Overview of BusinessOVERVIEW OF BUSINESS
As an Oil Field Service (“OFS”) provider Wavefront is industry leader in the advancement of dynamic fluid flow technology for oil and gas well stimulation and Improved/Enhanced oil (“IOR/EOR”) recovery. Wavefront’s core technology, marketed under the brand name, “PowerwaveTM”, has proven to increase oil and gas production rates; decrease oil production decline rates; and, reduce well stimulation chemical costs while also increasing poststimulation production or injection sustainability rates. Powerwave is marketed in two primary areas to exploration and production (“E&P) companies: i. Well stimulation; and, ii. Improved or Enhanced Oil Recovery (“IOR/EOR”). A well stimulation is an operation performed on a well to restore or enhance productivity or improve injection. In most instances a chemical is pumped into the well to stimulate a producing or injection interval. In other cases stimulation is used to remove scales such as calcium carbonate or barite, to rid a well of accumulated waxes on tubulars or to remove sand fill. Powerwave stimulations may take several hours to several days. IOR/EOR targets stranded or bypassed oil in reservoir which is very difficult to produce due to various physical limitations. The common theme in all IOR/EOR (except acoustic or electromagnetic) projects is the injection of a fluid to mobilize bypassed oil. Powerwave IOR/EOR projects are usually 12 months or longer in duration. Wavefront currently has distribution, agency or representation (“Distributor”) agreements that encompass representation in 65 countries and permit Distributors to market and resell the Company’s suite of technologies to end users or E&P’s. Distributors are effective alternative distribution channels used to leverage Wavefront’s global reach as well as reducing the Company’s overall infrastructure as the Distributor deals directly with their customers; the end users or E&Ps. The agreements provide that the Distributor is generally responsible for contracting directly with and fulfilling the provision of goods or services to the end user, i.e., E&Ps, or their customers, and thus the Distributor is responsible for the execution and costs of work performance with their customers, inclusive of their customer’s satisfaction for its entire general and administrative, sales and marketing expenses. Wavefront is also not exposed to the credit risk decisions of the Distributor; thus, the Distributor bears all risks and rewards in dealing with its customers. Like any other customer Wavefront does however, have credit risk in collections from its Distributors. Distribution agreements do not generally provide for established pricing to end users or E&P’s in each country but instead provide a pre-negotiated amount that Wavefront can expect to receive for each bundled Powerwave job or service the Distributor provides to the end user or E&P. The Distributors however, are entitled to deduct any commissions, fees or foreign tax withholdings from any amounts paid to Wavefront; thus, Wavefront recognizes the net amounts received in its revenue recognition. Wavefront is responsible for supplying Powerwave tools to the distributor; Powerwave tool replacement, if needed; certain proprietary inventory type items required to rebuild or refurbish Powerwave tools, or consumables; and, if needed all Powerwave modeling, and the provision of remote technical support. Wavefront also sells directly to end users or E&Ps, and other non-distributors, in which case the Company is responsible for fulfilling the provision of goods or services to the end user, i.e., E&Ps. In dealing with end users or E&P or non-Distributor, Wavefront negotiates an amount that it can expect to receive for each bundled Powerwave job or service. Wavefront has typically, regardless of dealing with an end user or E&P directly as a customer or dealing with its Distributors and despite the of application (i.e., a Powerwave stimulation or IOR/EOR project), bundled its services, jobs or projects, which may include some or all of: modelling and programming, tool mobilization and installation, tool rental (or sale), Powerwave licensing, and demobilization. As all Powerwave components are transferred consecutively to the customer (i.e., regardless if and E&P or non-distributor, or a Distributor), the customer only receives economic benefits from the Powerwave service over the licensed period (i.e., be it a shorter period for Powerwave stimulation or a longer period for an IOR/EOR project). Many Powerwave tools carryout a patented process; thus, the operation of such tools requires a limited license. Wavefront’s patent portfolio encompass i) a utility patent(s) related to the general process of dynamic fluid injection (i.e., the Powerwave process) where there is communication with the well bore and geological structure; and, ii) design patents which cover specific tool designs that provide for dynamic fluid injection. Wavefront’s patents were registered in various jurisdictions where the Company anticipated future work, and have various expiry dates. As a result, the Company generates revenues in some countries where it does not have registered patents, but is protected by its licenses, non-compete and non-circumvent agreements, other intellectual properties (such as the proprietary Powerwave model), etc. In addition to the aforementioned patent portfolio, the Company’s intellectual properties include “know how” or trade secrets to install and to properly operate Powerwave tools, and a proprietary model which details predictive outcomes and operating protocols for Powerwave well stimulations as related to specific reservoir conditions. The proprietary model, in certain geographic regions, may be more integral to the Company’s current business than its patents. As Distributor’s essentially re-sell to their customers, Wavefront provides “certified” training of Distributor personnel in the use of Powerwave tools. However, all Powerwave modelling and job programming is tightly controlled and is performed only by certain Wavefront personnel at the Company’s head office in Edmonton, AB. As a technology based company, Wavefront endeavors to continuously develop new technologies and seek new patents, and as such the Company’s intellectual property portfolio will continue to evolve.