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So to clarify, then, in your judgment you agree that there is only a risk that going onto the OTCQX could positively impact the company. Glad to see we agree.
As for the rest of your post... gosh... I don't even know what to say!
Except that ZERO was trading on the OTCQB and uplisted to the OTCQX.
This article says the OTCBB is going away.
So to restate your argument: The OTCBB, which ZERO is not traded on, is going away, and the companies on the OTCBB will transition to the OTCQB, which ZERO was traded on until today. Independently, the OTCQB and OTCQX will continue to exist.
So...?
I do like the part of your article, though, which says "However, for operating business seeking the utmost in transparency for their shareholders and an increase in overall credibility, the OTCQX actually imposes some additional, more stringent, requirements that I have detailed in prior blogs.
That only proves the transition from the QB to the QX might not be great. Which is probably accurate, but you have not answered why it would be bad. For you to win the argument that this transition is a bad thing, you need to show that the QB is preferable to the QX. Otherwise, there is only a risk that being on the QX will be better than being on the QB. This isn't rocket science.
I'd also LOVE to see your evidence of the OTCQB going away, because that just sounds like crazy talk, because the disparity between the amount of companies between the two exchanges is pretty wide.
That didn't answer my question. That deflected my question so you could pursue your agenda.
So again,
Why is trading on the OTCQB preferable to the OTCQX?
Because if it isn't preferable, there is only a risk that the uplist will be a good thing. So answer the question.
This is a fairly silly argument that you and your pals keep repeating. I have a simple question for you to answer:
Why is being trading on the OTCQB preferable to trading on the OTCQX?
Because for the uplist to be 'bad news' it depends upon a cogent answer to that question.
Oh man. It's like you and Sox are scraping the bottom of the barrel today. First Sox launches his war on "Temple isn't even a good school!" campaign, and now, you post a link that is a rebuttal to Tao's research methods.
Oh the problems...
1) This is the paper that goes along with a student poster-presentation at pretty cool conference. As I'm sure you know, the standard of acceptance at most conferences are significantly higher than in peer-reviewed academic journals.
2) The paper is concerned because Tao has only tested his methods on particulates in blood and on light crude, and that there had been no pilot experiments done on a pipeline.
3) The paper agrees that the principles Tao is working with are right, but he should just do some different tests instead.
4) The author is an undergraduate who describes himself as: "I am hard-working kind of guy and show more devotion towards the task has been given to me. Being curious to learn and explore new things I would love to go in the field of research in oil & gas sector."
Given the amount of grief that bashers have given Tao and Temple in the past I find it a bit laughable that your tremendous DD failed to notice that the author is just a kid with no qualifications, yet you try to pass this off as a serious rebuttal.
Two problems with your awesome new lists:
1) You concede my central claim, that the overall strength of schools and programs is irrelevant. You can find scientists at the top of their fields at small schools that are off the radar all across the US. Instead, the better metric is who is publishing the best peer-reviewed research, and Tao's work, compared to his actual colleagues at other universities, has been published in the journals with the highest impact factor. No one from MIT or Cal-Berkeley have done that, illustrating why trying to make general claims about places is a silly task, and why the actual metrics of individuals is better.
2) These new lists still don't say anything relevant about the quality of Temple. For instance, your new USN&WR list grades physics departments in 7 areas: Atomic/Molecular/Optical; Condensed Matter; Cosmology/Relativity/Gravity; Elementary Particles/Field/String Theory; Nuclear; Plasma; and Quantum.
So do tell - if you were trying to place Tao's work into one of these subfields, where would you put it? Probably Condensed Matter, but even that's a problem because it fails to distinguish between all of the radically different experimental and theoretical avenues that this area covers. For instance, in this area, the University of Illinois is the #1 program in the US. But, they have 35 faculty members all working in the area of theory. Comparing this to Tao's experimental lab is comparing apples and oranges. This is another moment where the tool you are using to evaluate the question at hand is inadequate, as Tao's area isn't even one of the things being ranked.
As for your post from the ARWU, it's much more based on prestige than performance. After all, if 25% of the ranking is simply an up/down on whether or not an alumni or a staff member won a Nobel Prize, of course the rankings are going to skew toward the traditional powerhouses. Plus, the other indicators are total number of pubs by faculty. Which I agree is a good metric, but to return to the Illinois example above, they have a department with 35 people in one small subset. Temple has less than 20 total. So this skews the results to bigger programs, not necessarily better ones. I look forward to seeings your next wave of survey data!
Sox, you’ve made a lot of really misguided arguments over the past months, but this one is, perhaps, your silliest.
Even if we were to grant you that in terms of importance Temple sits at 121, you seem to omit the denominator of that equation, namely, that there are over 4,100 colleges and universities in the US, putting Temple in the top 3%.
However, the reason that’s a terrible metric is the college rankings on USN&WR are concerned with things like undergraduate acceptance rate, average class size, amenities on campus, and so on. It has nothing to do with the quality of research output. For instance, notable schools below Temple: University of Kentucky (T-129), New School (T-135), and George Mason University (T-135) are all well-known for their research output, but schools like Leigh University (T-40), Miami University (T-76), and Northeastern University (T-42) are awesome places for a liberal arts education, but contribute little to scholarly research. This is why other scholarly metrics, like having research published in increasingly well-respected peer-reviewed journals, is a better indicator of the quality of the program. And seeing as the team at Temple has the highest-placed articles on the topic at hand, I think we still get to use 'prestigious'. USN&WR doesn’t care about the reputation of the physics department beyond that they keep their class sizes at 19:1 and that the lawns outside their building are well manicured.
I think you misunderstand the importance of the publication. The actual data collection probably occurred a while ago, but whether that was in 2010 or 2014, the laws of physics haven't changed since then, unless you have some evidence to the contrary. The publication proves the science Tao and his team are working on have been reviewed and validated by a more prestigious journal, and this board of reviewers are willing to put their names behind the conclusions Tao reached.
But don't take my word for it. The impact factor of Fuel (4.18) is well over double where Energy & Fuel was when Tao published in 2006 (1.52). In real terms, that means that for every article published in Fuel, the journal is cited 4.18 times, meaning you can objectively measure the desirability of being placed in particular places. It also marks what arguments are highly experimental and on the fringes as opposed to being more accepted and mainstream, as increasingly prestigious journals publish increasingly less risky research, or else they risk diminishing the future impact of the journal if it publishes articles which are later found to be flawed. It's also worth considering that Fuel is ranked as 16/75 of journals focused on Energy and Fuels, and ranked as 8/127 in Chemical Engineering journals.
What does this mean for you? It means that Tao and his team now have a publication in a good journal that confirms that the basic physics is correct. It means those who are long have a peer-reviewed scientific article indicating that the science is sound, and that part of the debate is settled and closed. We have real pictures that show particulates clumping together at different electric levels, rather than speculating about what is probably happening in the fuel based on accepted assumptions of physics.
So where you simply see an 'old experiment' that is just 'rehashing old information,' I see speculative science becoming empirical science being validated in a pretty good journal. Scientific journals aren't PR pieces meant to say new and exciting things. They plod methodically. If you don't understand the difference this publication marks, you lose whatever credibility you ever had attempting to assess scientific questions.
No, not really odd at all. You're trying to compare a peer-reviewed scientific study with a PR piece on Scribd published by STWA. It is plausible that this is the same experimental method that the PR piece is talking about in 2010, but I'm not sure why this is a knock against his work? It's more a reality of how scientific publishing works. I flagged Tao and Xu (2006) as important as this functioned as the first lab proof of concept report, but they only tested the viscosity reductions in the provided fuel samples and were unable to confirm why they were seeing measured reductions.
In 2009 Evdokimov and Kornishin publish a critique of Tao's work from 2006-2008, arguing they were unable to replicate the viscosity reductions. However, it was telling that their conclusion reads: "However, unbiased experiments increasingly report evidence that magnetic treatment may significantly alter the colloidal properties of asphaltenes and paraffins in crude oils. Further research is needed to reveal the true molecular nature of these effects."
Perhaps in 2010, but first published about the article 'officially' forthcoming, is the peer-reviewed publication that the neutron scattering confirms viscosity reductions occur because of the reasons hypothesized by Tao. It is no longer a matter of two teams having a stack of data that doesn't agree with the other. Today we can actually see particles clumping together, and how they do this differently at different voltage levels. As an aside, it's probably worth considering that the IF of Fuel is significantly better than Energy & Fuel, which is where Tao and Xu (2006) and Evdokimov and Kornishin (2009) were both published. So if the basic scientific and methodological principles are so incorrect, it seems odd that a more prestigious journal would be publishing the findings.
But yes, it's all in a lab, and as I noted previously this article will do little to convince those who are on the fence, but that causes me to question where reasonable doubt ends. It's entirely possible that there are limits in scaling the technology to big busy pipelines, or that the leadership team does a poor job commercializing the technology. However, it does provide a conclusive empirical answer to the question of whether or not the physics is right.
Similar hypothesis, but different research methods with different equipment confirming previous findings. This isn't a PR piece meant to say new and exciting things. It's the scientific method. Starting in 2006 Tao and his team started their research in this area with mixed reactions. Today, using the best tools available he's able to say that the basic physics behind the question can be confirmed by direct observation rather than proximate causal chains.
At the very least, it should dispel the critiques Pumper posted earlier today, as this new testing methodology functions as a direct refutation of Evdokinov et al (2009).
The other argument I we had way back when why STWA wouldn't disclose the specifics of the power output are confirmed here. My claim at the time was that previous research from a Chinese research team argued that there are different organizational structures at different electric outputs, and I argued there was a 'sweet spot' which STWA would want to keep the lid on. In Tao's report here, he notes:
"However, after the electric field reaches 1100 V/mm, a further increase of the electric field mainly makes the chains thicker, leading to a higher intrinsic viscosity. Therefore, it is clear that there is an optimal electric field for the viscosity reduction and it is not true that the higher the electric field, the more the viscosity reduction."
So that's a bit cool for those who are keen to talk about esoteric principles of fluid dynamics, but would largely agree that this article will do little to persuade those who aren't scientifically inclined.
Just hoping on for a moment as I had time to read Tao's article. While the snippet of the conclusion was posted previously, there was one other tidbit that caught my eye:
"The viscosity along the field direction is reduced by
46.14%. As shown in Fig. 1, in our technology application, the
applied electric field is parallel to the flow direction. Therefore,
the oil flow is greatly improved once the electric field is applied.
This is consistent with our lab tests [24] and field tests [5–7]."
But, for those who are curious about the article but don't have the ability have access through a University, you can get a copy of the article here:
https://www.dropbox.com/s/6xr3m0pz2y46txg/Tao%20et%20al%20-%20Neutron%20scattering%20studies%20of%20crude%20oil%20viscosity%20reduction%20with%20electric%20field.pdf?dl=0
"They're in default to Temple. It's that simple. No way to spin it."
"They're voting for dilution. It's that simple. No way to spin it."
"They terminated their contract. It's that simple. No way to spin it."
If history is any guide, I like our chances, as neither of your other un-spinnable fear-mongerings came to fruition. Let's look at that termination letter a little closer... what was the justification they cite for termination? It seems you clipped the end of the message.
You're grasping here. Remember we have one sentence from TC on the matter, that they are working to expedite their research and do not believe the 6 month lease is necessary. That's it. There is no normative judgment in this sentence. Simply that 6 months isn't needed. They're not taking the AOT apart tomorrow and putting it in storage, but it will instead remain in operation until October 15th. That gives TC/STWA three months to put into place an actual purchase agreement that reflects the needs of TC that would leave the skid in Wichita.
Unless of course you got a private email from Holland that says they plan on taking it apart before October 15th. if so, I'd really appreciate you posting that to the public.
Thoughts on a busy day
So today was a crazy day after hours. Enough so that I decided to come out of retirement to temper those things I see as pretty bad arguments, all of which revolve around this single sentence: The justification for the early termination is due to the project working to expedite the required testing and believes the full term of the lease is unnecessary to successfully complete testing. Without spin or agenda, the only thing we know with certainty is that TC does not believe 6 months is needed to finish the testing. We also know that, for whatever reason, TC is expediting the testing. That’s it. From this sentence a lot of negativity and confusion is brewing. Longtime followers of STWA will recall that whenever a scary word shows up in SEC filings, the shorts attack like sharks. You can add “Termination” to the previous specters of “Default” and “Dilution,” both of which have yet to show up.
Argument #1: Cancellation of the purchase agreement
For those who are long and maybe didn’t read the initial agreement closely, cancelling the lease nulls the agreement entirely. There was no separate document you missed. However, this need not be a negative indicator. YES, Sano could be correct, as TC looked at the data they’ve collected, shouted “this is a piece of trash!” and cancelled. But this is only one possible explanation, and is not implied by the one sentence we have to work with. The KM agreement gives us an important second data point. STWA believes one AOT Midstream skid is worth $1.2M. TC had the option to purchase four skids at a cost of $4.3M. Feel free to do the math. You’ll find that if TC is interested in deploying AOT across their pipeline, then the final price tag for the rollout would be lower than the cost of buying this one installation at $4.3M (turns out, economy of scale is a thing). It is not as though TC is taking axes to AOT tomorrow morning, but instead that it will continue expediting its testing for the next 90 days. It seems downright rational for TC to say “okay, this thing works, we want to end the test early but the contract requires 90 days of notice.” This gives TC/STWA three months to get a framework in place that accurately reflects the value of AOT on their pipeline given whatever benefits might have been seen. And that cost will almost certainly be below the original cost of $4.3M, so TC being a rational company, terminated the agreement.
Argument #2: …but no orders!!!
Obviously. See above. This is not a car you take for a test drive, haggle the guy at the dealership down a few thousand dollars and go on your way. The data collection is ongoing, but will be completed before the original 6-month lease would have been completed. To get an accurate figure on the amount of savings AOT can provide relative to the cost of the units will involve a lot of wiggling on both sides. Attempting to simplify this situation to one of immediate answers simply isn’t how businesses work. When you sign on the dotted line, it’s for a number of units at a particular cost. Without having the data crunched, it would be highly irrational for TC to know how much they think AOT is worth. Expecting these two documents to be published alongside one another would mean (a) the people building Keystone are pathological, or (b) AOT was literally magic, and TC was in love with the data minutes after turning it on. I live in the real world where magic is fake and successful companies are reasonable. So the lack of orders today is nothing to be worried about.
Argument #3: If TC worked, then why KM test program?
Because NDA’s are a thing. It’s worth checking out page 2 of the original TC agreement, which reads “All data collected will be subject to mutually binding confidentiality and nondisclosure agents. Data cannot be shared or released to any outside entity (other than Lessor or TransCanada) or third party without the written consent of both Parties.” It’s not as though James Holland would pick up the phone to call Derek Brammer to see whether KM should kick the tires on AOT. Even if he did, Holland wouldn’t risk violating an NDA to help a competitor know if they should save a few bucks.
Additionally, Windows 7 is a thing which has been out in the world for years. IT departments still test everything before rolling it out before in their own companies. And this is for a piece of software which is, for the most part, agnostic about the type of hardware it’s installed on. Compare that to the complexity of just trusting that all the variables of one person’s pipeline will immediately translate onto another. Again, companies are rational and we should expect them to behave this way.
Just to stop a bad argument before it gets off the ground, I too was a bit surprised by the cut from a $60k lease to a $20k lease. That seemed like a bad sign.
However, take a quick peek at both lease agreements. TC, for $60k/month was leasing:
AOT Midstream, skid mounted; Quantity = 4
Header assembly; Quantity = 2 (intake and outtake)
AOT Power Supplies; Quantity = 4
Data acquisition and control; Quantity = 1
Power supply and SCADA housing; Quantity = 1
Today, KM agreed to a lease, for $20k/month:
AOT Midstream, skid mounted; Quantity = 1
Header assembly; Quantity = 2 (intake and outtake)
AOT Power Supply; Quantity = 1
Now I'm no math genius, but TC was leasing 4 units for $60k, and KM is leasing 1 unit for $20k. Call me crazy, but if we were selling a product no one wanted, would the cost per unit increase over time? Even if one were to argue that TC was getting a discount for leasing multiple units, the worst-case comparison between these two leases is that they're for about the same amount.
Your question is probably more rhetorical than not, simply commenting on the scope of MM's rather than the importance of any particular name (as some of the names seem like the usual suspects). But then my ocd kicked in wondering, "Who ARE they?" So to save others a few minutes of searching, while providing others with the resources to spend hours judging the significance of some name or another, here's the list:
(LAFC) R. F. Lafferty & Co
(MERQ) MERCATOR ASSOCIATES
(BKRT) Buckman, Buckman & Reid
(MURF) Murphy & Durieu
(BMAK) BMA SECURITIES
(WORL) World Trade Financial Corporation
(STIG) Stockcross Financial Services
(BTIG) BTIG, LLC
(LAMP) Lampost Capital
(ASCM) ASCENDIANT CAPITAL MARKETS
(MITR) GMP SECURITIES
(RAFF) Rafferty Capital Markets
(VNDM) Vandham Securities Corp
Nope - you're right on this one, my counting was off either from counting 2012 as the effective date rather than vesting date, or my head not translating to it almost being 2014. However, it does seem a bit odd that you can go digging for old documents and interpret them correctly but willfully misinterpret the language of the end of Cecil's tenure.
So, we were both wrong earlier today. Now we both agree about the same thing, that 60% of the options were granted, and there was nothing suspicious about Cecil's exit since they just pushed the vesting date forward two months, and 7,040,000 of Cecil's unvested options disappear into the ether.
Progress!
It's almost like you're not trying anymore Sano. Grammar is hard and subordinate clauses can be tricky. Go back and look at the agreement on March 9, 2011. Cecil was granted 17,600,000 options, with 20% of those vesting annually each January 30. This merely moves up the 3,520,000 he would have been eligible to receive this January to the date of termination. So doing the math, that's 3.5M + 0 = 3.5M. Plus, this cancels 10,560,000 of Cecil's options. So your concern about those 4M that Bigger was granted looks a little silly, doesn't it?
Thanks for playing.
Working here too, although you'll notice under the "Management Team" link that Greg Bigger is now listed as CEO. If it was down somewhere, it was clearly just for the predictable updates.
In other news, we didn't open with a gap down, so perhaps rumors of a bloodbath were premature.
Now THIS make me think that an M&A might be right around the corner
Two thoughts - First on Mag-Tek. Your DD skills could use a bit of work, since it's not based out of a farmhouse. But yes, they are a small operation, but that doesn't prevent them from supplying solutions to Shell, Chevron, Marathon, and plenty of smaller drilling companies. But all the speculation about upstream is very preemptive. Of course AOT can be deployed in this market, and likely will with time. But there is wisdom in not expecting the company to rapidly focus on this market.
Second and more importantly, finances. This past quarter, total spending (including the +$500k R&D budget) was around $2.3M. Despite these expenses, the total cash on hand from Q2-> Q3 only diminished ~$500k ($4.3M -> $3.8M). Where did this money come from? Obviously the conversion of warrants. Which are being exercised by various members of the board. So yes, we can lament people are being paid salaries we don't agree with, but this doesn't take into account that significant chunks of these salaries are simply being reinvested back into the company. In your judgment for STWA "to be fiscally responsible the company insiders should be paid in stock." I get that argument and don't disagree with it. But if you look at where current funding is coming from, you'll see that's effectively what's happening anyway.
Don't get me wrong. Obviously a unit the size of the AOT v1.2 would work just fine on upstream pipelines. It is certainly true that the strength of treatment going through an AOT unit has a stronger effect than currently existing products (and there is plenty of research showing that electromagnetic treatments have gotten significantly better than older linear/perpendicular treatments).
But the problem STWA runs into is producers who react by saying that 'good is good enough'. My observations on this issue:
- Don't undersell the importance of 'just' having clean pipes. As the folks over at Azure note, a 5% obstruction requires a 140% increase in pressure to keep the oil flowing. Would AOT work better? Sure. But we already bought this widget, and it's improved production enough.
- In a published report about a cluster of 8 oil wells, with the numbers adjusted to ~$90/100 per barrel, these solutions increase profits around $15-20 million after treatment. That's significant. But it's also small potatoes. Since these mediocre solutions are already in place on plenty of upstream pipelines, STWA would need to sell their product as an incremental improvement over something a producer already purchased, as opposed to the only company able to solve the same problem in the midstream. So while installing AOT might improve profits, how much is a company going to pay for small improvement? In contrast, projections for putting AOT on Keystone has a price tag of ~$175-200 million. Upstream application is icing on the cake. It tastes delicious, but it's not substantial.
- Narrow focus is good. When you're building a thing and you have limited resources, you should probably just focus on building that thing. Setting up two different manufacturing supply lines is not a spot where we want to be. Plus, focusing on midstream means we get to set the price. There is no other solution to the paraffin problem that problem that doesn't involve heating or chemicals, plus it has the benefits of reduced power consumption. So lets get Midstream off the ground, then think about expanding to other markets.
- Do I think that STWA will go after the upstream market? Yes, but it's a question of strategy. As noted yesterday, the smaller pipes for these producers mirror the size already tested on at RMOTC. But it's a question of "when" vs. "will". Give STWA a few years to roll out high-margin midstream units, and then we can think about competing with already established companies.
My biggest takeaway from the 10-Q was the EPS. Year over year it improved from -0.09 to -0.02. We can lament the talk of CEO raises, but it is objectively true that they are being more careful with their money while devoting more resources to the R&D budget.
STWA operating expenses were $1.75M in Q3 2013, and $2.36M in Q3 2012, a net-savings of ~$600k. This allowed them to double the R&D spending to $563k in Q3 2013 from $249k in Q3 2012 while still reducing overall spending. So keep shouting those spending per month figures without context to prove how mismanaged the company is. After all, you've never been one to let the truth get in the way of a good argument.
As for the upstream, I was doing some research on this today and I'm not convinced this is as big a deal. The AOT Midstream units are solving a problem no other company is able to fix because of the size of the midstream pipes. On these smaller upstream pipes there are already various magnetic treatments currently in use (e.g. Azure Innovations, Mag-Tek, probably others) which people seem to be happy with. Plus, smaller pipes means smaller profits. Using the published numbers from these companies, the installation of a magnetic upstream solution might mean an increase in profit of ~$15-20 million annually for an area with 8 active wells. Obviously these solutions are a good investment for the upstream operators, and if STWA were able to court a lot of these companies that would be great. But for now, I'm more interested in focusing on those pipelines AOT alone can improve, rather than competing with already established companies.
Well I think you can interpret what you're doing however you like, but I think under any reasonable standard, two people exchanging their logic and reasoning in a public forum, while testing the strength or weakness of particular propositions meets the standard of a 'debate'. But that's semantics.
I don't think that my request was out of place or put undue burdens on you. You define Jones Walker as a company who specializes in M&A's pertaining to midstream oil companies. I just want to know your reasons for defining them in that way, as opposed to as a multifaceted legal firm who also specializes in IPR work. I did my homework on this question. I found a single instance where Jones Walker DID offer legal advice in an energy company merger (details here: http://amlawdaily.typepad.com/amlawdaily/2011/10/superior-complete.html). But beyond this instance, I found no other examples. My question was for you to clarify your reasoning for your argument, not to do my homework. After all, on other issues (China, companies going PR silent), you were more than forthcoming to offer deeper insight into how you reached your conclusions and provide examples which would enrich your claim.
You might consider your posts as 'for entertainment purposes only,' and I get that. I love argumentation and debate, so I'm willing to devote time and energy in the pursuit of testing hypotheses - that's entertainment itself for me. And I agree much of your argument seems plausible, but this piece doesn't fit as nicely. If you're unwilling to push the discussion in this direction, that's fine. I'm sure Sox and Sano want talk about dilution or something. But you're obviously a smart dude who has done his research, and I'd be curious what your research discovered which was absent in my own, which makes you skeptical of the official reasons for Dominique/Jones Walker's relationship with STWA.
I continue to agree that it makes plenty of sense on a longer term basis that HAL could take over, but the way you argue for it here is not too persuasive.
For instance, you note that a critical thinker is able to distinguish between random chance occurrences and a set of actions which tell a clear story. I totally agree. However, when pushed on these issues you balk. The clearest example of this is continues to be the Dominique/Jones Walker connection. In two of your recent posts about this topic, you state that Jones Walked is a legal firm which specializes in M&A's for midstream oil companies, and retains their lawyer Dean Dominique, who was previously a patent attorney for Halliburton, arguing that if people think this is a coincidence, they are crazy. On face, you're totally right. It would be absurd to say that is just a set of coincidences.
But doing even a small bit of research on Jones Walker shows that they are a massive legal firm with over 40 specialties, and based on the way they publicly identify their own services. I found one instance where they provided legal council for an oil M&A - the 2011 merger between Superior Energy Services and Complete Production Services. So we've got one. But one instance doesn't make a specialty. When pushed, you respond "the merits of puzzle pieces like Jones Walker" "only distracts you from the target". So which is it? Is the Dominique connection (the only member of the STWA team who has worked at HAL) one of the vital arguments which holds your thesis together, or is it an irrelevant tangent?
This makes me wonder if you are in a position where believing is seeing. You look at particular events only in certain ways to make them fit the puzzle you have decided is a pending acquisition. Other coincidences that I think you have failed to defend include: your earlier identification of Dickson as a HAL guy (despite working at Kinder-Morgan for 26 years), the appointment of Stubbs until the shareholder meeting (at which point we can vote on his continued employment), and months of PR silence (only to backtrack and say they are making investor relations a priority). So STWA might have "acted like a company that was in talks for an acquisition" after the SA hit piece, but I disagree that they've been acting that way recently.
So this responds to about four or five of your ten coincidences. I still agree the HAL thesis does the best job of explaining China. It does a good job of explaining Temple and post-SA silence. But I'm becoming more skeptical on these other issues which flesh out the story. Sano asked you to predict when an acquisition would occur. I agree no one can give a date. But at times it seems you're saying by the end of the year (both here and in reference to the 14a), and in other posts expect an acquistion only after STWA has uplisted. I continue to agree that a framework for acquisition over the long term makes plenty of sense, but I think that it hurts your case by trying to push this into an unrealistic timeline. This is doubly true that the immanent acquisition thesis doesn't cohere with the arguments you make about the need to go to 300M shares, since a December acquisition would (likely) void unvested options.
With that said, we're both on the same team. We both agree that AOT is a fundamental game-changer. We both agree that the people holding shares are en route to a massive pay day. We just disagree on what that path looks like. And if you end up being right and we're all about to cash out - I have no problem with that outcome. I am simply wary of any set of controversial premises going untested. I think that our exchange over the past few days has provided those sitting on the sidelines with more depth and insight into STWA than they otherwise would have had, and appreciate the time and effort you are putting in to make us all more educated about the company.
Haha, well, in fairness I was a bit shocked to see the installation already set up on the ground. The one 'above' detail picture is clearly computer generated. The other two just look great. Oh well. That's life sometimes.
I wanted to have enough time to give this post its fair due, but unfortunately time has been lacking for me over the past few days. A few brief points, though. I might revisit this later, but my sense is that if the timeframe issues are removed from speculation, I am much less weary about your argument.
1) The way you talk about an acquisition here wouldn't surprise me in the least. If STWA were sitting at $25/share, post-NASDAQ uplist, I could easily see them being bought out. The way you were talking about STWA, with reference to the preliminary 14a, was as though we were going to have an offer to vote on in December. As a long term prospect, a HAL acquisition makes tons of sense. Just not this December.
2) The moment I am most skeptical is about the Dominique connection still. Jones Walker is a massive firm. We are retaining their services to make sure there are no problems with licensing patents from Temple. You say Jones Walker specializes in the acquisition of midstream oil companies. On this question, can you provide a few examples to show this is really what they're good at, as opposed to just one of forty things that they are able to do?
I hadn't seen this get published. Thanks for the link.
One thing that I notice which is significant? There are actual pictures of the AOT installation for TRP to play with. And it's ready to go well before the January deadline.
This makes me curious. Sano, are you upset that STWA didn't publish a PR statement saying that AOT #0002, #0003, and #0004 were finished? Clearly the people manufacturing the units aren't the set of scrubs you have made them out to be. As it turns out, it takes significantly less than 9 months to create each AOT unit.
Again JT, I always love the depth and scope of your analysis. As I said in my first post, I don’t find the HAL buyout thesis improbable, but also want to rush to seeing this as the only conclusion. However, I do want to clear up a few things to perhaps determine if these puzzle pieces really do fit into place, or if you’re shaving a little bit of the side so you can force it into place.
1) The Halliburton connection. You’re totally right on Baker-Hughes and others as being bigger than HAL. But as I look at it, there is only one person (Dominique) who I’d call a Halliburton person, and one person working at one company doesn’t seem like a coincidence nor a hidden truth; it just seems like any normal event which happens day in and day out. You say there are three (Dominique, Bigger, and Dickson). While STWA might be on HAL’s radar because of some connection with Bigger (plausible), Dickson worked at Kinder-Morgan for 26 years. Just because he might have some connections with HAL makes him being a “HAL guy” a stretch. This leaves us in a position where STWA has one direct connection with HAL, and one friendly connection. This is nothing to scoff at, but it doesn’t cascade as cleanly as your arguments provide.
2) China and Temple. Seriously, this is your best argument. I think you misread my original post – I thought the official explanation for Temple made some sense (company moving from R&D to commercialization, good time to revisit the payment structure). China just went silent. The HAL thesis makes a TON of sense to explain China. I’ll admit that I don’t have a better answer, but that doesn’t mean they aren’t out there (e.g. lack of distribution channels for Asia = better to focus on North America first; China not wanting to pay enough; IPR difficulties between STWA and China).
But for Temple, I think the way you frame the relationship highlights why Dominique is important. STWA holds exclusive worldwide rights to Temple’s patents, but because they themselves don’t own the patents they are ostensibly in a position where the legal rights to use them could be stripped away from them. Granted I don’t think that this is a likely scenario, but if all of my eggs were in a single basket and there was a non-zero-percent risk that it might be illegal for me to use those eggs, I’d want a skilled patent attorney in my pocket to make sure that the recently renegotiated agreement ensures that I am totally protected. Last word on Dominique. If it’s true that he marks an important connection between STWA and HAL, why would that intermediary be a patent attorney, especially since STWA has no patents of their own and that wouldn’t be a point of contention in an M&A? I’m also curious about what major oil M&A’s Jones Walker has negotiated that shows your confidence that the HAL -> Dominique -> Jones Walker -> M&A connection is a good one.
3) Increasing number of shares. The comments you make about the issuance of options vs. current maximum sounds correct. But that’s where my question comes in (and it comes in from a place of naivety). If an acquisition is immanent, and happens prior to large chunks of these options becoming vested, then what happens to these options? Do they disappear into the ether (in much the same way super-shares would simply be voided) or do they immediately vest? Depending on what would happen to these unexercised options, an acquisition makes this either (a) totally irrelevant, or (b) wildly important. My assumption would be that these options just disappear in a world of an acquisition meaning that pushing the ceiling higher is not needed, so that makes the question again, why increase the max from 200M to 300M?
You also say on this point that it improves the return on conversions. I get that. But it seems a bit odd that HAL’s determining factor for how much it would cost to acquire STWA is decided by the total number of shares. Using your 1:1 conversion, you peg a STWA buyout at the value of (!) $10B. Why would HAL decide that the company is suddenly worth $15B simply because there are more shares available? I do agree that if STWA were sitting at $25/share on NASDAQ then a 1:1 conversion would be more likely, but how is increasing the total maximum shares get STWA to that point? In your judgment, what’s the link between more shares and NASDAQ? Certainly there could be some. I argued at some point in the recent past the increase in liquidity would make STWA more attractive to institutional investors, but I’d be curious about how you read these tea leaves so that it is evidence of an acquisition.
4) PR darkness. Yea that was weird, wasn’t it? Maybe it was M&A talks behind closed doors. Maybe it was just STWA waiting until they have awesome details about their deal with TRP. It just seems odd for a company to go silent because of a potential M&A, pop up to announce they have a deal, and then announce they’ve “expanded and streamlined” their investor relations to provide more info about the company. That doesn’t sound like a topic a company about to be acquired would be concerned with.
5) Mark Stubbs – Just one thought on this, because I think that this is actually business as usual, and I remember this same argument being made about someone (Zinke? Bigger?) in the past. Stubbs is currently appointed to the board until the next shareholder meeting. At that point, the shareholders will vote for him to be a member of the Board. So his employment is only an appointment until the vote, after which it becomes formal (although, it could technically be voted out, meaning his employment is only guaranteed until then). So while he does flag himself as someone who’s specialized at M&A’s, that’s only one bullet point alongside of investor relations (discussed above), patent litigation (discussed above), and VC fundraising. All of these things are topics of concern for STWA, and only focusing on his specialty on M&A’s overdetermines why he might be at STWA.
So call me Fox Mulder. I want to believe. And the HAL thesis might do the best job at explaining China. I just think that this argument alone doesn't prove that an acquisition will be a topic to vote on in December.
Sano's argument rests on the notion that TRP and HAL are somehow competitors. TRP is in the business of building pipelines. HAL is in the business of making sure pipelines work well. It's almost like these companies are symbiotic, not competitive.
As for Temple, it's a simple matter of risk and reward. Fortunately they're good at math. Taking a larger cut of a smaller, riskier pie is not as desirable as taking a smaller cut out of a larger, safer pie. Only through some bizarro logic I don't follow, you are arguing here that for Temple, STWA is a better bet than HAL. This means either a) You've come around and think STWA is a strong buy, or b) your argument makes literally no sense.
While people who hold lots of shares in STWA are not particularly risk-averse, it makes total sense why a public university would be. In an era of increasingly limited university budgets (especially in PA, where the governor cut funding by 19%, and has been gunning for a 30% reduction to Pitt, Temple, Penn State, and Lincoln), the safe move is the right move for Temple. So tell me, how do the budget woes of a public university in the cross-hairs of the governor compare to the situation at a private university who is insulated from political concerns?
JT, I’ve heard the Halliburton theory floated by you a few times in the past. I’m certainly not one to say that you’re wrong, but instead suggest that there are alternative narratives opposed to the Halliburton acquisition. Would I be happy if you end up being correct? Sure. Does this theory provide a compelling answer to the China question? Yes. Does it offer an answer to why things changed with Temple? Yes, but I don’t think the official explanation was irrational either. So while it does do some important work, it raises new questions about recent company activity and makes stretches in other areas. Given this, I feel obligated to push you on a few of your connections. Just remember, these criticisms come from a place of respect, and from someone who is optimistic about the company's future:
1) All these people worked at Halliburton. That IS a bit weird, isn’t it? Except, of course, that Halliburton is one of the largest oil and gas companies on the planet. The odds that STWA would be able to avoid people with at least some Halliburton connection would be difficult. So while some folks have explicit or implicit connections with HAL, I’m not convinced that it’s all orchestrated. For example, you flag Don Dickson as a Halliburton guy. Why? Dickson worked at Kinder-Morgan for 26 years. While he might have worked with HAL at some point, why does this tangential connection make his connections with HAL tighter than with Kinder-Morgan? When seeing this tight of a connection, one might argue “Our next contract after TRP will be with Kinder Morgan!” as a possible reason for Dickson being around. In contrast to either of these explanations, I just think that STWA is putting together a qualified team of people who have worked at/learned from successful companies in the field. After all, we didn't need anyone from TRP to get a contract going with them.
2) Dominique/Jones Walker = M&A. Sure, Jones Walker does this work. But it’s just a bullet-point among about 40 things that they do. To say that’s their ‘specialty’ seems to be something of a stretch. One of their other specialties is with intellectual property, which is what STWA says Dominique was hired for. While Dominique himself worked at Halliburton, he worked there as a patent attorney. So making the connection from HAL -> Dominique -> Jones Walker -> M&A seems a bit of a stretch. Based on admittedly limited research, I’m not convinced. Jones Walker, in the area of Energy says: “We advise clients on the full range of energy and natural resources matters involving oil and gas (upstream, midstream, and downstream, as well as onshore and offshore), power generation, alternative energy, mining and water. We handle complex energy transactions help ensure regulatory compliance and resolution of conflicts with federal and state agencies, provide government relations services, and represent clients in all forms of industry-related disputes and litigation.” This seems to be a robust offering of energy services rather than specializing in M&A’s, which don’t make the list of services provided. However – I’m open to being wrong. I just want to see those acquisitions negotiated by Jones Walker that would be analogous to STWA/HAL before I’m willing to drink the Kool-Aid.
You also talk about Stubbs in this context as being another pawn in the Halliburton M&A, but I’d be curious to know, in your past DD, if either Stubbs or Dominique have actually been the headliners on any significant deals, or, if they took a few classes while in business/law school and keep that as a thing they could do on their CV.
3) Things that fall outside of the M&A thesis. If it’s true that an acquisition is right around the corner, why does STWA need to be concerned with increasing their maximum share count to 300m? Why did STWA feel the need to offer a revision to their 14a that says they are freezing Cecil’s salary and setting up a framework to have non-binding votes on compensation every three years (n.b. I will agree though, that a lot of the language in the 14a about Kyte and Bigger’s potential termination does speak to potential M&As, so there’s that)? Why would STWA keep paying money to a firm who specializes in NASDAQ uplisting if they are just going to be acquired? There might be some other statements which don’t seem to make sense if an M&A is right around the corner, but these are the ones which immediately come to mind for me. I’d certainly be interested to hear your input on those issues, and hopefully hear the context of past activities by the people/companies you flag as significant to prove that the chess board is set up the way you believe it to be.
Yes and no. As usual, the truth is somewhere in between opposing views. Currently, STWA is authorized to issue up to 200m shares of stock. They have currently issued about 165m of those. If they wanted, without shareholder authorization, could issue all 200m. However, the question on the proxy vote is whether the company should be authorized to issue shares numbered 200,000,001-300,000,000. They MUST get approval for this.
With this distinction in mind, it is clear that the "dilution coming!" cries are a bit off the mark, since the company currently has the ability to issue an additional 35 million already authorized shares. They are preparing options to provide contingencies for future possibilities. That's all.
So much arbitrary doom and gloom. The tale you sketch only makes sense from a particularly jaded perspective without an honest attempt to determine why particular statements are worded as they are. A few things probably need pointed out.
STWA currently has about 165 million shares outstanding. They're allowed, by the current rules, to increase to 200 million. If this were simply a ploy for dilution, why haven't they already pushed it to the maximum allowable now? While no one would be too excited about issuing more shares simply to fund raise, you omit the arguments the company makes for upping the limit to 300 million, including but not limited to potential stock splits, or the issuance of stock to prevent a hostile takeover. While they don't note it here, I'd also make a case for the increased liquidity that comes along more with a larger number of shares, which tends to be an important question for whether or not a mutual funds would choose to invest in a particular stock.
However, with the question of takeover in mind, it becomes clear that this possibility is the reason why the amendments to Cecil and Bigger's contracts are written as they are. Is there a non-zero-percent risk that it's simply so they can cut and run? Sure. But it's much more likely that it's written such that, in the event of a hostile takeover (which would, as the amendment notes, move the office 25-miles from Santa Barbara or substantially change their responsibilities), that the CEO and CFO aren't screwed. Compare the language to what happens if he is terminated "with cause" as opposed to "without case".
You claim 'plenty' (Seriously. vacuous signifiers aren't helpful. If you're going to make an argument, name names.) of penny companies get a company under NDA and promote like mad, therefore, this is exactly what we're witnessing here. I agree with this statement in the abstract. Yes, plenty of disreputable companies will say crazy things to get people's attention. However, with STWA, this argument has two problems:
1) STWA would be a failure if this were their game. They published no PR statement after the TRP contract was signed, and didn't mention it until their annual 'letter to shareholders'. I'd hardly call this 'promoting it like mad.' So even if 'plenty' of penny stocks do this, the techniques STWA is using seem antithetical to the justifications you provide.
2) There is an essential difference between "you talked with my company and now you have details. Boom. NDA." and "We've been in contract talks for months. Lets develop a pilot program". For your argument to be persuasive, you need to provide actual examples of multi-billion dollar companies who get duped by scams with shiny powerpoint presentations. I do agree that TRP's interest might simply be to 'green' their project. That's okay. If they want to pay STWA $200m so that they can look greener, more power to them.
As for mutual funds, it's already happened. For someone who posts about STWA daily, you sure have a short memory of things that happen about it. Recall the public conversations in July where we made sense of what ENY/Guggenheim was doing by filing its paperwork with regard to STWA. The end of that conversation was that they filed the paperwork for them to purchase the stock. Isn't it just a little too ironic that ENY files these documents immediately after TRP, one of the stocks the ETF is most heavily invested in, signs a contract with the company? It's almost like ENY knew that TRP was interested in the company.
Final thought. More and more, I notice you end your responses to me with these statements like "it's pointless to debate" or "We just differ in our perspectives." I think that's weak. If you're going to take the time to craft an argument, you should at least be willing to defend it. Debate is awesome. It lets us test competing conceptions of the truth during moments of uncertainty. But it also only works when those involved are willing to actual change their perspective based on the stregnth of competing arguments. Simply throwing your hands up in the air saying 'we just disagree!' proves that you're not actually here to have a discussion. It means that you are just a troll. And that's sad, because again, debate is awesome, but also of all the bashers, you're the one who would occasionally be willing to go toe-to-toe in an intellectual discussion about the company. But now you're just becoming Sox 2.0. And as someone who thinks that both sides of arguments should be provided an open forum, I think this is sad.
MF's argument is neither "wildly optimistic" nor "based on fluffy PRs". Unless you consider 8-K's to be 'fluffy' and simple multiplication to be a wild extrapolation. Directly from the 8K that announces the program:
"[TRP] shall have an option to purchase the Equipment for a fixed price during the Initial Term of $4,300,000, and a price during the Extended Term of the greater of $4,300,000 or fair market value"
So they can purchase it for $4.3m or market value, whichever is more. All MF does is take this number and multiply it by the number of pumping stations (how wild can you get!). Would there be some discount for ordering things in bulk? Sure. I can see that. But acting like this would significantly reduce the value of the contract is laughable. I know that I'll cry myself to sleep if the TRP contract is worth only $175m instead of $200m.
We've all seen penny stocks time and time again overpromise and under deliver. I'm curious how many times that these companies have been in a position where multi-billion dollar transnational companies are interested in what the penny stock is doing. Or that have mutual funds prepping their own SEC documents in advance so they have the right to buy the stock. It's good to know that you think the TRP test is positive, and while I think that your skepticism is not warranted, I also think you radically undervalue how this test legitimates the work the company is doing independent from the material value of some future contract.
The bottom part of your response is related to my post the other day. Your response here proves you still don't get it. Maybe third time time is a charm. The original post just used random numbers to illustrate that the arguments you and Sox made don't make sense in the real world. That post was not trying to make an argument about numbers, but instead show how the logical process you were both using fails to translate into a real world situation. So yes, obviously the numbers are made up, but I'd suggest you actually focus on the arguments being made instead of trying to deflect the conversation with irrelevant semantic criticism.
As for NDA's, to be somewhat skeptical can be a good thing. I get it that the lack of information can be a red flag. However, the fact that TRP was one of those companies under NDA ought to allay some of these concerns because it proves that real conversations with real companies is happening. The information you need to know about production capabilities is publicly known. Those company's aren't under any NDAs.
Blast from the past MWP! Responding like this to cover all the posts you made. Probably should just flag in advance that this PR statement should simply be read as a catch-up for people in advance of the SHM. Nothing more. It just puts all the info in one place, so again, I don’t know why this statement has made all the bashers come out of the woodwork.
But you do provide a lot of horrible arguments though. Let’s take a look.
You say RMOTC testing gets cut short. I say they tested there and got good enough results. These results were clearly adequate for TRP to take the tech for a test drive. If a company is willing to pay to do the testing for you, why keep testing on your own dime?
You say Elektra (over and over and over again). I say that’s irrelevant and will answer all of your arguments about it here. Go do the work in peer-reviewed journal articles. There are plenty of scientists who were unable to replicate Tao’s work in engines, telling me that the basic science to make Elektra work isn’t there. Just because the basic science has problem in one place doesn’t mean it fails in others. You haven’t been around in a while, so check out my previous posts about the science. It’s different this time because scientists around the globe agree that treating crude oil with magnetic fields reduces the viscosity of the oil. This includes research published this month which observed a 50% reduction in viscosity. So keep harping on Elektra while keeping in mind that your argument really is “How dare you not keep throwing more good money after bad, even though you’re actively spending that money on something that does work and industry players are interested in! You said Elektra in the past, and I demand that you keep talking about it now!” Short sighted arguments are bad.
You say the company is financially weak. Your warrant is Elektra, somehow. I say we signed a pilot program with a multi-billion dollar company. Plus look at the 10-Q. YOY expenses dropped from $3.72m to $2.75m in the first half of each year. Plus they have more cash on hand than at any point in their history. Where are your numbers showing weakness?
You say “what have you done for me lately?” and complain about China. I say scoreboard, TRP. The “NDA’s are a sham” argument loses a lot of persuasive effect when it is revealed that one of these NDA’s was with Transcanada. And that was in August. So I think that meets your criteria of ‘lately’.
You say partners are unreliable. I say that the people they’re partnering with are the people they should be. It’s easy to make ad homs against a distribution partner in Africa. It’s much harder to say that the supply chain operators like Power Service Inc. and Industrial Screen and Maintenance, who have been in the business of fabricating goods for oil and gas companies for forty years are not reputable. The first contract(s) will be in North America. So I’m a lot more concerned about our partners in Casper Wyoming than I am in the Middle East.
You say plenty of non-sequiturs about Europe. I say this is irrelevant because while North America is more important, pretending the rest of the world isn’t there is short sighted. You also talk about Nimmo. I say that these are ad homs. Shouldn’t you just go back to complaining about Cecil being a pilot? This is no different.
You challenge TRP. I say that your arguments are horrible here. You mock the ‘flagship’ moniker. I say you should probably check out the TRP website to see where they identify the Keystone project under their “key projects” subject heading. Obviously the current contract with TRP is a pilot program. I challenge you to consider how long this testing will run for. Do you honestly think that if the AOT is installed in January and is evaluated for a month, that TRP will wait until July to place an order? So they’re not talking about simply putting one unit into service, but deploying it along the length of the pipeline.
You say R&D pivot is flawed. I say this is answered in the Elektra section. How many companies were willing to take Elektra for a test drive? Or were willing to pay their own money to see if the claims about it were real. History can be a good guide, but we should also be keen enough to know when it ceases to be relevant. If the technology this time is so bad and the leadership of the company so horrible, then why would TRP even be interested in testing the technology out? Really, keep shouting about how bad a product the company no longer focuses on is.
One could ask you the same thing, seeing as so many of your arguments are grounded in irrational skepticism (btw, still waiting for that killer stack of journal articles to prove me wrong!). Although I tend to find attacking the statements that someone else makes which are specifically flagged "for illustrative purposes only" tends to be a bad strategy.
In contrast, I think that the set of arguments you are making paints a very positive picture for the company. Consider the statements you have made in the past:
Claim: It took STWA 9 months to construct AOT Unit #1.
Conclusion: Therefore, it will be impossible for STWA to meet the January 2014 installation date.
Claim: STWA only got $60k/month for the TRP program.
Conclusion: Therefore, STWA will not be able to ramp up production.
Now lets just pause and thing about this set of statements together. We have no reason to believe STWA will miss its delivery date. This means STWA, with limited financial capital, is able to produce three units in half the time as the first one. Any rational contractual agreement between TRP and STWA would have TRP pay a significant portion in advance. If this is true, why would we expect STWA to be unable to ramp up production significantly?
Obviously going from producing one AOT to a dozen doesn't happen over night, but if TRP agreed to a five month window for one site, it's clearly not a big issue for them. Economy of scale is a thing, and it doesn't stop working just because you hate the company who is expanding production. So it seems a bit disingenuous to attempt to say how much doom and gloom is associated with STWAs manufacturing future, seeing as TRP has been happy to foot the bill to get production off the ground so far.
As for today's news, though, I really don't see the big deal at all. It just brings everyone up to speed on what has happened this year, puts all the information in one place for those who are new to the company, and serves as a handy reference with the shareholder meeting coming up. I am frankly a bit surprised how much ire is stirred up.
Exactly. Odds are high that the contract STWA sees will be structured this way to make the financing question an irrelevant one - in much the same way TRP was willing to foot the bill for the testing.
That's why in my "Day 5" the basher theory just assumes that TRP gives up in the event that STWA were unable to procure financing in the form of a loan. Assuming that a multi-billion dollar company would just give up on something they desire because of a short-term financing problem is ludicrous. This argument is identical in structure to the "default to Temple" argument a while back, because they assume that companies work the same way as a household is run, which I think we can all agree is an incorrect analogy.