QUOTE AND NEWS
GenEng News  Oct 14  Comment 
The decision to use single-use systems for manufacturing pharmaceuticals depends on many factors. However the major driving force is a desire to increase throughput. Single-use fermenters (SUFs) eliminate cross contamination, reduce water...
StreetInsider.com  Jun 7  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/SulphCo+%28SUF%29+to+Delist+from+NYSE+Amex/6566770.html for the full story.
StreetInsider.com  May 31  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/SulphCo+%28SUF%29+Further+Reduces+Workforce%3B+Review+Alternatives+Including+Bankruptcy/6549723.html for the full story.
StreetInsider.com  Apr 18  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/SulphCo+%28SUF%29+Cutting+Workforce%3B+To+Pursue+Strategic+Alternatives/6432737.html for the full story.
Penny Stock DD  Mar 9  Comment 
Tengasco, Inc. (AMEX:TGC) witnessed the correction of 12.03% and closed at $1.17 whereas overall traded volume stood at 2.15 million shares for the day. The current market price is 49.35% more than its last 50 days simple moving average. The...
Penny Stock DD  Feb 22  Comment 
General Moly, Inc. (AMEX:GMO) plunged by 5.24% to close at $5.42 with overall traded volume of 1.06 million shares in the last trading day. The company maintains strong short term liquidity position with current ratio of 3.76 times. The share...
Penny Stock DD  Feb 16  Comment 
Rentech, Inc. (AMEX:RTK) went down by 0.78% to close at $1.27 with overall traded volume of 1.54 million shares in the last trading day. The share price is highly reactive to market index as its beta value stands at 2.24 times till its last...
StreetInsider.com  Feb 1  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/SulphCo+%28SUF%29+Announces+%242M+Registered+Direct+Offering/6248817.html for the full story.
Penny Stock DD  Jan 11  Comment 
Rubicon Minerals Corp. (USA) (AMEX:RBY) jumped up by 6.23% and closed at $5.46 whereas overall traded volume stood at 1.57 million shares for the day. The company maintains strong short term liquidity position with current ratio of 9.25 times. The...
StreetInsider.com  Dec 20  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/SulphCo+%28SUF%29+CEO+Ryan+to+Step+Down%3B+CFO+Farmer+Named+President%3B+Operational+Update/6174549.html for the full story.




 


SulphCo Inc. (AMEX: SUF) is developing a technology that improves crude oil by using ultrasound waves to remove sulfur, a process it calls "sonocracking." Sonocracking could allow companies to process previously unusable crude oil and improve the quality of the final gasoline product. Generally, "sweet" or low-sulfur content crude sells for higher prices to refineries than "sour" or high-sulfur content crude because the latter requires expensive and elaborate refineries such as those operated by Valero. If it were commercially viable, sonocracking could turn cheaper, high-sulfur crude into more valuable, low-sulfur crude. This can be a major benefit to oil companies. The process could also help oil drillers process more crude, while oil transporters could normalize their crude quality, making it easier to ship. Overall, third-party estimates say that sonocracking could add $3.00-$3.50 of value to each treated barrel of gasoline, as the fuel will burn more efficiently.[1] Sonocracking also lowers the sulfur emissions of the the final oil product, which adds value to companies that are struggling to comply with the Clean Air Act's emissions mandates and want to avoid government fines.[2]

Despite the potential value of its technology, however, February 2008 was the first time SulphCo had an opportunity to earn revenue. The company signed a deal with Pt. Isis Megah, an oil distributor in India, Malaysia, Singapore, and Indonesia to implement sonocracking technology in their plants. The technology has not yet been installed, so its profitability (and viability) are undetermined. [3]

If SulphCo's operations in Pt. Isis Megah fail, it will become increasingly difficult for SulphCo to be recognized as a legitimate business.[4] Even if Sulpho's technology works on a commercial scale, it must compete with similar technologies - many of which are in development by the oil majors themselves. Chevron will begin to deploy its technology, Vacuum Resid Slurry Hydrocracking (VRSH).[5]. SulphCo lacks the resources of large competitors like Chevron or ConocoPhillips (COP), but hopes that its technology's novel use of ultrasound will prove more effective.[6]

Company Overview

SulphCo, Inc. is an energy technology company focused on the development and commercialization of an oxidative desulfurization (ODS) process for crude oil products, crude oils and condensate streams. SulphCo’s oxidative desulfurization process consists of the ultrasound assisted conversion of the sulfur compounds to their oxidized analogs employing its patented Sonocracking technology and the subsequent removal of these oxidized compounds by a separation technique, such as adsorption.

Sonocracking technology is based upon the use of high power ultrasonics, the application of high energy, high frequency sound waves in conjunction with catalyst and oxidant regimes to alter the molecular structure of crude oil fractions, crude and natural gas condensates, and crude oil. Additionally, in refining applications where the Sonocracking process is used in conjunction with a traditional hydrotreater, the SulphCo technology allows for carbon dioxide emission reductions because less hydrogen is required to meet ultra low sulfur diesel sulfur specifications.

Business and Financial Metrics

As a company in the development stage, SulphCo's financials are completely driven by expenses incurred while developing Sonocracking technology. SulphCo has never turned a profit.

SulphCo's future profitability assumes the following:

  • Sonocracking boosts Pt. Isis Megah's profits considerably, proving the value of SulphCo's business.
  • Major companies like Chevron do not develop technologies to directly replace Sonocracking.
  • SulphCo is able to legally protect its patented process from governments and foreign companies. [7]

First Quarter 2010 Results[8]

For the first three months of 2010, SulphCo's average monthly cash burn rate was approximately $746,000 per month. For the months of April and May, the average monthly cash burn rate was approximately $574,000 per month, a 23% decrease. SulphCo anticipates that the monthly cash burn rate will continue to moderate for the remainder of 2010. As of May 31, 2010, the company had approximately $4.2 million of cash on hand that it anticipates will take the company to early Q1 2011.

Research and Development

SulphCo's research and development attempts to make sonocracking into a large scale industrial process through rigorous live testing on hundreds of thousand oil barrels.[9] Most testing occurs in SulphCo's facility in the United Arab Emirates, but some also occurs in Nevada. So far, SulphCo has conducted four separate series of sonocracking trials. While SulphCo has a commercial prototype, the success of sonocracking research and development is yet to be seen.[10]

Selling, General, and Administrative

SulphCo's large number of pending lawsuits surrounding its new technology cost millions of dollars annually. SulphCo's legal fees will stay high due to the proprietary nature of SulphCo's business. As a company that licenses technology, if SulphCo cannot defend its patents in court, it cannot compete.

When employees cannot figure out how to adjust their sonocrackers, they must pay for outside help. That is to say, SulphCo has a limited number of scientists testing Sonocracking technology. When they cannot solve a physics problem, or a technical difficulty they must contract to outside scientists and technicians. Because SulphCo has only 15 employees, only a few of whom are trained scientifically, technical consulting fees will continue to burden SulphCo. In total, SulphCo spent $3.2 million dollars on consulting and payroll expenses.

SulphCo has very high travel expenses due to the need to send its people around the world. At $900,000 of travel expense, SulphCo is spending $60,000 per year per employee on traveling alone. Travel expenses would decrease if the Sonocracking testing facilities (or future productions sites) became more self-sufficient. International operations are necessary insofar as SulphCo's most extensive testing requires many thousands of barrels of petroleum (oil is far cheaper in the UAE). Oil producers are spread across the world, so it is likely that SulphCo will continue to incur high travel expenses, especially as their technology is becoming commercialized.

Finally, SulphCo's business is energy, and space intensive, justifying its $1.6 million general expenditure on leases, utilities, marketing, and investor relations.

Debt and Dividend Expenses

SulphCo's stock has been plagued by short sellers, and traders often have difficulty borrowing SulphCo stock because it is in such high short-sale demand.[11] SulphCo has not issued a cash dividend as it is not yet an established business. To successfully maintain SulphCo's equity value, the company incurred a total of $24.8 million of non-cash dividend expense.[12] This stock-related expense nearly doubled the net loss attributable to common stockholders in 2007.

Customers

Pt. Isis Megah

Megah is a refinery equipment intermediary that sells equipment to crude oil processors (also known as gathering stations). Megah has bought some of SulphCo's Sonocracking units to sell to crude oil processors.[13] There is no evidence that Megah has sold any of the Sonocracking units which it bought from SulphCo, but when it does, Sonocracking's commercial viability will be revealed.

Other Potential Buyers

SulphCo has not reported any revenues yet, but it has targeted several segments that could potentially buy SulphCo's technology.

Regardless, SulphCo would install its Sonocracking technology at its own expense, and then charge a percentage of the buyer's "uplift," or additional revenues generated because of its more efficient fuel.[14]

  • Oil Drillers

One group of potential buyers of Sonocracking technology would be petroleum producers. Producers have to discard crude oil with too much sulfur content. Sonocracking would allow increased production by allowing producers to ship out crude oil that they would have discarded. Also, Sonocracking claims to improve fuel quality (API gravity) and reduce its sulfur content. Thus, SulphCo could help oil producers make more oil, and sell it for more money. [15]

  • Oil Transporters

Oil transporters first blend oil together, and then ship it. If they could treat high-sulfur crude oil with Sonocracking, they could blend it with low-Sulfur crude oil and therefore transport the two together, saving on shipping costs. Also, pipelines have sulfur specifications that would be less of an obstacle with sulfur-reducing Sonocracking technology.[16]

  • Oil Refiners

By making cleaner, more efficient fuel, Sonocracking would allow refineries to process higher yields of higher value gasoline. The sulfur content and high density of heavy-crude oil often leads to the creation of byproducts which need to be expensively disposed of. Pre-treating crude with sonocracking would lower these costs, as well as increasing the value of the refined oil.[17]

Geographic Regions

SulphCo has already contracted its sonocracking technology to Pt. Isis Megah which operates in India, Malaysia, Singapore and Indonesia. The company also has its eye on opportunities in Austria, South Korea, South America, and Canada.[18]

Trends and Forces

Environmental Regulations Help but Could Hinder SulphCo

Because sulfur emissions, like carbon emissions, are subject to United States Environmental regulations (namely the Clean Air Act), a growing number of companies are looking for ways to reduce their sulfur emissions. This creates significant demand for SulphCo's product because it is environmentally friendly.

More efficient use of fuel also appeals to environmentalists and clean energy lobbyists who believe in conservation of the earth's resources. On the other hand, SulphCo worries that environmental laws and regulations could be applied to its sonocracker units and prevent their deployment. [19] So long as sulfur emissions standards remain in place, in the absence of any unforeseen environmental hazard of sonocracking, environmental regulations will drive demand for SulphCo's technology.

The Uncertain Pot at the End of the Rainbow: Cautious Markets Approach SulphCo

SulphCo has not made any money since its founding in 1999. Even though it has subcontracted its Sonocracking technology to Pt. Isis Megah, it is unclear whether the technology will function well. If SulphCo does not start generating revenue soon, the company could lose its "business" classification for tax purposes. The company recognizes this as a danger, largely because they have repeatedly told investors that Sonocracking is 'almost ready' since 2002. Now that Pt. Isis Megah is trying to sell Sonocracking technology, it will soon be apparent whether or not SulphCo offers real value.

Since the Dot Com bubble burst, investors have been wary of companies that promise a pot of gold at the end of the very long rainbow of research and development. Indeed, short sellers decimated SulphCo's stock after a Barron's article in 2006 exposed SulphCo's founder, Dr. Gunnerman, as a man who created several unsuccessful startups that generated armies of disgruntled investors and lenders.[20]

Dr. Gunnerman has since been dismissed from the company. Nonetheless, SulphCo has incurred massive costs developing its sonocracking technology, so buying a share of SulphCo relies on three assumptions:

  • That SulphCo's sonocracking technology is a real commercial possibility. There is no absolutely clear evidence of this yet.
  • That SulphCo will generate enough revenues to overcome its $218 million (to date) net loss.
  • That another larger competitor, like ChevronTexaco (CVX) , will not be able to create a comparable technology. SulphCo acknowledges that the economy of scale in Research and Development could potentially allow a larger oil company to make sonocracking obsolete.

Oil Prices Increasing Gas Prices and Scarcity of Petroleum Resources

As gas becomes more expensive, and oil fields become depleted, companies increasingly want to make their drilling, distribution, and burning power more efficient. Sonocracking might not have been worth it had it been available in the 1950s. There was too much crude to justify spending huge amounts of money to make it more efficient. Things have changed, and as oil becomes more scarce, SulphCo's product will become more desirable.

Enforcement of Intellectual Property Laws

SulphCo is essentially a company that has rights to an implementable idea, Sonocracking. Their ability to protect this idea determines whether they can build an economic niche. If foreign companies can implement Sonocracking, or foreign governments decide to nationalize Sonocracking technology, SulphCo will lose its main competitive advantage. [21] If companies could sonocrack their oil without SulphCo's services, SulphCo would go out of business. Many of the countries in which SulphCo operates, especially in South America and the Middle East, are not known for their respect for international copyright law.

There are also doubts as to whether SulphCo actually has rights to its own sulfur removal technology. Two court cases (Talisman Capital Talon Fund, Ltd. v. Rudolf Gunnerman and SulphCo, Inc. and Clean Fuels Technology v. Rudolf W.Gunnerman, Peter Gunnerman, RWG, Inc.) dispute Sulpcho's rights to Sonocracking. SulphCo is the defendant in both of these cases which should be resolved within the coming year.[22] Betting on SulphCo assumes that it can retain the rights to its technology, and that it will be able to enforce those rights when conducting international business.

Competition

Because SulphCo has not yet sold any technology, it has no direct competitors. Nevertheless, companies like Merichem, ChevronTexaco (CVX) , CONOCOPHILLIPS (COP) and other large oil producers have been actively pursuing their own versions of sonocracking. Most oil companies, refineries, manufacturers, and manufacturers of refinery equipment who choose to develop sulfur removal techniques have significantly more resources to do so than SulphCo.

SulphCo hopes to beat its competitors because Sonocracking allows oil to be treated before being fed into the refineries. Even unrefined oil, then, becomes less dense and less sulfurous with Sonocracking. This allows for more effective refinement processes, and less wasted oil as discussed in the Segment Information section of this article. [23]

The oil industry is dominated by large companies, and SulphCo is an extremely small player. If a company like Chevron Texaco develops an efficient Sulfur removal technology, it would have a much easier time distributing it on a large scale than SulphCo would. Additionally, if Chevron Texaco's Hydrocracking becomes available before SulphCo's Sonocracking, it will likely gain an extreme first mover's advantage. If you were running an oil refinery and wanted to install risky new equipment, you would probably want to make sure you could get logistic support and also that the technology was tried and true. This favors large companies like Chevron Texaco, especially considering the shady background of SulphCo's founder Dr. Gunnerman (he has lost investors millions of dollars on technologies that sound good, but then never work). On the other hand, if Sonocracking catches on before Hydrocracking, then SulphCo could use its profits to expand its distribution network and become a large corporation.

Finally, it is worth considering that gas prices are rising, and the market is demanding new types of non-fossil fuel energy. A large scale acceptance of Electric Cars or Hybrid and Alternative Energy Technology could throw a serious monkey wrench into SulphCo's future business.Companies which provide and develop these technologies could be viewed as SulphCo's indirect competitors.



References

  1. NEXIDEA Study
  2. SUF 2007 10K pg.13
  3. Green Car Congress Article on SulphCo's First Customer
  4. SUF 2007 10K pg.15-16
  5. Green Car Congress Article on Chevron
  6. SUF 2007 10K pg.12
  7. SUF 2007 10K pg.17
  8. SulphCo’s 2010 Annual Meeting of Stockholders Presentation
  9. SUF 2007 10K pg.10
  10. SUF 2007 10K pg.13
  11. Barron's Article
  12. SUF 2007 10K pg.34
  13. Isis Megah Website
  14. Saving SulphCo from Investor Confusion
  15. SUF 2007 10K pg.8
  16. SUF 2007 10K pg.9
  17. SUF 2007 10K pg.10
  18. SUF 2007 10K pg.10
  19. SUF 2007 10K pg.20
  20. Barron's Article
  21. SUF 2007 10K pg.19
  22. SulphCo 10-k
  23. SUF 2007 10K pg.12
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki