Some thoughts prior to release of Quarterly Earnings Good afternoon from Canada's east coast
Over the last day or so, I have been utilizing due diligence when it comes to WEE’s business model, its position 6-12 months ago and its potential looking forward, into the next few quarters.
I have always been told, whether it is in the world of business (O & G in this instance) or one’s lived experience, that in order to have a sense as to what the future may hold in store, it is imperative to look at one’s past. In the case of WEE, I thought a good starting point would be the SPE Kingdom of Saudi Arabia (KOA) Annual Technical Symposium and Exhibition held in Dammam, Saudi Arabia between April 23-26, 2018.
The reason I chose the SPE is because WEE had the opportunity to spotlight its technology, by way of a Technical Paper, to the Society of Petroleum Engineers (SPE) and up to 5,000 influential O & G professionals from across the globe. The Paper, which now comprises one of the technical papers on WEE’s new, robust and demonstrably improved website, is written in what us academics would term “thick” language, keeping in mind the intended audience is not so much academia but more so engineers and other highly trained professionals in the O & G industry.
In the SPE Technical Paper, commencing at the first full paragraph on page # 9, it speaks to the “results” of four (4) dynamic fluid pulse stimulations in the Middle East, two (2) of these stimulations (P-1 and P-2) “completed on oil producing wells,” which are the same two (2) concerning which I would like to speak herein.
1
st, dealing specifically with P-1, prior to stimulation and utilizing WEE’s technology, P-1 had a “net oil production of 3.97 m
3/day (~25bbls/day)”; whereas, following stimulation, P-1 increased its net oil production “by an approximate factor of 5.5 to 22.53 m
3/day (~141bbls/day).” In layman’s investor terminology, this signifies that P-1 increased its net oil production by in excess of 500%.
2
nd, dealing specifically with P-2, prior to stimulation and utilizing WEE’s technology, P-2 had a “net oil production of 8.33 m
3/day (~52bbls/day)”; whereas, following stimulation, P-2 increased its net oil production “by an approximate factor of 2.25 to 19m
3/day (~117bbls/day).” In layman investor terminology, this signifies that P-2 increased its net oil production by in excess of 200%.
The argument could reasonably be made that these same two wells (P-1 and P-2) and corresponding net oil production are relatively small, compared to much larger wells in the Middle East, particularly in the KSA. It appears as if these two wells may have been “test” wells; however, as evidenced by the subsequent rapid adoption of more than 60 wells by the same “asset manager/production asset” in the KSA, the “test” on P-1 and P-2 obviously went comparatively well. Nonetheless, regardless of well size, if National Petroleum Services (NPS), WEE’s local distributor in the KSA, and its logging subsidiary, National Petroleum Technology (NPT), are willing to affix their names and respective reputations to the same Technical Paper, including Ahmed Abu Akar (WEE/NPT), Mazen Al Omari (NPS), Mohamed Amine Djelliout (NPT), and Djilali Shanoun (NPS); along with Brett Davidson, Koti Kolli, Dr. Tim Spanos (all three (3) with WEE); this is compelling and tangible proof in and of itself, signifies WEE’s technology actually works, and that highly skilled and knowledgeable professionals with NPS and NPT are willing to unequivocally state this in a public forum (in their own backyard so to speak), with leaders in the O & G industry in attendance. This explicit and unequivocal acceptance of WEE’s technology and its Management Team is further corroborated by the last sentence in the Acknowledgements section of the Paper, wherein it states, “The authors affiliated with National Petroleum Technologies wish to thank their management for their permission to present this paper.” NPS and NPT obviously would not place their names and company’s reputation at risk (by way of a Technical Paper and in the presence of their peers) unless and until they were 100% certain of what WEE
can and
cannot do in the oil patch.
The second piece of information which caught my attention over the last couple of days was when I, once again, reviewed the David Pescod’s Stocktalk interview with Don Mosher, dated June 6, 2018. In this informative interview, Mosher indicated WEE was contracted to complete four (4) STIMS in the KSA in fiscal 2017 (August 31
st year-end); seven (7) more in December 2017 (Wavefront fiscal 2018); 13 more in January 2018; and 50 more in February 2018. Following a discussion of this impressive incremental growth, Mosher stated these STIMS were requested by “one production asset” and that “another six assets are starting to uptake Powerwave.” The full interview can be found at the following URL:
https://aheadoftheherd.com/Misc/Stocktalk-June6-2018.pdf The third piece of information can be found in the Corporate Update of November 12, 2018. In this Update, it states that were “approximately 40 custom stimulations completed in calendar 2018” and as of September 1, 2018, WEE entered into a “
revocable exclusive arrangement with its local distributor (NPS) which
must achieve
a minimum set number of Powerwave Odyssey and Powerwave Self-Adjusting Nozzle (SAN) well stimulations corresponding to Wavefront’s financial quarters.” Based on confidentiality requirements, specific terms of this “exclusive arrangement” were, as per usual practice, not disclosed. In the Update, it also indicates a third coiled tubing unit had been outfitted with Powerwave equipment, in order to “commence additional Odyssey and SAN work” in the KSA.
When you combine these three (3) pieces of information, along with the fact that the original seven (7) STIMS in the KSA had an approximate value of $250,000 USD for each STIM, which translates into $35,714.29 US, or $48,047.15 CDN (exchange rate as of December 20, 2018) per STIM (this information was gleaned from the News Release entitled
Powerwave Campaign Expanded in the Kingdom of Saudi Arabia and dated February 27, 2018), the number of completed STIMS and, in turn, profit potential for WEE begin to increase exponentially.
In summary, once again based on WEE’s past performance, it is possible to make a reasonably informed inference about WEE’s potential growth in the Middle East, particularly in the KSA, going forward. Now that WEE’s local distributor (NPS) has a total of three (3) coiled tubing units in operation in the KSA (as per November 12
th Corporate Update) and each unit (outfitted with WEE’s powerwave equipment) can complete a STIM in five (5) to seven (7) days, this translates into approximately 150 STIMS per annum. The important consideration here is that NPS now (December 2018) has the capacity to perform at least 150 STIMS per annum in the KSA, which is, according to Don Mosher, for one (1) production asset. Therefore, ipso facto, if a relatively small local distributor (NPS) with one production asset can equate to 150 STIMS per year, and there are six (6) other assets who “are starting to uptake powerwave,” even assuming the six (6) other production assets are of similar size, this translates into 900 additional STIMS per year, for a grand total of 1050 STIMS.
One is led to wonder why, following the February 2018 announcement of 50 additional STIMS being awarded to WEE, that no additional STIMS have since been announced. It has come to my attention that most service company work for large oil companies is by way of an annual service agreement contract and consequently, the six (6) additional asset managers may not normally have been able to change/alter their existing service agreements mid-year (e.g. 2018). The other challenge for WEE being deployed is that the decline in chemical sales as a result of WEE’s unique oil recovery technology significantly reduces the profit margin for large oilfield services companies (Schlumberger, Baker Hughes by GE Oil & Gas, Halliburton, Weatherford, etc.), who produce and sell their own chemicals. In the Powerwave section of WEE’s new website, it confirms that “Powerwave achieved an
approximate 30% cost savings per stimulation due to reductions in chemical costs; acid storage tanks; mixing and pumping time, etc.” The same section of the website confirms that “powerwave provides for a
50%+ improvement in post-stimulation outcomes over
all other injection approaches.” Logically, these two (2) confirmed findings/outcomes will make it extremely difficult for individual oil producing companies not to insist upon utilizing WEE’s groundbreaking technology as an integral part of any future annual service agreements.
Additionally, we have seen several WEE STIM contracts awarded over the course of the past year that Management has proposed will lead to wider adoption. How wide this adoption will ultimately determine how high the profits for WEE will be and how soon this takes place, will dictate when we achieve a much higher share value.
At least that’s the way I see it from here.
Atlanticpro1