I understand TX was interested in buying RNTK's patents but are now signing a Syntroleum-like licensing agreement. Read on for details in the WSJ article.
December 8, 1997
Entrepreneurs Find Way to
Pique
Giant Oil Companies' Interest
By PETER FRITSCH
Staff Reporter of THE WALL STREET JOURNAL
With only 40 employees and no commercial plants,
Syntroleum Corp. hardly seems like a force in the oil
industry. But the tiny Tulsa, Okla., company has an
ambitious plan to become the Intel of oil -- the supplier
of a key technology that it hopes to turn into a gold mine.
At the center of this plan is one of the oil industry's Holy
Grails: a technique for transforming natural gas into easily
transportable oil products, such as home heating oil.
That's potentially a huge boon for major oil companies,
whose reserve portfolios are bloated with natural gas too
far away from markets to transport profitably. Indeed,
some oil giants are already working on their own
technique.
But the entrepreneurs behind Syntroleum aren't shy
about comparing their technique to the microprocessors
Intel Corp. marketed as the value inside personal
computers ("Intel Inside"). President Mark Agee
presents visitors with a copy of Intel Chairman Andrew
Grove's book "Only the Paranoid Survive" and vials of
synthetic oil labeled "Syntroleum Inside."
As much as half of the world's five quadrillion cubic feet
of natural-gas reserves are too remote from markets to
justify the cost of transporting them. That's enough gas to
satisfy the world's energy needs for a generation. Turning
it into liquid would vastly reduce those transportation
costs and transform idle natural gas fields into massive
profit centers.
The industry has struggled to profitably convert gas
molecules into liquid fuel since the 1920s. While giants
like Exxon Corp. and the Royal Dutch/Shell Group now
boast of their own gas-to-liquids breakthroughs, closely
held Syntroleum has its own conversion process that
uses simple air instead of expensive pure oxygen.
Syntroleum's work is something "we need to follow
extremely closely," says Greg Matiuk, Chevron Corp.'s
vice president for strategic planning. Meanwhile, after
working for years on their own, Texaco Inc. and Atlantic
Richfield Co. have decided to also license Syntroleum's
technology. The companies haven't publicized terms of
their licensing agreements.
Arco and Syntroleum plan to build a gas-to-liquids
plant in Washington state while Texaco will use
Syntroleum technology to build a plant floating atop a
barge. Securities laws prevent oil and gas companies
from booking reserves that have no market. But with
Syntroleum's process in place, Arco could potentially
add 10 trillion cubic feet of stranded gas in Alaska to its
portfolio, doubling its total natural-gas reserves.
Syntroleum is really the story of its chairman, Kenneth
Agee, a Tulsa chemical engineer and the younger brother
of Syntroleum's president. While working for a local
natural-gas pipeline company in 1984, Kenneth Agee
developed a propane plant that only had use for half the
gas at its disposal, because of thin local demand.
Seeking ways to transport the remaining gas to other
markets, Mr. Agee began spending lunch hours,
evenings and weekends studying the earlier efforts to
convert gas to liquid fuels. That brought him to the work
of the Nazis and apartheid-era South Africans: Both
faced oil embargoes and always at a financial loss --
managed to turn gas into liquids through a complicated
60-year-old process known as Fischer-Tropsch that
combines gas and oxygen at high temperatures to create
synthetic gas. Iron or cobalt-based catalysts then react
with the mix to create hydrocarbons.
Mr. Agee figured that the key to making the process
more efficient and economical was to eliminate the use of
pure oxygen. He also concentrated on developing a new
proprietary catalyst that wouldn't produce a product that
was too waxy and thick to move through pipelines -- a
longtime problem for scientists.
Raising $25,000 from family and friends, Mr. Agee built
a small reactor in a backyard metal shed. There,
working alone, he began cooking the catalysts crucial to
liquefying gas. Eventually, liquid oil began filling test
tubes. "I knew just enough to be dangerous," says the
laconic scientist.
Mark Agee had become involved by then, and the
brothers raised $600,000 in venture capital. A small
pilot plant was soon built in a small Oklahoma cow
pasture, and summer interns from Tulsa University were
doing sophisticated lab work.
In 1993, in the course of trying to raise $75 million to
build a commercial plant, the brothers came to the
attention of big oil companies. The giants either sought to
buy Syntroleum out or force it into an exclusive
licensing deal.
Afraid their technology would simply wilt on the
corporate shelf, the Agees resisted. "Can you imagine
where personal computers would be today if Bill Gates
had left it to IBM?" asks Mark Agee. Instead, he came
up with licensing arrangements modeled on those of the
computer industry, wherein Syntroleum could use
information gleaned from one oil company to improve its
conversion process and pass on the improvements to
other companies.
As a result, Syntroleum has become a catalyst for the
flow of technology between rival oil companies and is
speeding development of an economically viable
gas-to-liquids process. "They are creating the
gas-industry equivalent of the PC standard," says
petroleum analyst Paul Ting.
But talks with big oil companies dragged on, and
Syntroleum grew desperate for capital. The companies
wanted total control and they were more than a little
skeptical. After all, their own scientists had tried
unsuccessfully to crack the code for years.
Then, in October 1996, Exxon disclosed its own "major
breakthrough" in gas-to-liquids technology, along with
plans for a monster plant in Qatar. Exxon remains largely
silent on its science; it does say it has developed its own
catalyst, but its process still relies on pure oxygen.
Days later, Syntroleum signed a licensing deal with
Texaco -- on Syntroleum's terms. Agreements with
Arco and the USX-Marathon Group's Marathon Oil
Co. soon followed. "Once Exxon said it could be done,
we were suddenly able to get beyond junior company
researchers and get inside boardrooms," Mark Agee
says.
Enrique Iglesia, a University of California-Berkeley
chemical engineer working for Exxon, says, "All the
other companies thought they'd sit back and wait until
2030 to buy the technology off the shelf. Now, they're
scrambling."
Wall Street has taken notice. SLH Corp., a Shawnee
Mission, Kan., venture-capital concern, has invested $5
million in Syntroleum and holds a 32% stake in the
company. On Friday, SLH shares closed at $53.75,
down 25 cents, in composite trading on the Nasdaq
Stock Exchange. Excluding the $50 million book value
of SLH's cash and other assets, that implies a market
value of some $200 million for the company's stake in
Syntroleum and a value of over $600 million for all of
Syntroleum.
Remarkably, all the hoopla obscures the fact that
Syntroleum still hasn't built a commercial plant. Officials
say that will change next year, when construction of
Texaco's floating plant begins. "That will be the push the
technology needs," says Malcolm Peebles, the former
head of Shell's international gas division.
Standing in a Tulsa warehouse, Ken Agee looks wistfully
at the tubes, reactors and gas cylinders that once sat in
his backyard shed. Soon, they will be transferred to a
state-of-the-art laboratory at a secret location, along
with a 1,000-pound safe holding his catalyst formulas. "I
guess it's not just me and my crazy ideas anymore," he
says.
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