EXPLORATION AND PRODUCTION DIVISION
Can you discuss the Bob West acquisition?
We are under contract at $1800 per acre, with the total acquisition at about $12.1 plus 1 million dollars per well for the three existing wells if we exercise that option, to be paid out over 18 months, and the first payment to be roughly $1.7 million to close which will be taken out of equity funds. We have about $1.2 million in receivables, and another $1 million in and commitments on another $3-4 million with equity which we expect to have in between now and about the middle of March.
OCTANE DIVISION
What are the user benefits of DF-144?
First and foremost, major metropolitan areas across the United States are under a federal mandate to reduce ozone causing emissions by utilizing oxygenated fuels. DF-144 is an ethanol based octane enhancer added to gasoline feedstocks to meet this mandate. As an ethanol based enhancer, DF-144 is a renewable fuel made from corn, wheat, oats, and other biomass so it decreases our dependence upon foreign oil, while at the same time increasing the marketplace for American agriculture. In addition, DF-144 can consistently obtain octane ratings as high as 168 octane, meaning that it can be blended with lower grade gasoline to obtain the desires rating. In the past, the adding of lead to gasoline did this. Being both environmentally friendly and high octane, DF-144 finds other markets such as Avgas (aviation gasoline) and marine gasoline where it does not pollute the water.
Are there any other customer benefits?
Absolutely. Federally mandated metropolitan areas are not the only ones who benefit from DF-144 blended fuels. With the lower cost of production, DF-144 blended gasoline can reduce the cost of gasoline to the refinery, resulting in lower costs at the pump. In addition, early tests indicate that DF-144 blended gasolines raise the mpg from a conventionally fueled vehicle, whereas mpg performance is typically decreased with MTBE blended fuels.
In summary, DF-144 is environmentally friendly, less expensive, renewable, applicable in warmer weather than the competition, and supports the U.S. agricultural economy as well as the petrochemical industry.
Is there currently a market for DF-144 and is it currently being sold?
It has a huge market. In the United States alone, consumption is 332,000,000 gallons daily. Currently it is being sold sporadically in Kentucky from the original pilot plant, and has been for the past two years. With regards to the market, every drop of DF-144 is pre-sold before the plant is ever constructed. All of the DF-144 to be produced by the plants scheduled to be built between now and June 1999 is pre-sold. We won't build a plant without a contract in place. Keep in mind that a single plant will produce 350,000 gallons of DF-144 daily.
What is the market near-term?
Initially, the DF-144 plants will be placed in the Houston area to meet pre-sold demand. The initial location will be on the state-of-the-art facility of Oiltanking, the world's largest privately held tanker in the world. From a logistics standpoint, there is ample market demand to support several plants locally without the need to look for additional markets, and from the Houston location, DF-144 can be tankered to the eastern and western seaboard or barged up the Mississippi.
What is the market long-term?
California demand alone can support up to seventy plants, and negotiations are underway in Colorado, New Jersey, and several other areas. In December, a sample of DF-144 was sent to Oiltanking's
Amsterdam location for evaluation with their feedstocks. There is strong evidence to support that the European market may be even more attractive than that of the U.S. Negotiations are already underway with several European petrochemical refineries.
What is the summary of the projected market?
Clearly the vastness of the world market for gasoline makes projected market virtually incalculable within a five-year plan, and the rapid growth of hydrocarbon consumption in China alone makes any projections beyond that time frame practically impossible. What can be said however is that with daily U.S. consumption at 332 million gallons daily, a one year projection of four plants operational with 350,000 gallons per day each represents only 0.4% U.S. market penetration and places company gross revenues at $578 million.
What is the competition?
Immediate competition is for the oxygenated fuels market in those metropolitan areas of the United States where federal mandates dictate the use of such blended fuels, where MTBE currently comprises the lion's share of the market. MTBE is currently under fire for contaminating groundwater sources, lakes and the like, so while it aids in improving air quality it contaminates water, so much so that it has already been banned in a number of states. DF-144 is ethanol based and has been EPA tested as releasing no harmful residues.
From a cost standpoint, MTBE has a blend value of 108% and sells for roughly $1.30 per gallon whereas DF-144 has a blend value of 128-168% and is planned at being marketed at around $1.20 per gallon, therefore it takes less of the DF-144 to obtain the same results and is lower in cost on a per gallon basis to boot.
From a refiner's standpoint, not only is his cost lower and his volume requirements lower, but there is an additional 5.4 cents per gallon federal rebate for blends that are comprised of 10% or more of renewable fuels which is not available to hydrocarbon based additives such as MTBE.
MTBE stands for methyl tertiary butyl ether. It is petroleum based, the majority of which is imported into the United States. For the lay person, what is important in the name is that last "E", ether. In several cases, MTBE blended gasolines have been blamed for causing headaches and discomfort to people exposed by as little as filling a car's fuel tank. Several studies have been made as to MTBE being carcinogenic, and a televised news program recently reported a significantly high incidence of engine fires in several older, poorly tuned cars. Clearly, consumer awareness is causing much heat in the direction of MTBE, with no alternative in sight prior to the advent of DF-144.
MTBE comprises roughly 85% of the oxygenated fuel additives, with the second place going to ETBE, an ethanol based additive, also ending with that troublesome last "E", ether. ETBE brings nothing significantly new to the competitive gasoline arena, except that it is a renewable fuel. |
