refueling may, on some fracturing sites, be quite high. Diesel vapours can be released into the atmosphere when the fuel tank caps are removed. These fuel vapours are heavier than air and can travel a considerable distance to sources of ignition and flashback, increasing the risk of a fire hazard. Spilled or aerosolized diesel can also ignite, particularly if in close proximity to the diesel engine, the temperature of which can exceed 400 ◦C when operating under heavy load.
[18] In addition to the fire risk, there are numerous other potential health and safety hazards associated with manual hot refueling:
Lifting hazards:
It is estimated that 100 ft. of hose can weigh over 100 pounds. The weight of the hose, plus the friction of dragging the hose may lead to operators incurring repetitive stress injuries from moving the heavy hoses between equipment.
Noise hazards:
Workers may be exposed to very high noise levels, and are required to wear multiple layers of hearing protection.
Confined space hazards:
The space between pieces of high pressure equipment is very narrow, and there may be tripping hazards depending on the weather, terrain, and layout of the site. There is commonly only a single point of safe entry and egress for the operators. Visibility and communication may also be an issue.
Air quality hazards:
Removing the caps of the fuel tanks releases diesel vapour into the air. Operators are also exposed to engine exhaust, and the air can be potentially oxygen deficient or enriched.
High temperature hazards:
The diesel engines operate at very high temperatures. During the summer, operators can be exposed to significant heat stress.
Spill hazards:
Spills may cause both a health and environmental hazard, and are a significant concern to oil and gas companies, and fracturing service providers.
C. The ‘567 Patent
[19] The ‘567 Patent discloses an apparatus and method for delivery of fuel to equipment or fuel tanks at well sites. The summary of the invention at pages 1 to 2 of the ‘567 Patent provides:
A fuel delivery system and method is presented for reducing the likelihood that a fuel tank of equipment at a well site during fracturing of a well will run out of fuel. There is therefore provided a fuel delivery system for delivery of fuel to fuel tanks of equipment at a well site during fracturing of a well …
A method is also provided for fuel delivery to fuel tanks of equipment at a well site by pumping fuel from a fuel source through hoses in parallel to each of the fuel tanks; and controlling fluid flow through each hose independently of flow to other hoses.
[20] The ‘567 invention is designed to replace the standard method of refueling equipment at a well site during hydraulic fracturing of a well, which is manual hot refueling. At a basic level, the technology is a system and method for delivery of fuel to fuel tanks comprising a fuel source, having plural fuel outlets attached to hoses which deliver fuel to individual equipment fuel tanks around the site independently of each other.
[21] The ‘567 Patent has five independent claims.
[22] Claim 1:
A fuel delivery system for delivery of fuel to fuel tanks of equipment at a well site during fracturing of a well, the fuel delivery system comprising:
a fuel source having plural fuel outlets;
a hose on each fuel outlet of the plural fuel outlets, each hose being connected to a fuel cap on a respective one of the fuel tanks for delivery of fuel to the respective one of the fuel tanks; and
a valve arrangement at each fuel outlet controlling fluid flow through the hose at the respective fuel outlet.
[23] Claim 11:
A method of fuel delivery of fuel to selected fuel tanks of equipment at a well site during fracturing of a well, the method comprising:
pumping fuel from a fuel source through hoses in parallel to each of the fuel tanks;
controlling fluid flow through each hose independently of flow in other hoses; and
automatically controlling fluid flow in each hose in response to receiving signals representative of fuel levels in the fuel tanks.
[24] Claim 16:
A fuel delivery system for automatic fuel delivery to multiple fuel tanks at a work site, comprising:
a fuel source comprising one or more manifolds connectable to one or more fuel source tanks by at least a respective one of one or more fuel lines, and a pump on each fuel line for pumping fuel from the one or more fuel source tanks to the one or more manifolds;
each manifold of the one or more manifolds having multiple fuel outlets, each fuel outlet of the multiple fuel outlets having a connection for a hose;
each hose having a first end and second end and being connected at the first end of the hose to a corresponding one of the multiple fuel outlets and having fuel delivery connection at the second end of the hose for securing the second end of the hose to a fuel tank to which fuel is to be delivered;
an automatic valve responsive to electronic control signals on each fuel outlet;
a fuel level sensor associated with each fuel delivery connection; and
a controller responsive to signals supplied from each fuel level sensor through respective communication channels to provide control signals to the respective automatic valves.
[25] Claim 20:
A fuel delivery system for delivery of fuel to a fuel tank, the fuel delivery system comprising a controller and a fuel source, the fuel source having one or more fuel outlets and for each fuel outlet:
a hose on the fuel outlet, the hose being connected to a fuel cap on a fuel tank for delivery of fuel to a fuel tank, a valve arrangement at the fuel outlet for controlling fluid flow through the hose at the fuel outlet, the valve arrangement comprising an automatically operable valve on the fuel outlet;
the cap including a fuel level sensor; and
the controller being responsive to signals supplied from the fuel level sensor through a communication channel to provide control signals to the automatically operable valve.
[26] Claim 32:
A fuel delivery system for automatic fuel delivery to multiple pieces of equipment at a work site, comprising:
a fuel source comprising one or more manifolds connectable to a fuel supply;
each manifold of the one or more manifolds having multiple fuel outlets, each fuel outlet of the multiple fuel outlets having a connection for a hose;
each hose having a first end and a second end and being connected at the first end of the hose to a corresponding one of the multiple fuel outlets and having a fuel delivery connection at the second end of the hose for securing the second end of the hose to a corresponding one of the multiple pieces of equipment to which fuel is to be delivered;
an automatic valve responsive to electronic control signals on each fuel outlet;
a sensor associated with each combination of fuel outlet, hose and fuel delivery connection; and
a controller responsive to signals supplied from each sensor through respective communication channels to provide control signals to the respective automatic valves.
IV. Frac Shack Fact Witnesses
A. Jeffery Todd Van Vliet
[27] Mr. Van Vliet is the President and a director of both FSH and FSI, and one of the inventors of the ‘567 Patent. He was a former owner and director of Environmental Refueling Systems (“ERS”), the company from which FSH was created. Currently, ERS is a fuel buying, selling, transporting, storage, dispensing and delivery company. One of ERS’s focuses is site fuel delivery for drilling programs, large construction projects, and large truck fleets.
[28] Mr. Van Vliet testified about the history of FSH, and the relationships between ERS, FSH, and FSI. He stated that ERS became involved in fueling at fracturing sites in 2009, when they got a call from a customer who requested that they do manual hot refueling at a site north of Fort Nelson. He described his experience and exposure to manual hot refueling at that site, and recounted that what he saw did not make any safety sense to him, because the approach to safety for manual hot refueling was simply to ensure that the worker doing the manual hot refueling was equipped with sufficient personal protective equipment to attempt to mitigate the hazards associated with the job.
[29] After witnessing the safety protocols at that first site, Mr. Van Vliet and his brother decided that they had to fix the problem of manual hot refueling. There were three goals: (1) get workers out of the dangerous hot zone; (2) reduce the amount of fuel spilled on the ground, which can cause both fire and environmental hazards; and (3) build redundancy into the system, such that each automatic system had a parallel manual system in the event of mechanical failure. He admitted that he personally felt that it was essential for the practical operation of the Frac Shack System for there to be a manual way to control the system, such that an operator could have oversight and control of the automated system if necessary.
[30] Mr. Van Vliet explained numerous design choices made regarding the Frac Shack System, particularly with respect to valve placement, line pressure, and fuel level sensors. Mr. Van Vliet stated that creating the Frac Shack System had been a highly iterative design process, and that they had a few early design failures. However, by January 2010, ERS had created a first prototype, and by the summer of 2010, they had an operational unit. He testified that, in 2010, Frac Shack System units were being displayed at the Global Petroleum Show, and by Halliburton Energy Services (“Halliburton”) in Calgary. He also revealed that the Frac Shack System had been at the 2012 Global Petroleum Show, where it was seen by people from AFD. He recalled that, at the 2012 Global Petroleum Show, he was introduced to “one of the Reimer brothers”, Mark Bader, and Mike Power.
[31] Mr. Van Vliet also recounted a job done as an efficiency comparison case study between manual hot refueling and the Frac Shack System, for Talisman Energy Inc., in Texas. He stated that the fracturing method being used was a method that could be run continuously, called “ball and sleeve”. He explained that the advantage of “ball and sleeve”—compared to an older method, called “plug and perf”—is that the fracturing equipment does not have to be pressured down between stages, because there is gap between stages and all refueling is done while there is pressure in the pumping equipment. He testified that Frac Shack was able to reduce the time gap between stages to four minutes, from one hour, and that this allowed the company to complete twice as many stages per day, reducing the length of the project by two full weeks. This resulted in cost savings for the producer.
[32] He explained that a knowledgeable person would be able to assemble the Frac Shack System with off-the-shelf parts, with the exception of two components which Frac Shack manufactures: the fuel cap, and the fuel manifold. Additionally, he testified that the early Frac Shack System units, which were completed in 2010, were still operational and being used in the field, in 2016.
[33] On cross-examination, he admitted that Frac Shack (then ERS) was working on finding an appropriate sensor during the 2009-2010 fiscal year, before they eventually settled on combining two off-the-shelf technologies to achieve a solution. Additionally, he conceded that they had to do some testing on three different pumps to determine which would give them the appropriate balance between delivery and not overpowering the system.
[34] He explained that the operation of the Frac Shack System was the sole business focus of Frac Shack and Frac Shack America Inc. (“FSA”, not a party to this action) and that FSI currently owns 46 Frac Shack System units. He stated that, in 2014, Frac Shack and FSA did not receive any requests to use one of the Frac Shack System units that the companies were unable to fulfill and that they had rented out the Frac Shack System units over 3,600 times, since 2010.
[35] The last job that Frac Shack did for Trican Well Service Ltd. (“Trican”) was in February 2014, and Trican had only been a Frac Shack customer since 2012. Further, Frac Shack’s relationship with Calfrac Well Services Corp. (“Calfrac”) was on and off, depending for which oil producer Calfrac was working. The last job Frac Shack did for Calfrac was in August 2015.
[36] He admitted that he did not know which method of refueling Calfrac was currently employing. Additionally, he admitted that some fracturing companies still find manual hot refueling to be an acceptable method of refueling, regardless of whether the equipment in the hot zone is depressurized. He stated that there was no one correct way for fracturing companies to perform a risk matrix and that companies may assess risks differently.
[37] Mr. Van Vliet also admitted that Frac Shack had been trying to get work from Trican and Calfrac, unsuccessfully, since 2014 and 2015 respectively. Additionally, he explained that it had been a business decision for Frac Shack to rent the Frac Shack System units independently of fuel sales. Based upon their pricing of the unit, plus the additional fuel costs, Frac Shack estimated to Encana Corp. (“Encana”) that use of the Frac Shack System—two units for the job—would be a savings of $20 per day over manual hot fueling.
[38] Mr. Van Vliet was a straightforward and credible witness.
B. Peter Chernik
[39] Mr. Chernik is a Professional Engineer and a member of the Society for Petroleum Engineers. Before retiring, he was the General Manager of Liquid Natural Gas Delivery for Nexen/CNOOC Limited (“Nexen”), a position he held for seven years. He has 39 years of experience in the oil and gas industry, and 20 to 25 years of fracturing experience.
[40] Mr. Chernik explained that, in the old days of fracturing, companies did fracs on vertical wells but, in 2006-2007, the industry changed, such that gas wells are now primarily horizontal wells with “many, many fracs at each of the horizontals”. He stated that, prior to 2010, when the jobs were small; there was enough fuel in the pumpers to finish a job before depressuring and refueling. However, once the jobs grew to need 20 to 25 pumpers running simultaneously, people were forced to do manual hot refueling because the pumpers would be running continuously day and night, with only approximately 20 minutes between fracs, which was not enough time to refuel all of the pumpers, without specifically stopping the operation to refuel.
[41] Mr. Chernik stated that he was familiar with the Frac Shack System, and that Nexen had used it for thousands of jobs since around 2011. He described the Frac Shack System as a “technology that was perfect for what [Nexen] needed”, since it was much safer, more efficient, and allowed for equipment to be placed closer together to reduce the pad’s footprint. He testified that, as soon as management at Nexen was aware of the Frac Shack technology, they wanted to use it at their job sites and, for Nexen, the Frac Shack System worked flawlessly. In his opinion, the key variable to choosing the Frac Shack System was the safety aspect, and the second variable was the ability to work more efficiently.
[42] On cross-examination, Mr. Chernik explained how and why companies performed multiple fracs at a well site, and admitted that there had been no real need at Nexen for Frac Shack’s technology prior to 2009.
[43] Mr. Chernik was a straightforward and credible witness.
C. Scott Van Vliet
[44] Mr. Scott Van Vliet is the CEO of ERS and one of the inventors of the ‘567 Patent. He recounted his first trip up to a Schlumberger fracturing site, in 2009, north of Fort Nelson in the Horn River Basin. He stated that ERS was delivering fuel from the fuel depot to the completions pad, and that their workers were doing the manual hot refueling for the operations.
[45] He testified that after he saw the manual hot refueling procedure he discussed the potential safety hazards with his brother (Mr. Todd Van Vliet). He stated that after running the first test with the prototype design, it was recognized that they needed to take the development of the Frac Shack System to a higher level of sophistication. To do this, they decided to spin-off the company FSH from ERS, with Todd Van Vliet at the helm. Mr. Scott Van Vliet elected to remain with ERS to take care of the daily operations.
[46] Mr. Scott Van Vliet stated that the Frac Shack System was a commercially popular product, and an important product from an efficiency and safety standpoint.
[47] There was no cross-examination of Mr. Scott Van Vliet. He was a straightforward and credible witness.
D. David Lamberton
[48] Mr. Lamberton has been the customer solutions and marketing manager at FSH since 2014. Previously, from 2013 to early 2014, he worked for Encana. At Encana, Mr. Lamberton was a commodities analyst, who was involved in looking at the direct sourcing of certain commodities for fracturing operations.
[49] Mr. Lamberton testified that he was involved in the decision to use the Frac Shack System at Encana. He stated that the group saw the Frac Shack System as a new, innovative technology that helped make operations safer. He explained that safety was a major factor in Encana’s decision to use the Frac Shack System.
[50] He stated that, while he was at Encana, AFD approached his group with their AFD Frac Trailer. He did not remember the specifics of the AFD fueling system, but he remembered the AFD Frac Trailer being similar to the Frac Shack System.
[51] Mr. Lamberton explained that, in his current position at FSH, he primarily promotes the Frac Shack System, finds new business, and manages existing customers. He stated that he highlights the safety and efficiency features of the units, when selling customers on the Frac Shack System, and that the system is marketed as a premium service at premium pricing. He stated that the average number of units rented per job is two on a pad.
[52] On cross-examination he stated that his group at Encana did not find that there were any real advantages in switching to the AFD Frac Trailer from the Frac Shack System. However, he admitted that he did not know whether the Encana engineers had looked at the AFD system to determine whether it met Encana’s technical requirements.
[53] Mr. Lamberton was a straightforward and credible witness.
E. Bruce D. Garland
[54] Mr. Garland is an engineer and the Managing Director of Drilling and Completions at WesternZagros Resources. Prior to working for WesternZagros, he was employed at Nexen, where, from 2009 to 2014, he was the Drilling and Completions Manager for the Horn River fracturing projects.
[55] He stated that he was familiar with the Frac Shack System, and that he thought that the system was an improvement over manual hot refueling. He testified that Nexen used the Frac Shack System in the summer, from 2009—when Calfrac introduced the technology to the company—at least until 2014. In 2011, Nexen separated refueling from the frac contractors, such that they contracted for each separately, and contracted directly with Frac Shack for use of the Frac Shack System.
[56] Mr. Garland did not recollect any environmental or safety issues occurring with any of the Frac Shack System units, and believed that Nexen had used the units for over one thousand jobs, on four or five different pads, during the time he was with the company. He stated that given the choice today, he would choose a Frac Shack System type of technology over manual hot refueling because of both the safety and efficiency benefits. He testified that he personally thought that the Frac Shack System was excellent, and that Nexen also realized data benefits that were used as part of their fracturing program optimization.
[57] On cross-examination, Mr. Garland admitted that he had no knowledge of Nexen’s operations outside of the Horn River Basin.
[58] Mr. Garland was a straightforward and credible witness.
V. Frac Shack Expert Witnesses
A. Douglas G. Smith
[59] Mr. Smith holds a Certificate in Occupational Health and Safety from the University of Alberta, and has been a Health Safety and Environment (“HSE”) Professional for 23 years. Mr. Smith is a HSE consultant in the Oil and Gas Industry, and is currently a safety consultant for a new technology LNG application and Co-Chair of Industry Recommended Practice (IRP) 8 Pumping of Flammable Fluids.
[60] Prior to becoming an independent consultant, Mr. Smith worked in house for oil and gas companies including GASFRAC Energy Services, Baker Hughes Canada Inc., and BJ Services Co. (now a subsidiary of Baker Hughes). He has 37 years of experience in the oil and gas industry. He is a Canadian Registered Safety Professional, and a member of the Canadian Society of Safety Engineering and the Institute of Hazard Prevention, Process Safety Discussion Group.
[61] Mr. Smith was qualified as an expert in health and safety at fracturing sites, including health and safety at well sites. A Mohan objection was made regarding the scope of his testimony and the admissibility of paragraphs 8, 30 to 41, and appendices A to C of his Construction and Infringement Report, and the entirely of his Validity Report. There was also a case-splitting objection raised regarding paragraphs 3 to 5, 54 to 91, and 106 to 110 of his Validity Report.
B. Kevin P. Matiasz
[62] Mr. Matiasz received a B.Sc. in Geological Engineering from the University of Saskatchewan in 1997. He is a practicing member of the Association of Professional Engineers and Geoscientists of Alberta, a member of the Society of Petroleum Engineers, and Co-Chair for Drilling and Completion Committee Industry Recommended Practice 24 Fracturing Operations.
[63] Mr. Matiasz is a Completions Advisor for Kandor Consulting Inc. Prior to starting Kandor Consulting Inc., he worked at Encana and Halliburton. At Halliburton, Mr. Matiasz worked as a Senior Technical Professional and then as a Senior Account Representative, roles which required him to rig-up and operate fracturing equipment. At Encana, he held multiple positions, including Completions Operations Manager for the Duvernay operating area.
[64] Mr. Matiasz was qualified as an expert in the field of completions engineering in the oil and gas industry including fracture and coil tubing design and fuel delivery to fracturing equipment at a well site. A Mohan objection was made regarding the scope of his testimony and the admissibility of paragraphs 10 to 17, 41 to 73, and appendix E of his Construction and Infringement Report, and the entirely of his Validity Report. There was also a case-splitting objection raised regarding paragraphs 6 to 8 and 44 to 45 of his Validity Report.
C. Colleen Basden
[65] Ms. Basden received a B.A. in Accounting from the University of Waterloo. She is a Chartered Accountant, and a Chartered Professional Accountant. She has been certified by the Canadian Institute of Chartered Accountants as a Specialist in Investigative and Forensic Accounting, and a Specialist in Business Valuation. She is also certified in Financial Forensics.
[66] Ms. Basden is a Partner of KPMG LLP, and a Senior Vice President in KPMG Forensic Inc. She has worked on a variety of assignments relating to the calculation of economic loss for litigation purposes.
[67] Ms. Basden was qualified as an expert in forensic accounting, including the calculation of damages and accounting of profits with experience in patent infringement actions.
VI. AFD Fact Witnesses
A. Shane R. Ohman
[68] Mr. Ohman is a manager at Legacy Petroleum, responsible for the day-to-day operations in Hinton; and the fuel delivery, maintenance and oversight of remote operations in Grande Cache, Alberta. He was previously employed with Trican, from 2009 to spring of 2015, as a field worker and then as a frac coordinator in Hinton.
[69] He testified that 90 to 95 percent of all refueling at the Trican sites, in 2014, was manual hot refueling. He stated that at some point Trican started using the Frac Shack System because Shell Canada Ltd. had contracted with Frac Shack for the project. He could not remember any other Trican customers that used the Frac Shack System.
[70] Mr. Ohman explained that, in order to minimize the safety hazards of manual hot refueling, Trican would connect a larger fuel tank to multiple “T manifolds” into the ground, from which they could run one-and-a-half-inch fuel lines to the pumper fuel tanks. This minimized the need for operators to drag the heavy fuel hose from one piece of equipment to another. He stated that this also minimized the need for workers to stand over the high pressure lines, because they could approach the fuel tanks from the tractor side of the equipment.
[71] He expressed that a drawback of the Frac Shack System was that the units he saw were not very mobile, because they were mounted on skids, and once the units were in place the other equipment had to be crowded around them. He further testified that he experienced billing issues, where Frac Shack was sending invoices to Trican late, making it difficult for Trican to get their paperwork completed on time.
[72] Mr. Ohman stated that he was involved in a 2014 decision to use the AFD Frac Trailer, and that the reason his team went with the AFD Frac Trailer over the Frac Shack System was that AFD’s trailer was more mobile and could be situated after the other fracturing equipment was assembled. Additionally, he thought that the company was easier to deal with regarding business issues. He testified that, in 2014, if the AFD Frac Trailer was not available, Trican would choose to manually hot refuel.
[73] On cross-examination, Mr. Ohman admitted that he was unaware that the Frac Shack had a more mobile trailer-mounted unit. He also admitted that it is not in Trican’s interests to get a fracturing job done faster, because their pricing depends on the length of time spent at the frac site. When asked to identify an email chain, to which he was copied, where Trican was asking Frac Shack for reduced pricing, he could not remember whether he had read the email.
[74] Mr. Ohman testified in a straightforward and matter of fact manner. However, he admitted that he could not remember, or did not know, many of the details of Trican’s operations during 2014.
B. Dennis Brodersen
[75] Mr. Brodersen is the owner of Legacy Petroleum. He explained that the current business of Legacy Petroleum is to look after and refuel fuel stations in Wildwood, Edson, Hinton, Grande Cache, and a remote fuel site. He stated that the fueling station at Grande Cache is a “card lock”, which is a fueling station that comprises remote tanks with sensors that record fuel levels and payments. He testified that the Legacy Petroleum services any industry that burns diesel fuel or gas (e.g., farmers, rigs, road construction, frac sites, and others).
[76] Mr. Brodersen stated Legacy Petroleum has been involved in manual hot refueling at frac sites, since 2006, and is currently a contractor for Trican. He explained that, today, fracturing equipment runs 24 hours-a-day and to help mitigate safety hazards at the site, his company sets up “T manifolds” that split the large refueling hose into smaller lines, which allows the operators to minimize their time in the hot zone. He related that the “T manifolds” would be hooked up to have up to ten lines, and that various lines could be isolated if they were unnecessary for a particular fueling job.
[77] He testified that, although Legacy Petroleum would be responsible for bringing in the fuel and setting up the “T manifolds”, most fracturing companies, such as Trican, would have workers on site to perform the actual manual hot refueling. He estimated that he has been involved in thousands of manual hot refueling operations, since 2006, including over 500 jobs for Trican, in 2014. He stated that he had never been shut down because of a safety incident.
[78] On cross-examinat