Plastic2Oil Inc (PTOI)

[the big guy]

I have had a chance to have a good look at this document, and although it is well written and believable to a point, it falls down badly in one critical area, the EBITDA. Unless my math is wrong. Therefore I question it's authenticity. I find it surprising that JBI has issued a PR saying it was an improper release of a confidential document. This seems to imply it is the real thing.

The piece starts well. SAIC definitely does this kind of work. Here is a link on them:

http://www2.saic.com/announcement/saic-advances-2012-enr-rankings

They are not near the top of the list in terms of EPCM companies (Engineering Procurement Construction Management), but they are in the list. I would have preferred Bechtel or CH2M Hill, but they are there.

The stats around the 3-day operating period are good. At the throughput rate of 2000 lb/hour, that gives 144k lb of plastic processed max. Given the uptime they suggest, the 121k number given is reasonable.

An Order of Magnitude estimate is the first step(level 1 estimate) in an engineering analysis to design a system like this. It is accurate to +50/ -40% (I am guessing). Look in the AACE standards for the exact figures.

$6.5M + Engineering Design Fees + Contractor Distributable Cost for an additional $2M.

Seems reasonable. A bit high. If it is similar to other systems I have worked on, there is a core technology (the P2O processor) upon which the rest of the system is based. Therefore there will always be Engineering costs, but not much. I worked on a 10 Million job where the Engineering fees were about $500k. And this involved a proven core technology. So the numbers are not bad. Contractor Distributable Cost probably refers to materials paid for by the Construction Contractor that are reimbursable by the Owner, therefore additional to the costs covered in the Construction Contract part of the estimate. The basic model here is an EPC (Engineer Procure Construct) where a contractor takes on the whole responsibility to build the cluster, perhaps paying subcontractors for pieces of the work.

What is somewhat odd is that JBI has been at this for maybe 3 years now? You would think that they would have a more definitive estimate by now. Perhaps a Level 3 or 4 estimate. It would be accurate to maybe +- 20%. That is the first thing that is odd.

But, the EBITDA number is totally unbelievable. And, there is way too much detail encapsulated in that statement. Just some basic math:

From the document, they produced 10287 gallons of #6 and 4269 gallons of naptha in 3 days. Go to this link and find out how many barrels of oil that is:

http://www.metric-conversions.org/volume/us-dry-gallons-to-us-oil-barrels.htm?val=10287

You will find out that the most that is from both products is 460 barrels (326 barrels #6 and 135 barrels naptha).

The revenue generated is simply that number of barrels multiplied by the going rate. Using $70/ barrel, that gives $3.2 Million. TO arrive at that, assume 300 days of operation/year. That gives 46k barrels/year. Multiply by 70.

As for Cost, using $10/barrel, that gives is 460k (46k*10). Therefore the Most the EBITDA can be is $2,8 Million. Not including SG&A, etc.

I even thought of multiplying by 3 for a 3-processor cluster. Still far out. Double the rate to 4000 lb/ hour? Still only half of what the document says.

Therefore, I must question it's authenticity.

Can anyone dispute my math?