Seeking Alpha
Short only
Profile| Send Message|
( followers)  

Summary

  • OPTT regurgitates old, misleading news that pops the stock price.
  • The star Australian project – despite what the market is led to believe – is gravely jeopardized by a missing agreement and the absence of multi-millions in funding.
  • Big company projects, including the Oregon project, are dead, and others are hopelessly bogged down by delay after delay. OPTT's lack of transparency keeps investors unaware of those issues.
  • Investors/lenders fear offering OPTT desperately needed capital because of its delays and difficulty showing wave power technology can become a viable business. But proving wave power requires multi-millions.
  • Many of the projects are so small that the electricity generated by the ocean wave technology could power only a few light bulbs.

By Sonya Colberg, Senior Investigative Reporter

Ocean Power Technologies (NASDAQ:OPTT) might blow its rivals out of the water - if only it could deliver projects like it delivers regurgitated news.

OPTT stock was swimming with the bottom feeders when the company announced a multi-million dollar Australian deal in January with the following deceptive headline: "Ocean Power Technologies Announces Funding Agreement With Australian Government For A$66.5 Million Grant."

Bam! Shares jumped with the announcement by 52.9 percent in pre-market trading to $3.38.

But here's the deal: OPTT had already announced the grant five years ago. Here is that headline: "Ocean Power Technologies Wins Funding From The Australian Federal Government."

The January press release actually announced Aussie funding from the original grant would be available for phase one and two, plus OPTT would now have to meet more milestones. So this carefully crafted news release isn't really surprising, positive news at all. But the market -- eager for a hint of good news -- took off and ran with it.

"Fool the investors" works this week, too

Buoyed by previous announcements, OPTT tried it again Tuesday.

This time, the regurgitated gem reads: "Ocean Power Technologies Announces Victorian Wave Partners Has Received A$5 Million Initial Grant Funding From Australian Renewable Energy Agency."

Many people mistook the announcement to mean that OPTT was getting a fresh batch of funding. The sound of the Australia project apparently finally running toward its power-wave goal -- combined with the sound of investors pushing the "buy" function -- was truly deafening.

The stock price exploded almost 9 percent to $4.06.

What was wrong with this announcement? First, the $4.6 million (US dollars) grant was already assumed, because execs in March said Australia, with conditions attached, would fund part of the first phase.

This is not new. And it is not new funding. In fact, the release states that grant revenue will be accounted for later, indicating OPTT doesn't dare count it now because the company is unlikely to come up with the required matching money.

Second, the misleading headline ignores the real news that OPTT is legally required to disclose in its 8-K, US Securities and Exchange Commission filing. That real news is that the Oregon project is officially Dead Sea debris.

The US Department of Energy has terminated the remaining teeny, single-buoy contract with OPTT, because the company couldn't come up with enough money.

Key wording in the new SEC filing is:

"The Company and the DOE are discussing the steps necessary to close out the project."

OPTT's bad habit of regurgitating "news" is just another surface wave in a growing tsunami of issues surrounding the company that has been trying since 1994 to turn electricity-generating ocean wave power into a real business.

Indeed, the bitter words of OPTT's own house broker Collins Stewart ring as true today as the day they were published in The Times of London's article. The broker ridiculed the company in 2008 for "displaying a total inability to deliver."

TheStreetSweeper highlights below why that sad assessment is valid today, and we believe will continue to be valid in the long run.

Issue Number 1: Troubled technology hasn't been proven - not for commercial use.

It's a vicious circle. The technology can't be proven because the money - another $150 million - isn't there. The money isn't there because the technology is unproven and investors fear they'll lose money on a dying deal.

Let's look at the company's star project -- the Australian project -- from a dollars and pennies perspective.

Back in 2009, Australia agreed to help OPTT with a demonstration project to build and set up a wave power station off the Australian coast. The start date was August 2011. The goal: eventually get enough of the company's buoys bobbing in the ocean to turn electric generators to produce enough energy for 10,000 homes, at a capital expenditure rate of more than $3 per watt, compared with wind energy's cost of only $1 per watt.

Australia's renewable energy program granted OPTT $60 million ($66.5 million Australian) for this project.

But Australia is one stern sugar daddy that has attached two major hitches to that grant.

Matching money for the Australian project is absent

First, OPTT must pony up matching money, or lose the grant.

The total project cost in US dollars is about $210 million. Subtracting the grant, OPTT must raise $150 million!

The Australian project is in phase one of three phases. Australia is willing to pay half of the first phase, according to the recent earnings call. But OPTT can't even pay for its half of the first phase.

Phase 1 has a $19 million price tag that is completely OPTT's responsibility. But the company has only $17 million.

That money already faces an impossible stretch beyond the Australian project, because OPTT has plans for an improved product in its back pocket. But the price tag attached to the PB 500 is an estimated $13 million.

For OPTT - which has never been profitable, and carries a $148 million accumulated deficit - the combined price tag might as well be a billion bucks.

Daunting second condition

The second hitch connected to Australia's grant -- and equally important to any potential investor/lender -- is that OPTT must first get licensing and a purchase power agreement. The power purchase agreement, or PPA, is an arrangement for OPTT to sell its wave-generated power to a utility company.

About 5 years have passed. But still no license or power purchase agreement?

This is ominous. But during its most recent earnings call, the company tried to appease antsy analysts concerned about its slow, awkward attempts to become a business.

An analyst asked about hindrances, noting that the new Australian administration seems "openly hostile to renewable types of technology."

Chuck Dunleavy, the company's chief executive, denied the hostility characterization, but admitted Australia is discussing whether to ditch its carbon tax benefit. The demise or decline of the carbon tax benefit there may be the last gasp for a project already bobbing in a crazy ocean of uncertainty.

Investors may find other viewpoints on OPTT here.

The company has not responded to TheStreetSweeper's request for comment in time to meet the publication deadline.

Issue Number 2: Regurgitated "news" erroneously doubles share price

OPTT's old news habit frequently jumps out in the form of the dog-eared Lockheed Martin deal. In a pre-Valentine's Day kiss to investors, OPTT announced Feb. 11 that the company had a - gasp! - deal with Lockheed Martin. See the press release here.

This "news" is two years old.

Check out the same Lockheed Martin deal that the company's Securities and Exchange Commission filing mentions happened in 2012, here. Or the old 2012 press release itself, here.

Besides, as an analyst told TheStreetSweeper: "The two press releases even use the same wording!"

Desperate companies pull this stuff because it works. That fake rehashed Lockheed announcement nearly doubled OPTT's share price to over $4 overnight.

Unfortunately, the so-called news was that Lockheed is doing essentially what it has done since 2009. Lockheed is still helping with design and project management. But it remains to be seen just how long Lockheed will remain part of the equation now that it is working with a Chinese conglomerate - one of various international companies - offering other wave-powered options.

The regurgitated Lockheed and Australian announcements sparked the OPTT stock rally that investors see now. It's all about regurgitated news that's been misinterpreted.

Why is OPTT obsessed with puffing itself up this way?

It needs money. Desperately.

Issue Number 3: Dead projects taint OPTT's prospects

The ambitious Oregon project has crumpled into a virtual $5-million heap of scrap metal.

The prototype power buoy sat on dry dock -- and kept eager investors dangling -- for three long years, while OPTT kept busy violating its federal licensing requirements, fighting bad weather and misplacing one of three anchors dropped in the sea floor. The state of Oregon finally demanded last fall that OPTT pull up the last remaining anchor. And the federal government told OPTT it must get its licensing act together before proceeding.

Amid hoop-la and back-patting, the company just last year boasted (in fact, the blurb is still on the company website) that the Oregon project received "the first license issued for a wave power station in the US."

But neither shareholders nor the US Department of Energy ever got to see the business end of their investment -- the power buoy -- touch the ocean water.

And they never will.

Investors were surprised to learn on March 14 that OPTT surrendered a permit application that would have allowed OPTT to eventually place 100 power buoys off the Oregon coast.

OPTT summarily dispatched this heartbreaker during the earnings call:

In late February, we decline to renew a preliminary permit received several years ago from the Federal Energy Regulatory Commission in connection with the potential future phase of that project.

This reflects our focus on determining the prospects to obtain added funding …

So, it was simply about the company refocusing? The company describes to FERC the "unforeseen delays in Phase 1 Project implementation and associated studies, as well as increased project-related costs."

The news that the project couldn't get past phase 1 -- much less phase 2 and 3 -- even surprised analysts, including one who asked what specific regulatory requirement axed the Oregon project.

CEO Chuck Dunleavy:

… where we stand right now is being very realistic with respect to the cost associated with moving forward with that project.

… We certainly don't want to prejudge or second-guess ourselves as to where we will come out.

Yet, filings with the FERC and SEC clearly show the big Oregon project was dead at that point.

And now, this week's revelation shows even the tiny, single-buoy demonstration portion of the project is absolutely dead.

Check out the filing here on page 19 to see more on how misunderstandings and missed reports helped sink the deal.

Spain project no better than Oregon deal

Unfortunately, the original 2006 Spain project is also dead in the water.

Company filings say the 40-kilowatt buoy was tested and quickly removed from the water because of problems with the power take-off and control systems.

Filings track the basic problem back to OPTT's ticking heart: The power buoy simply could not perform.

Unfortunately, a recent company filing ominously warns that plans to improve the buoy system may be abandoned if it can't scrape up external funding.

The company failed to meet its 3-year deadline to deploy the first buoy and connect nine other buoys off the coast of Spain, according to filings. Further damaged by partnership issues, OPTT scaled back the project into a simple single-buoy demonstration.

Investors must consider these dead projects and decimated upgrades amid the choppy waters already churning around the Australian project.

Absent a miracle, the Australian project is dead, too.

Issue Number 4: "Completed project" powers only 3 light bulbs

Investors also should not be deceived by projects listed on the company website as "Completed Projects." Much as we want to believe otherwise, these are not commercially viable.

The most interesting "completed project" in Hawaii has earned US Navy funding and the Marine Corps' blessing. But even it is simply a test site, connected to the power grid only "to evaluate technical and economic feasibility of commercial scale wave energy systems from multiple suppliers." The Navy's press releases says the goal is to eventually make the Marine Corps Base Hawaii energy self-sustaining.

Here's the kicker. The buoy generated about 3 to 4 kilowatts. That would power the grand total of three light bulbs left on all day.

Even though OPTT later upgraded the system to 40 kilowatts capacity, that still isn't proving its wave power can become a commercial success.

Issue Number 5: Where is everybody going?

After the March 24 bell, the company filed a notice with the SEC that the chairman of the board, George Taylor, is stepping aside. Though he'll remain on the board and as a consultant, his retirement as chairman and an OPTT employee is "effective immediately."

The electrical engineer, who co-founded the company in 1984, has been a big defender of the Australian project.

"We see this as a great opportunity to prove a large demonstration program which will really satisfy the naysayers that this (wave power) is indeed a true competitor," he said in January 2012 of the Australian project.

The founder's unfortunate departure follows the recent resignation of another key manager. Brian Posner left his post as chief financial officer in August 2013.

One wonders what's behind the sudden departure of both the chief financial officer and the founder. If key OPTT folks are jumping ship, what does that say about the direction of the Australian project and the company itself?

Conclusion

We'd like to see a company surf the ocean wave power technology into commercialization. But, in our opinion, this company can't do it.

The projects are dead or mired in delays; the company's caught in a vicious cycle of unproven, un-fundable technology; the star Australia project is seriously jeopardized by insufficient money and the critical absence of a power purchase agreement; the company shows a sleazy aptitude for using regurgitated news to pop the stock price; and the lack of capital is unlikely to be improved, because investors are not buying the company's pipe dream.

All in all, we believe the OPTT technology -- even the entire OPTT plan -- offers investors nothing but an ocean full of misfortune.

Important disclosure: The owners of TheStreetSweeper hold a short position in OPTT and stand to profit on any future declines in the stock price. As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Ocean Power Technologies: Wave Goodbye To This Wave Power Company