A few random thoughts:
1) Our group in PA believes the joint venture partner will be a driller (the group is split between Baker Hughes and Schlumberger, my personal pick is Schlumberger).
2) We envision the driller having an exclusive right to market this water treatment solution to exploration and production companies.
3)The manufacturing fee mentioned in the 8K will drop to Ecosphere's bottom line. It is our understanding it costs less than $2,750,000 to manufacture a unit (our guess is less than $2,000,000). A two unit set is needed for each drilling pad. One machine to treat the water going in (thereby eliminating biocides) and one machine to treat the water coming up from the hole.
4) We believe poster JoeybagofDonuts got it right; the licensing fee is a one time fee per machine that drops to the bottom line. The royalty fee is a nominal per gallon cost per gallon of water processed. The nominal amount adds up when you're processing 2,500 gallons a minute. The royalty fee drops to the bottom line.
5) The joint venture partner also pays the cost to run the machine to EES. The new 2 machine set reduces the EES labor force from 5 to 4 people per pad site. We believe with the EES margin included this cost will approximate $200,000 to $250,000 per quarter per machine set. Ecosphere gets a cut of this as the controlling partner in EES. This cut drops to the bottom line less the operating costs.
6) Finally, from the joint venture partner's perspective they can exclusively market a non-chemical system for the water injected into the well and can recycle the dirty chemical laden frac flowback on site with a small footprint (two tractor trailers), and they can do it for a price that is competitve with the use of chemicals and costly trucking of water off-site and treatment elsewhere (by our estimates, this alone costs 7 cents a gallon).
We believe the slow roll-out enables the joint venture partner to try out Ecosphere machines in different shale formations to ensure it works as promised. Our research leads us to believe Ecosphere has the technology that is going to work succesfully.
For investors, we believe the share price should double on the finalization and public announcement of a joint venture to $1.50 PPS. Sales alone will quadruple, so from a PPS to sales ratio that is a conservative estimate.
Ecosphere needs an additional $2,000,000 per quarter in profit to break even. That will probably be achieved once production starts to get going and the manufacturing fees roll in. With 140 million shares outstanding and a 25 PE ratio (not unreasonable for a rapidly growing company) and all 16 machines are fully operational, we believe each machine could potentially generate $300,000 profit (from royalty fees) per quarter equating to a $16 to $18 PPS.
AI
