TELECONFERENCE BRIEFING BY CEO RIGGS ECKELBERRY - November 14, 2019
Transcription from recording
Riggs: Good evening everyone. It is the 14th of November and lots of interesting things are happening, so I'm going to get right on to it. Today I was on Money TV talking about our return to the Permian. A couple of years ago, we had a project on the Permian that went well. It actually generated a bunch of royalties for us. My brother was working with a licensee there doing a good job of sweetening the crude, by essentially oxidizing the water, that killed the rotten egg smell. What came of it was that the licensee retired, and that was that. So recently though, one of our good friends from that period, who I've codenamed Dennis in our CEO update, because I just don't want to trip into a disclosure of non-public material information.
We had a discussion today with him and, he, as I was saying, has had a large exit. He sold his last deal for $300 million and he's a very capable guy. So, we like him and we got into different scenarios. The original idea of handling the sand wash is a good idea, and we want to jump onto it. But what's even more interesting is the saltwater disposal wells, because there is a shortage of water in the Permian and these salt water disposal wells are receiving all this dirty water and the whole idea is to recycle that water, turn it into reusable water for fracking. Well that gets into all of the details of how do you get it back up to the quality of frack reinjection water. The frack water when it goes back down can’t have salt for example. Also, the used water has fracking gel and the gel coats the anodes, which stops the electrical reaction. So, there are very interesting details to it.
But we did build a system successfully in Bakersfield and there are videos of me and my brother drinking the water which had previously, up to a few moments before, been quite nasty. We built that system quite successfully. It is an interesting story what happened there in Bakersfield, because it really tells you that you don't want to chase regulatory opportunities because regulatory opportunities all too often are defeated the good old American way, which is lawyers and politicians and so forth.
Sure enough, the reason we were invited into the Kern County area was a political reason. I'm not going to get into it, but all of a sudden that political reason went away, somebody in Sacramento was very, very helpful and all of a sudden there was no more regulatory reason for that industry to do anything about its water. So they went back to doing things the way they had been. That was a tough lesson. It taught us that you have to have a profit motive for all the deals that you do, certainly in water. If you rely on regulation, too often the users will find lawyers to do the job much cheaper or politicians they can pay off much cheaper than doing the actual project.
So that's the case in the Permian right now with the shortage of water. And the SWDs, the salt water disposal wells, have this interest: first of all, they're receiving water they're putting down the well and it's quite safe, it's sent 20,000 feet down. But it's never coming back! Eventually this salt water disposal well is going to fill up and will have to be capped and it's all over. So the life of that well is basically how much capacity does it have? It has the value of whatever remaining capacity there is. Now, if you can recycle the water coming in, in other words, don't put it in the well, A: you're providing water to sell. If you've been paid to receive the water and now you get to reuse it, you get to turn around and clean it up and sell it again, plus B: you didn't fill up your well.
So saltwater disposal wells have this unique opportunity, it’s a profit opportunity. We like that and we like profit because that drives deals better than regulation. So, that's going well and we're in discussions to build a demo system, which is going to be a proof point and it's going to be very much like the one we built in Bakersfield. We know we can do that and then we plan to be in the frack business.
Now one area in frack we don't want to get into is the what you might call end-to-end frack water cleanup. We've learned that is a very complex process that is controlled by the major, major players. It's very difficult to get deals in that area. We learned this very painfully years ago because there's a lot of sensitivity on the oil rig platform to any downtime, so they want to know this thing is going to be perfect. If you’ve ever looked at a diagram of a frack water cleanup system, it's quite interesting. What we like here is doing some of the niche opportunities, some of the specialized deals that are simple and doable and that we've done before. That's what that is about.
Another cool thing that's happening is that I am off on a plane. We've had this big win in Spain where this key area of manure effluent has been tamed by these excellent Spaniards. Spain is, despite being a small country, third only behind China and the U S in terms of pork production. They're huge, huge pork producers. So what they do is they have all these pig farms, hog farms, and these farms have lagoons and the lagoons fill up and after a while, they’ve got to do something.
So, these people created a company and they themselves are a very large pork producer. Montajes Longares is the name and they created a company called Depuporc. Depuporc created this system successfully using Electro Water Separation™ (EWS) and Advanced Oxidation™ (AOx) EWS+AOx for a complete product. By product, I mean a complete system that does everything. You don't have to figure out more than that. You simply figure out what size you want, it's repeatable. Bill Charneski is going over there. We've also signed up another licensee in Romania called AquaPro and they are also in that same business and also they're very strong in the Middle East. They are going to be witnessing this demo system in Spain.
We're sending also a videographer to take shots of it all because if there's one thing I've learned it is that engineers take very poor photos and videos of what they do. They'll take a picture of a pump, but they'll never take a picture of two people in front of the pump because that would get in the way, right? They're all about the pump not the people. So, I'm sending a videographer and I finally decided I should go too, because what we want to do now is to market worldwide what they've created there. They are interested in Spain and Portugal. That's what they do, maybe something in Europe, but certainly not Southern Asia or Africa. So, we are planning to work with their particular invention and license it for the rest of the world, make them a contract manufacturer for Europe and then also create contract manufacturers in Texas, Asia.
So it's very exciting because there are manure effluent opportunities everywhere. It's a huge space and we have proven that this [technology] does it. That's very, very exciting. We have the Romanians who are strong in the Middle East for reasons I don't know, but they are. And then on top of it, we have some opportunities in Wisconsin with the dairy farms there to do a lot of manure cleanup.
Otherwise things are going well. We're getting more sophisticated with our accounting activities, tracking what we do with our jobs. Tom Marchesello, our COO, has been implementing a CRM, customer relationship management system -- called Insightly, which is very, very good because it is perfect for our kind of business.
It does really good project management and we're going to implement that across the boards. Also, Modular Water Systems™ is becoming integrated with Progressive Water in Texas so they’re all one happy family.
Another cool thing that is coming out of our Texas operation is they do a lot of custom jobs all year long. They'll do a custom job and then they move on. For example, one day I was touring the place and there was a trailer in there, filled with equipment. I said, “What's that?” And Marc Stevens said, “Well that is a pool cleaning company in Houston, Texas.” You know, the fact about pools is that you can only shock them so many times. You can only throw chlorine in them so many times and then eventually what you have to do is replace all the water with a fresh load of water. Well that uses up a lot of pool water, many thousands of gallons get thrown away. So, this guy had the bright idea to basically do a dialysis, to have a trailer that would come along and it would run the pool water through this cleanup system and put it back in and you would then have a completely refreshed pool. It was so successful that he was planning to have I think a total of six in the Houston region.
So, I was talking to Tom today and I said, “This is a really cool product!” We realized that what we need to do, is to treat our custom work (because the problem with custom work is it’s very hard to increase its scale. How do you scale it up?) Well, how you do it is you treat it kind of like a technology development organization. You go, all right, they go after whatever they do which is fine and then, you have a product and you can take [for example] this pool dialysis, this pool recycling technology, and offer it elsewhere as a standardized thing.
So that is the breakthrough, because I have to tell you guys that the bane of our existence in water is that everything seems to be custom. It doesn't have to be, but engineers are engineers and they love to spend a lot of time on a project and it also, a lot of clients take advantage of you and they will let you do all the engineering for free. So fine that's how it is, it's a very competitive market, that's what it takes. But, what we get out of it is these standardized products, just as we're getting from the Spaniards next week, just as we hope to get in the Permian, just as we can do with this, this pool system, there's a number of ways we can cut it. There are a couple of interesting products we're developing, for example with our Indian partner Permionics. I can't really talk about those but that's the direction we are going.
The last thing I wanted to get into in this quick update, is that we are continuing to make progress on the acquisition line. More people are showing up or want to do it and in fact we think that we can. One thing we're very good at is raising money. Well we can create an offering for the specific purpose of funding these acquisitions and that of course is asset based. So that's applying one of our really proven capabilities and I'm quite sure that we're going to get something done soon because we have so many different ways you can finance these deals, and these people are wonderful because they stuck around. So, I'm extremely pleased with what is going on here and you're going to be hearing more about that.
I also really appreciate the support that you're giving on the investment in the company, and I want to warn everyone who is accredited. That is, we're going to be getting much more restrictive, I mean it's really pretty generous, it's an amazingly generous offer and we're going to start, taking it away. And as the end of the year comes, it's going to start becoming less and less generous, shall we say. So that's the story on this 14th and number to call for Ken is 323-939-6645 and he's at extension 201 and then we have Devin, at extension 116 and Michael has joined us.
Michael Mann is our VP of corporate sales. So, he sells our commercial systems. But because we're wrapping things up, I really wanted him to reach out to a lot of our existing investors and make sure that they understand that they have this special offer and also to get feedback on my behalf. He doesn't do this for living. He's really doing this as a favor and he is wonderful. I really appreciate his hard work and if you want a plain talking guy, you call Michael at extension 206 (323) 939-6645 extension 206 and let's get you guys on board because we're locking down for what I think is going to be amazing year next year.
Right now the focus is trying to get as much as we can during the holidays. Lots of good productivity going, big projects that need to be completed, lots of backlogs and so forth, which is great. The forecast looks fantastic. We're chewing our way through the work. Everyone's very, very busy and now we just, our task is to try to stay busy through Thanksgiving and the holidays, which of course we will.
Thank you. Everyone have a wonderful evening and see you next week. Hopefully I'll be speaking to you from Barcelona and thank you very much for what you do.