Dear Shareholders,
2018 is poised to be a turning-point for QS Energy.
We made progress on many fronts over the past year and are now positioned to complete our evolution from research and development to commercialization.
Throughout 2017, the company implemented a retrofit program.
Over the past few months, we have been working diligently on what I believe to be the company's final key to success -- the installation and operation of one or more pilot projects; projects that will operate under relative transparency.
Our efforts to secure one or more pilot projects are currently focused on specific prospects in three primary markets: U.S.,
South America,
and Asia.
Each of these prospects operates heavy crude oil pipelines with an identified system-wide need likely to benefit AOT viscosity reduction.
In November, Shannon and I had a very productive trip to South America, meeting with eight companies in Ecuador, Colombia, and Peru
Each of these companies expressed both interest and need for our AOT technology and discussions are continuing at a variety of levels.
Our most interesting prospect in South America has a defined need to increase capacity on a pipeline transporting a very heavy crude typical throughout South America.
This operator is weighing AOT against installing more pump stations while adding more diluent to its blend to meet its needs.
Preliminary analysis indicates AOT could decrease viscosity by more than 50%,
allowing for increased flow rates and decreased reliance on diluent, with the potential to increase pipeline capacity by 20%.
We are now in negotiations on terms of a Letter of Intent (LOI) detailing the preliminary scope and terms of a pilot project subject to crude oil sample laboratory testing and analysis to improve on our preliminary estimates and optimize the pilot site AOT configuration.
The LOI will also detail the expected system-wide deployment of AOTs
subject to 30 to 60 days of pilot testing.
Importantly, we intend to maintain a high level of transparency on pilot test data collected for future use and dissemination by QS Energy.
Overall, we are looking forward to a very busy 2018 in South America.
We are also very excited by opportunities in Asia,
having recently reopened discussions with an Asian crude oil company with prior experience testing AOT equipment in the field.
we have provided a draft LOI and hope to move quickly based on their experience and familiarity with QS Energy and our technology.
North America continues to be a market of major focus.
After operating AOT on a condensate (ultralight) pipeline in Texas, we continue to work with this midstream operator to locate a new test site on a pipeline transporting heavier crude to demonstrate greater benefit from AOT viscosity reduction.
We are also in active discussions with several other U.S. and Canadian midstream companies regarding a pilot project allowing for data transparency.
We are working closely with one midstream operator with an expressed interest in using AOT to alleviate pipeline bottlenecks in the Southern United States.
A crude oil sample from the prospective site arrived at Temple University this week for laboratory testing. Preliminary test results and analysis should be completed next week, with final results to follow shortly thereafter.
After working with this company for the past five months, we have confidence that AOT can provide a cost-effective solution to their bottleneck issues.
Subject to laboratory test results at Temple University, we intend to move forward with an AOT pilot project with potential for system-wide deployment.
conversations continue with prospective customers in the Gulf Coast, Canada, and the Middle East.
We are excited about 2018 and the strategy and plans we have for this company.
I would like to share the certain goals and milestones we have set as management of QS Energy.
Our key focus is the installation and completion of a pilot project.
This effort is well underway as we are in pilot project discussions with three companies and expect to have our first letter of intent signed shortly.
Upon completion and analysis of laboratory testing of sample crude oil, we will meet to discuss analytics, select a pilot project site, define the scope of a post-pilot rollout and execute definitive pilot project contracts.
Pilot installation and testing would begin upon contract execution.
Based on current timelines and discussions, we are projecting installation of our first pilot test in Q2-Q3 2018, followed by 30 to 60 days of testing to be completed by the end of Q3 2018.
Subject to successful testing, we would execute definitive agreements to sell or lease equipment for the expanded rollout as defined in the original LOI in Q4 2018.
Based on current discussions with prospective pilot customers,
we believe this schedule is achievable,
putting us on target to begin commercial deployment by year-end.
Armed with pilot project data,
we should be positioned for accelerated sales in 2019 and beyond.
I believe we are moving in the right direction and are laser-focused on heavy crude oil markets
I look forward to bringing you all definitive news as it happens in the very near future.
Smile AOT Works
Recent field tests with a crude oil pipeline fully confirm the theoretical results.
AI
