*OT* Jackie and Bera, i think this is the article that you were talking about (i know nothing about this company, do not own the stock and have no opinion on it. i can, however, see why you would be interested in this. Tell me more.):
The Wall Street Journal -- December 8, 1997
Energy:
Entrepreneurs' Formula Intrigues the Oil Industry
----
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
andalways at a financial loss-managed to turn gas into liquids through a
complicated 60-year-old process known as FischerTropsch 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. |
