SulphCo Inc. Q3 2009 Investor Call Transcript

Oct.20.09 | About: SulphCo, Inc (SUF)

SulphCo Inc. (NYSEMKT:SUF)

Q3 2009 Investor Call

October 20, 2009; 4:30 pm ET

Executives

Larry Ryan - Chief Executive Officer

Stanley Farmer - Chief Financial Officer

Florian Schattenmann - Chief Technology Officer

Analysts

Harry King - Private Investor

Josh Silverstein - FIG Partners

Jim Van Allen - Philadelphia Investors

David Firshein - Cascade Capital Corporation

Operator

Good afternoon, ladies and gentlemen and welcome to the SulphCo quarterly investor conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to Mr. Stanley Farmer, Chief Financial Officer. Mr. Farmer, you may begin.

Stanley Farmer

Thank you, Jamie. Good afternoon and I want to thank everyone for joining us this afternoon on today’s investor call. With me on the call today is Dr. Larry Ryan, SulphCo’s Chief Executive Officer; and Dr. Florian Schattenmann, SulphCo’s Chief Technology Officer.

Before we get into the body of today’s call, I’d like to offer the following disclaimer. Please note that some of the information you will hear today may consist of forward-looking statements regarding revenue, memorandum of understanding, test results, margins, operating expenses and future goals.

Actual results or trends could differ materially from our forecast. For more information please refer to the risk factors discussed in our Forms 10-K and 10-Q on file with the SEC. SulphCo assumes no obligation to update any forward-looking statements or information as of the respective dates.

Thank you, and with that I will turn it over to Larry to pick up the call with the Q3 operational highlights. Larry.

Larry Ryan

Thanks, Stan. I’d like to thank everyone for joining the call today. I’m going to start on page four of the presentation, which is entitled Q3 Operational Highlights. I want to go over some of the excited things that have happened during our third quarter here. First and foremost we’ve accelerated development and execution of a natural gas condensate application.

We alluded to this opportunity in the last call and over the past few months we’ve been able to perform a whole bunch of successful lab work to meet the potential customer’s technical and commercial requirements. The lab results were verified by customer personnel, meaning that they came to SulphCo and then went through the process with us and took the samples back and confirmed those results.

Then from that a recommendation was made for the technology implementation in the customer’s facility and then since then, SulphCo personnel have been to visit the site and begin the placement and validation process and we’ll talk a bit more, later in the presentation about the next steps.

As you all know, we also executed a letter of intent with the Laguna Corporation. This was for a trans-mix opportunity. We did that in September 2009 and throughout the third quarter we continued the lab work for the cost benefit and system optimization and again, more on that in terms of next steps later.

With respect to OMV, we continued forward with the OMV program. The initial economic analysis was performed by OMV on their linear programming model, confirming the SulphCo technology benefits. Florian Schattenmann and meant myself, along with Bob Hassler, one of our directors, went over to OMV’s offices, October 6 to discuss their investment cycle and the future program steps.

Also we added significant customer opportunities on the refining diesel application side of things. One is with a US based integrated oil company for a diesel finishing application in a complex refinery and another is in a South American oil company, which they are evaluating our Sonocracking process as an alternative to investment in high pressure hydrotreating.

So with those highlights I’d like to turn it over to Stan to talk a bit about the financials and investor relations press release side of things.

Stanley Farmer

Thanks, Larry. As of September 30 we had approximately $4.2 million of cash on hand. The monthly average cash burn rate in the third quarter was approximately $680,000 per month, excluding the cash paid to retire the company’s convertible promissory notes payable back in July 2009. The company anticipates that current cash reserves should be sufficient to fund requirements into the latter part of the first quarter of 2010.

The company continues to evaluate financing options. With respect to recent media and IR exposure, back in September of this year Larry Ryan made a presentation at the Rodman & Renshaw annual global investment conference in New York, which gave us an opportunity to get in front of a number of potential investors and we’ve had quite good feedback from that presentation.

Coming up, as we’ve previously reported, in November of this year Dr. Schattenmann will be making a presentation on oxidative desulfurization at the world refining technology summit and exhibition in Vienna Austria, and we look forward to encountering additional opportunities there as well.

With that, I’m going to hand it over to Florian for a brief update on the technology.

Florian Schattenmann

Stan thanks you very much. Please turn the page to page seven. You’ve seen this schematic of the front end of a refinery before and so the work we have done over the last four to five months, it’s very clear that our focus is in that the biggest value of our technology is in the diesel finishing from low sulfur to ultra-low sulfur diesel.

If you can please turn to page eight, I’d like to share with you some first quarter highlights in the technology department. Larry mentioned this very exciting natural gas condensate opportunity and one of the biggest highlights for us was to develop a low cost catalyst system that works extremely well in this application and equally important, we were able to do some of the evaluation work to eliminate the need for absorption, which is of course as you recall, it’s the second step of most of our applications, but in this case we can eliminate it, so that’s very exciting.

On the diesel finishing and trans-mix side, we have now demonstrated on the multiple stream that it can reduce sulfur levels to below 15 ppm and on the second step, the sulfur removal, we have shown that we have several absorbents that we can remove sulfur compounds out of the diesel stream and have identified and characterized multiple absorbents.

That leads us to the next steps on the natural gas condensate side. We have started the optimization of several process parameters like temperature and so on, but we have to continue that over the next few weeks, include pressure flow rates and so on and then that’s maybe the most exciting bullet on this page. We are getting ready now to really prepare for validation of this technology in the field.

On the diesel finishing and trans-mix side, we continue to optimize cost benefit equations. The absorption piece is, as I mentioned, a big part of the sulfur removal. We have to push this further towards implementation and in a refinery setting it has become very important how to integrate this technology into the total process. So, we’re working with OMV and other companies into a successful integration of our technology into this refinery setting.

With this, I would like to turn it back to Larry on the commercial update.

Larry Ryan

Thanks Florian. So we will go to page 10 of the presentation and just go over our commercial strategy, which we have been talking about now for some months. The current state of our technology addresses a multimillion barrel a day global diesel fuel market, but of course we remain active in all other market segments.

We are prioritizing applications in terms of the technology fit, our relative ease of implementation and cost benefits value and that’s really based on feedback from our potential customers and what the technology is capable of is it’s pointing towards the diesel finishing as the best first application for the technology.

We are establishing and have established relationships with strategic large refining customers to focus on specific applications and execution of those programs and from a tactical standpoint, we focused on some niche applications such as natural gas condensate, trans-mix, and natural gasoline and we’ll talk a little more about that on the next few pages.

If you turn the page to page 11, I want to talk to you a little bit about the types of applications that we see and that are present in our pipeline of programs and really they are loosely put into two categories. One is sort of a cash category, which is niche application. This would be things like natural gas condensate, the trans-mix opportunities, natural gasoline and other niche fuel applications.

On the other side of the spectrum you’ve got the refinery programs, which really have to do with finishing the diesel off and again, there’s a bunch of different configurations. I will go into a bit more detail, but the programs really fall into these two types of categories and it’s not different from really a lot of other markets out there. The niche applications will be smaller in volume, will be higher margin and shorter to implement.

The refining programs will be higher volume, lower margin, some will take longer to implement. To give you some perspective on this, when we talk about the niche type of applications, these are going to typically be in the range of 1,000 to 5,000 barrels a day. You’re talking about net benefits again, this is excluding our fee that will range in the $2 to $3 plus per barrel and the order to revenue timeline is on the order of 6 months to 18 months again, there is a wide variation because each application is unique.

When it comes to the refining side of things, these now are larger volume. These are 15,000 to 50,000 plus barrels a day. The net benefit to the customer is in the range of $1 to more than $1 per barrels. Again, that will vary depending on the refining configurations and for example, whether the refinery is long or short on hydrogen and amongst a lot of other things, which I’ll talk about in a little more detail and the order to revenue timeline is going to be on the order of 18 to 30 months and that’s really reflective of the investment cycle associated with larger and more complex companies.

So as Florian talked about in the refining applications, one of the key steps to the process is to remove the sulfur compounds. It’s done by a relatively standard technique, which is absorption, but that absorption process requires investment and therefore will follow the normal project timeline associated as to how normal large refiners and customers implement investment. When we look at the potential customers, on the niche side of things it’s a bit interesting, though some major integrator players will be on both sides.

So we have opportunities with one particular company where it involves a natural gas condensate, and also there are a lot of other opportunities on the refining side of things. Laguna is obviously on the trans-mix side of things, and then there’s a handful of opportunities with respect to natural gasoline.

On the refiner side of things, this is where you’re talking about the OMV application, other major integrated oil companies that are interested in our technologies, and in particular a South American oil company that is interested in our technology as an alternative to investing in high pressure hydrotreating.

Again, as we’ve mentioned on calls in the past, certain geographies that haven’t made the investment go to ultra-low sulfur diesel are good candidates for our technology to avoid that additional CapEx. So I think when you look at this landscape of applications, the important thing to keep in mind, that the technical solution typically is similar, but that the solution in the economics are going to be unique to each project, depending upon the type of customer, the type of application and where it needs to be implement it.

If you turn to the next page, I just wanted to give you some idea about when you talk about these niche applications, what do you really mean? So, when you’re looking at for example natural, gas condensate, the technology goals, you have to meet the specifications of the sulfur removal, that’s going to depend on the application, again, smaller volume. It’s going to be 3,000 to 5,000 barrels a day.

The timing here is a bit shorter than other applications, because it might not require absorption. The one in particular that we’re pursuing now appears not to require absorption, and that takes a big chunk of the timeline out of the picture.

When you look at the trans-mix applications, again, this is now where you’re taking a stream down to the specification limits required by the EPA, which is less than 15 ppm here in the U.S. Commercially again these are smaller collection facilities, 1,000 to 5,000 barrels a day, they’re tending to play with a little bit higher arbitrage value in the markets.

So the benefit’s a bit higher, but even this application requires absorption to remove the sulfur compounds. The timing here, again, will be shorter than what you’d expect for a refinery, but it still needs to require some time to do the investment in the absorption.

Natural gasoline will be a similar story, again, natural gasoline for those of you who are not aware of it this is a material that’s used typically to be added to the gasoline pool. The gasoline pool has a specification of less than 30 parts per million sulfur so the natural gasoline that’s blended in really needs to be down to that level so, it can be used as a straight blend stock.

Commercially, again, this is going to be in the 5,000 to 10,000 barrels a day, and this is an application where we’re trying to avoid the absorption piece of the process if we can. If it requires absorption, it still will require some investment in that equipment. If it doesn’t, of course, that would shorten the process. That’s going to be, again, application-dependent.

When you look at the next page here, page 13, we talk about the refining diesel finishing applications. There’s really three types of opportunities that have been presented to us that we’re working on to implement. One would be category as sort of a refinery that’s a complex refinery but it’s unconstrained.

What we mean by that is, they really don’t have limitations on the hydrogen they’re producing at, and our value proposition, if you will, is really a cost trade-off between the cost of the hydrogen, the value of the carbon footprint savings, and other operating costs relative to what they’re doing today to meet the ultra-low diesel specs.

In the second case, a context of constrained refinery, this would be one where they’re short on hydrogen and there are additional benefits that are related to the trade-off of, using our process to reduce that hydrogen consumption, lowering their carbon footprint, and allowing them to potentially make tradeoffs in their yield and product spectrum.

Then as I described in this South American oil company, you have a non-complex refinery, where they have not made the investment in the high pressure hydrotreating, and so therefore now our process can be used to save operational benefits, but also save the CapEx associated with investing in that high pressure equipment, which can be quite significant.

If you go to page 14, again we’ve talked through this slide on the commercialization process, but I really wanted to overlay on here. Again, the timings on the page here are really, they’re ranges because the applications that we’re going to serve are going to be quite varied and will be again unique in each facet of its execution.

You can see here that and you’ll see on the next page, that we’re getting more and more towards this commercial evaluation phase, and really this is where you are in the cycle of actually getting the customer commitment to implement the project and again, the timeline is going to be dictated by the investment cycle associated with the given application and the degree of investment that needs to be assumed

So I think its page 15, now this is where we are with a bunch of different opportunities and different customers. So OMV, we’re obviously pushing hard to move. We’ve done a whole lot of work with OMV, as a lot of folks know. They’ve done their initial economic assessment that confirmed the benefits associated with our process.

We’ve gone to them to discuss the options moving forward and how we want to implement this on a full scale, and Florian and I are going back there in a couple of weeks here for the World Refining Summit, where we’ll discuss and again, I’ll go through this in a couple of pages, but discuss really, okay, how we’re going to proceed forward and what are the steps we need to do to get into their investment cycle, so that we can get the project moving forward into one of their refineries.

There are several other opportunities that major oil company, which is number two on the list here. We were hoping to be able to get the paperwork associated with this program done earlier of course in the quarter. The fact of the matter is the project is moving forward. We’re in the process of getting the agreement. We’re negotiating the agreement back and forth with them, but this is for the natural gas condensate application were again, we won’t require the absorption piece of the process and I’ll talk a bit about that in a minute.

Laguna is in the stream specific evaluation phase. They’ve signed this letter of intent. We’re working to optimize the cost benefit equation for them in the trans-mix application. A couple more companies you can see on here. Again, unfortunately they’re not identified by name, but there’s a few major and larger oil companies now that have moved into the pipeline of programs on the diesel refining side of things.

Again, one is a U.S. customer, and the other is based out of South America. So we’ve had a lot of positive movement on a lot of programs. We’re continuing obviously to refine the technology and of course move the commercialization process forward, so that we can implement and validate the technology on a full scale.

If we go now to page 16 to talk a bit in more detail about this natural gas condensate program. Again, this is with a major company. We’re hoping to be able to clarify who it is in the upcoming weeks, but this project has gone relatively quickly. We had some initial contact with this potential customer in April, May of this year. We performed a bunch of laboratory work up through June. That work was then confirmed by personnel from the customer in July.

The technical requirements that were established, we reached those. The technical department recommended that we can place the technology in their facility, and we’ve been to the customer’s facilities to look through and see where the best placement for the unit is and how we’ll conduct the validation and commercialization aspects of the program.

So the next steps here, the placement and validation agreement is currently being negotiated. Dealing with larger companies, it’s a bit complex to go through a lot of the different steps here, but we’re navigating the paperwork aspect of things, and I think as I’ve said before, our commitment to our shareholders is that we’re not going to be in the way in terms of the execution.

We’re making sure that we don’t add to the timeline at all, but to a certain extent we have to wait through some of the steps that these complex organizations require. Then once we get the agreement in place, we’ll get a unit installed that the customer site, and then we’re going to proceed with the full scale process validation and commercialization. This really is intended to be ultimately a commercial operation.

We’ve done a lot of work here in the lab to validate the technology on the lab scale and get an economical solution for these guys, for their problem. So we’re putting this unit up there with the expectation that this is going to go commercial. Of course, one of the key aspects of the relationship is expanding the relationship beyond this condensate application to refining and other applications. So, we think long term this would be a very fruitful relationship for SulphCo.

If you go to the next page, on 17, just to give you an update on the trans-mix application, so with Laguna we’ve signed a letter of intent with them. They’ve sent us several different types of trans-mix. A lot of work has been done in the lab here to be able to bring those samples down to their required limits. A catalyst and additive package has been established to meet the technical goals on some of those samples. Really the next steps here are optimizing the catalysts and additives for efficiency and cost, and reviewing the investment requirements and timing for the absorption process.

They’re well aware of what’s required from an investment standpoint. They’re just waiting for a recommendation for the type of system to employ. One of the things that’s interesting about the trans-mix streams is that, they do vary from time-to-time, so we’ll want to make sure that we develop a robust solution to solve a wide range of operating conditions, but we’re moving forward with Laguna and other trans-mix opportunities.

The OMV program, in terms of what’s been done to-date, everyone knows that we had the technology agreement that was signed in May, and we’ve developed a whole bunch of data with OMV in their labs, with our equipments, with our personnel and their personnel. They then took all of that data, and they went through a preliminary economic analysis.

That was gone through and established in September. We went over again, Florian, myself and Bob Hassler, one of our Directors, went over there to discuss those results in detail and then go through what’s required from an investment standpoint for the absorption piece of the process and go through the mechanics of the process so that ultimately we can get this program into their normal investment cycle.

So the next steps here and what were in the process of doing is providing the absorption details and requirements to the OMV application and then really what we’re going to do next is go through the program investment analysis and integration into OMV’s investment cycle. Just like any program, OMV has a standard investment cycle just like any program, OMV has standard, our investment cycle that we need to get into for our project to be implemented. So we’re going to meet with OMV again when we’re there for the World Refining Summit the first week in November.

On page 19, just to give you an idea of the additional refining diesel application, so what’s happened overtime now is as we’ve established this technology, people understand what the technology does, they understand what benefits it brings, and so we’re getting a lot more attention and serious consideration for real application and refining opportunities. So we received a request from a US based oil company for the process information to perform an economic evaluation for a diesel finishing application here in the US.

Of course, we provided that information package to them, and we’re in the process of working with them, because the next step in this program will be to move it into a stream-specific evaluation phase. One of the things to keep in mind with these refining applications is, in a lot of cases, in this case in particular and as well for OMV, these refineries have made the investment to be able to produce ultra-low sulfur diesel.

So our value proposition for them is to allow them to do that at a much lower cost, primarily associated with a reduction in hydrogen, a reduction in the carbon footprint, as well as other hydrotreating condition improvements, but really one of the limiting steps here is to get a suitable sample that represents a stream that you’re going to treat. So we’re working with these folks to get a suitable sample that would be representative of basically dialing back their current process so that we can characterize and develop a solution that will be robust to the actual operating conditions, so those will be part of the next steps of the program.

With respect to the South American oil company, this one is a bit different, because they have not made the investment in the ultra-low sulfur diesel process or the high pressure hydrotreating, so there’s more opportunity here from an or economic incentive here to hopefully avoid that investment and add to the value that we bring. So this is a relationship we presented the technical data to these folks back in March. There were some competitions in their sort of corporate structure.

We heard back from them in September, favorably and now again the next step in this process will be to move to the stream specific evaluation phase so that we can get samples from them and develop a robust solution for their process. So we mention these programs, because this is really the long term backlog of programs that we want to develop for SulphCo’s process.

These are the larger refining applications that will carry a lot more volume and we will be associated with larger integrated energy companies. So, in summary, we have a great opportunity on the natural gas condensate application with this major international oil company. We’ve developed a technical and economical solution for them and we’re moving forward very quickly here to full scale validation and commercialization efforts.

We’ve signed a letter of intent with Laguna. We are currently optimizing their process for the best cost benefit solution and we are also performing lab work for a lot of other trans-mix opportunities. For OMV we’ve done the initial economic analysis. Again, it was performed by OMV, which confirmed the SulphCo process benefits. We’re in the process of ongoing discussions regarding the investment options for the absorption process and really integrating it into OMV’s investment cycle.

We are continuing to see a lot of interest and continued improved interest in our technology and we are able to add significant opportunities with these large strategic refiners for these diesel finishing applications. So, all-in-all, things are moving forward very positively we’ve made a lot of progress.

We are trying to balance the projects slight between the shorter term niche applications, which will be higher margin, lower volume but faster and faster to revenue for the company, with the need to make sure that we have a backlog of the key programs and the strategic programs which will be larger refining and diesel finishing applications.

So we’ve got a pretty good slate of programs that we have defined and are currently in progress. Again, we continue to make a lot of progress both on the technical and implementation side of things and I think as a team of course very happy with the progress we are making, but we are pushing very hard to get to the commercialization on one or more of these opportunities as quickly as possible.

Lastly I just like to as you probably start today Ed Rosenblum will present the Director of just like to thank at for his service to SulphCo, the value members of the Board and wish him the best in the future.

With that I would like to end and then open the line for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your next question comes from Harry King - Private Investor.

Harry King - Private Investor

I wanted to ask a more concerned about Mr. Rosenblum. Is he going to be hanging onto his shares in this departure here, it seemed a little sudden? He seemed to be one of the more representive people of the shareholders on the Board here I just found it a little bit a point of concern that he is resigning here.

Larry Ryan

I’m not sure I understand your question.

Harry King - Private Investor

Is he still hanging onto the shares that he was awarded, or upon his resignation is he losing those shares being on the Board? I remember there was a bit of a concern recently or when he signed up that he was able to get additional shares.

Larry Ryan

What I can tell you is that whatever shares that he has accumulated during his service on the Board he will retain.

Harry King - Private Investor

What is the progress also is there any timetable - best case scenario of a timetable with Laguna within the next quarter or the first quarter of next year? I know you’ve hesitated of committing to a time, but I just wanted to know, if a contract were conceivably signed, what would it take from soup to nuts to have something functional for the firm?

Larry Ryan

When you talk about Laguna, I mean again, you’re talking as the trans-mix application, the key piece of the timeline there’s going to be determined by the investment in the absorption process. Again, as I said before, we expect that to go quite a bit more quickly in these trans-mix applications, because you’re not dealing with a refinery setting or a larger corporation.

I think what I would say about the trans-mix market in general is that by the middle part of next year they have to make a decision on how they’re going to handle their business, because a lot of the exemptions that they currently have with respect to the marketplace are going away beginning in June of next year. So there’s an incentive to be up and operational with some sort of alternative processing in that timeframe.

Harry King - Private Investor

How large is the marketplace for the trans-mixer market?

Larry Ryan

We estimate the entire market to be on the order of a couple hundred thousand barrels a day here in the U.S., but remember, it’s a smaller volume fragmented market. Each individual application is going to be in 1,000, to couple thousand barrels a day.

Operator

Your next question comes from Josh Silverstein - FIG Partners.

Josh Silverstein - FIG Partners

I had a question about your discussions with some of the majors. I know you’re working with them on specific applications, but I was curious, once you guys get in the door with them, how quickly or what type of discussions do you have with them as far as using your technology across the upstream, downstream and midstream applications for all of them?

Larry Ryan

What I can give you is an example of one of the ones we’re working with. It happens to be what the natural gas condensate application. The people who were working with have applications across those different spectrums and what I can tell you is the natural gas condensate is really the first of hopefully many applications that we will pursue with them overtime. I think as with any big company, they’re pursuing the ones, that they have the most urgent need on first, and then as we prove all that technology, we’ll then expand into a relationship on a variety of other applications.

So the discussion starts with here’s what our technology is capable of, because they will then identify one or more initial applications that they have an interest in solving, and then it migrates into several other layers and applications within the organization and those conversations, for example, with the one company I’ve been talking about have already extended well beyond the natural gas condensate.

Josh Silverstein - FIG Partners

I’m curious how this would work with other majors as well. I mean if your technology was to work, let’s say for all three upstream, downstream and midstream applications for one company, would they want to potentially just lock up your technology and have an exclusive agreement with them, or would you still want to be open to all of the industry players?

Larry Ryan

From our perspective, you want to stay open to the industry players as long as possible. What happens in the future, I can’t predict. As we implement the technology in a variety of applications, I’m sure the landscape will change significantly. Right now, we’re focused on getting one or more of the additional applications out and running, because the proof to the industry is getting it out and running and demonstrating this process on a commercial scale and that’s what the focus of the team is on the natural gas condensate, the OMV applications, the trans-mix applications, and all the programs that we’ve talked about today.

Josh Silverstein - FIG Partners

Then just lastly, I was curious, how quickly you guys might be getting some other trans-mix players to start potentially signing some LOIs or at lease just starting discussions with them. It seems like they are in a bit of a time constraint here by the middle of next year when the regulations come into effect for them.

Larry Ryan

What I can tell you is that I honestly don’t know how many it is, but we have several trans-mix players that have been in contact with us that have sent us samples that we’ve done some initial evaluation on. I think we’re continuing one of the technical hurdles with this particular application is that these streams tend to vary from player-to-player and from opportunity-to-opportunity.

So although the base chemistry is the same, let’s say the optimized solution will be different for each application. So it just takes sometime to go through those, but there certainly is as you would expect given the pressure facing this segment of the market, there is a tremendous amount of interest in processes like ours to help them meet their product requirements.

Operator

Your next question comes from Jim Van Allen - Philadelphia Investors

Jim Van Allen - Philadelphia Investors

I have a couple of questions on the timing. It sounds like a lot of these things won’t be going into place until, say, the middle of next year. How is that going to set up for financing, because, you’re going to need money before that?

Larry Ryan

Obviously, first of all we’re pushing to implement the programs as quickly as we can. I think as a company we have enough cash on hand, we think, to get through the latter part of the first quarter, and we’re constantly evaluating financing options as we go forward.

Jim Van Allen - Philadelphia Investors

Do you think you’ll have revenues before you run out of money?

Larry Ryan

I can’t predict that. I’ve tried to layout relative timing here based on, about what we know about the applications and the customers, but I would not want to make that prediction.

Jim Van Allen - Philadelphia Investors

Yes. On page 16 of your Rodman & Renshaw Conference Presentation, you show a processing fee of $0.50, $1.00, and $1.50. Could you say where these various, the OMV’s and the Laguna’s, where they fit into that and what the prospects are there?

Larry Ryan

I think the individual applications and the benefits you bring are going to dictate what the range of the processing fee can be. I would not expect that the larger, complex refining applications are going to be on the upper end of that scale, but each application is quite different, and the fee that we will negotiate will be quite different for each application. I think it’s reasonable to expect that the smaller niche applications like the trans-mix, like the condensate, like the natural gasoline, are by their nature going to have higher net margin capabilities, and therefore our ability to extract a higher fee will be much more probable in those cases.

Jim Van Allen - Philadelphia Investors

I think you mentioned that somebody gets $1 for the refining benefits for finishing diesel. Is that after your take, or is that before?

Larry Ryan

No. I mean, as we’ve laid out in the discussion today on page 11, the way we look at it is, we’re looking at a net benefit outside of our fee. So you’re looking at a customer net benefit.

Jim Van Allen - Philadelphia Investors

Yes, after your fee?

Larry Ryan

No, not after our fee, excluding our fee at that point, this is after all operating costs associated with the process. This is a net benefit to the customer, which is then subject to the negotiation of what our fee will be.

Jim Van Allen - Philadelphia Investors

In other words, your fee is going to come out of that dollar?

Larry Ryan

Whatever, the benefit is for the application.

Jim Van Allen - Philadelphia Investors

Say the $1 or In other words, if you’re talking about $1, if your fee is $0.20 or $0.50, does that mean he gets a $0.50 benefit? Or does he still (multiple speakers)

Larry Ryan

Correct, that’s the way to think about it, correct.

Operator

Your final question comes from David Firshein - Cascade Capital Corporation.

David Firshein - Cascade Capital Corporation

My questions are a follow up on Jim Van Allen’s questions and then a couple others. I’m looking at page 11 of today’s presentation, and I just want to be clear that I understood it, because you’ve got it $2 to $3-plus per barrel customer net benefit excluding the SulphCo fee, on the left. Then there’s the $1 on the right. So, is it that it varies between $2 to $3 gross benefit? Or is that net benefit after operating costs? Or that’s even after SulphCo costs? It’s not clear.

Larry Ryan

No. Let me explain it, because I want everyone to understand this. What’s on page 11, on the left-hand side you’re talking about the niche applications. So these are things like the condensate, trans-mix, natural gasoline applications and on the right, these will be associated with the larger volume refining applications. These are ranges I’m trying to give you a realistic range on the values here.

David Firshein - Cascade Capital Corporation

So the larger margins are on those smaller application, is that total of this?

Larry Ryan

Correct.

David Firshein - Cascade Capital Corporation

What months would you say were in with OMV at this stage? On this revenue timeline, order to revenue timeline? Ballpark, anything you could say on that?

Larry Ryan

Where we are David, is where we have I think I’m just looking at the page here, on page 15. We’re at a decision point with OMV on getting into their investment cycle and I know that’s a little bit vague in terms of timing, but we’ll know a lot more about their actual timing once we get the program into that investment cycle. What I can tell you is that, that timing is not six months away. It’s going to be longer than that, because it’s going to go through the normal investment cycle.

David Firshein - Cascade Capital Corporation

No. I could tell. Yes.

Larry Ryan

Right.

David Firshein - Cascade Capital Corporation

At the same time, is would it be fair to say that there’s no breakdown in it. It’s continuing towards the whole thing is moving forward. It’s just going to take the time that it takes.

Larry Ryan

No, that’s exactly right David and that’s something that we’re trying to convey here on the call today. There’s a tremendous amount of interest in the technology. People understand what the technology does. They see the value in it. We’ve been able to demonstrate to them and in OMV did their own economic analysis and they’ve confirmed a pretty significant benefit from the process.

Now they have to balance that with the fact that you have to put this absorption process into remove the sulfur compound. That costs a certain amount of investment. It’s not at massive investment, but it’s an investment that will follow their normal investment cycle and that will be true for all of the refinery type of applications. That’s what large companies do, and that’s the investment process that will be followed for those types of applications.

David Firshein - Cascade Capital Corporation

So when it comes to people’s concerns about your finances, wouldn’t it be fair to say that the company has made a tremendous amount of progress, but it’s attempting to do a very difficult thing. Rome wasn’t built in a day. You’re trying to invent a new technology that’s going to be a breakthrough on refining techniques.

So it’s going to take a while for you to perfect the business model, which has always been the complaint of the investor, but if you do that, I mean for investors that understand the business, it would seem to be that there’s steady progress, and if it keeps going, it will get there. At this point, then investor could make a choice to invest in the company?

Larry Ryan

I think that’s a very fair assessment David. The only thing I would add to that is, that’s why we have a balance of these shorter term programs on the slate as well. I mean this natural gas condensate application is one of the programs, the trans-mix applications. These are ones that we’re trying to move quickly on the tactical side of things to get revenue in the door as quickly as possible, setting the stage for the progress that we’re making on these larger longer term applications.

The interest and we keep adding programs, not taking them away. The refining diesel applications continue to get better defined, people understand what the technology can do, and they’re looking now instead of wondering, does the technology work? How does it work and saying “Okay, we got it”. Now, how do we implement it in our process and what does that mean for us?

David Firshein - Cascade Capital Corporation

Again, don’t all the trans-mix type players pretty much have to have a solution by the middle of next year either well underway or in place?

Larry Ryan

Correct.

David Firshein - Cascade Capital Corporation

For the sulfur regulations?

Larry Ryan

Correct.

David Firshein - Cascade Capital Corporation

So does that mean they actually have to implement a solution that’s actually bringing them down to under 15 parts per million?

Larry Ryan

In certain cases, yes.

David Firshein - Cascade Capital Corporation

Right, so that’s companies like Laguna.

Larry Ryan

Correct.

David Firshein - Cascade Capital Corporation

So it’s certainly possible that you may not get the greatest financing in the next few months, but you could get enough financing to keep going to the point where there’s even more evidence to suggest that the stock is worth more?

Larry Ryan

I wouldn’t want to speculate on that, but it’s probably fair.

David Firshein - Cascade Capital Corporation

I have about 58 more questions, but they’ll cut me off. So I suggest other people jump in. Thanks.

Larry Ryan

With that, again I thank folks for joining the call today. We appreciate your time in listening to the quarterly update call and again we’ll comeback in the next quarter and continue to update you as significant events in the company happen. So again, thanks for joining today, and I hope you’ll have a great evening.

Operator

Thank you, ladies and gentlemen. This concludes the SulphCo quarterly investor’s conference. Thank you for participating. You may all disconnect.

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