I thought this much more worth while than anything charles has written... since we are all VERY tired of reading what he thinks he knows will happen, I've taken the liberty to repost something of value.
To: +Buendia (9491 )
From: +Buendia Monday, Sep 28 1998 5:06PM ET
Reply # of 9559
I spoke to Syntroleum and asked some questions for comparison and to predict the possible nature of Rentech's deal with Texaco. Investor Relations: (918) 764-3432.
I asked about the terms of Syntroleum's deal with its licensees, including Texaco:
In essence, when Syntroleum reaches a licensing agreement, it receives an up-front cash payment which is considered an advance against future royalties. Such a payment was made to Syntroleum by Texaco at the time the original agreement was signed in October of 1997 (or was it '96?). Thereafter, it receives an additional up-front cash royalty payment each time a plant is designed and put into production. The second royalty payment (made in two equal installments: the first, when the plant location is identified and the design is accepted, and the second, when construction of the plant is completed). The second royalty payment is also an up-front cash payment (albiet, in two installments) in an amount equal to the royalties to be paid on the ENTIRE expected production capacity of the plant over its full 20 to 30 year life, discounted, and brought to its present value. For example, if the plant is expected to produce 50 million barrels of oil during its 30 year life (the equivalent of a 4500Bb/day capacity), and the royalty payment is $.50/per barrel (an amount which is, I believe, agreed upon in the original licensing deal), then a payment in the neighborhood of $12 million to 15 million would be received (.50 x 50 million = $25 million, discounted and brought to present value). In addition, Syntroleum receives a payment for "recharging the catalyst" about every four years which is also based on a per barrel calculation (the example given was $.25/barrel). As stated, the later royalty payments are reduced by the amount of the initial payment which is treated as an advance on future royalties when the license is signed.
Syntroleum currently has six licensees: Texaco, Atlantic Richfield, Marathon Oil, Kerr McGee, Enron, and an Argentine company. The above arrangement is pretty much the same for each -- though it is clearly a new area and there is no "industry standard" agreement which would enable us to predict the terms of a Texaco/Rentech deal. Syntroleum has identified about 200 potential licenses and is currently negotiating with an additional seven to eight others. They receive inquiries all the time.
I asked whether Rentech's iron based catalyst system, with its apparent limitation (due to costs) to coal and heavy bottoms, would present competition to Syntroleum's pure natural gas to liquids process if the TCC plasma technology (which is subject of Rentech's joint demonstration project currently underway) proves successful and brings down the cost of Rentech's natural gas to liquids conversion process. The response was that the plasma technology seemed a little bit "star trekky," but he conceded that if it works it would certainly lower the costs substantially and would be a great advance for everyone concerned. (Remember: "Upon successful completion of the Project, Rentech has the right to receive a nonexclusive license to use the TCC plasma technology and to receive a portion of any future license fees and royalties received by TCC for use of their plasma technology in any other GTL projects. TCC will provide the plasma system and receive throughput fees on syngas produced by its plasma system when used with any GTL process including Rentech's.")
Bottom line: Rentech's deal, if it is at all similiar to Syntroleum's, will likely include a multiple-millions up front cash payment. It will also, of course, include additional royalties as production units come on line -- probably with full payment at the time production commences (as is the case with Syntroleum), rather than as the production is realized. Perhaps most significantly, if the TCC joint demonstration project is successful, Rentech's iron based catalyst process may well be able to compete head to head with Syntroleum for pure gas to liquids business in addition to its lock on the coal and heavy bottoms!!!!! Though Rentech's future remains a risk for investors, there is OH SO MUCH POTENTIAL!!!!.
Buendia
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