Energy Recovery (NASDAQ:ERII) recently reached out to me to conduct an interview with Joel Gay, the company's CEO. What follows is the edited (for readability) transcript from that session. I have added a few links to provide what I believe to be relevant supporting information.
The first published part of the interview discussed general corporate actions and strategy for the company, and may be of interest to those concerned about ongoing litigation. The second discussed desalination. The third section of the interview adds detail on the company's disruptive VorTeq technology and the associated agreements. Mr. Gay's comments on the general state of and outlook for North American onshore oil producers may also be great interest to investors in that market. This section discusses Energy Recovery's emerging business in oil & gas processing.
Esekla: In gas, you recently announced the landmark deal with Saudi Aramco for gas processing and I thought I'd just let you open up by summarizing its most important points if you want to. I'm pretty much aware of them, but feel free to go ahead.
Joel Gay: Well, so first of all, we did not disclose who the end user was or disclose who the PC is on the basis of the confidentiality clauses in both the letter of the award and pending purchase order and contract. Now we did say it is for the largest producer of hydrocarbons in the GCC (Gulf Cooperation Council) and of course you can figure out who that is. Now we certainly don't want to go on record saying it was Saudi Aramco. That is not something that we disclose, but you are correct that it was a landmark achievement for the company given the four and half year market development effort that ultimately culminated in that award. Above and beyond the monetary, it signifies the next step of commercialization for that product portfolio, in particular with a customer that is more often than not the lead steer, as it relates to the larger scale E&Ps, both private and nationally owned. So, we're very excited about that opportunity. We look forward to delivering the products on budget and on schedule in 2017, and allowing that end user to discern the benefit from the pressure energy arbitrage that those products effectuate.
E: Ok, great.. You say 2017 but in your most recent conference call this was characterized as something of a beach head for a long term project. Would you agree with that at least?
JG: No, I definitely would. We have 4 primary strategic imperatives that constitute our long term strategic plans and one of those is establishing a beach head in a target rich environment such as the GCC. We began that in March of last year, when we put into service the first ever Energy Recovery device in a Aramco gas processing plant. This was our IsoGen, the turbo generator. Subsequently, it went through a very successful 6 month pilot and observation process . The technical group that oversees new product development at Aramco issued a very favorable report that ultimately allows us to deliver our products in a fully commercialized fashion. So that was the beginning of the beach head. This award certainly is the second phase of that effort. As I've opined previously on calls, we are working very closely with Aramco in evaluating a portfolio wide deployment of our technology both as it relates to their larger capacity pipeline, as well as their existing gas processing plants. You know Aramco is a fantastic company but they do have a habit of moving at a slow pace. So, we're not guiding as to when we will begin executing against that portfolio wide deployment of our technology but it is something we are working diligently towards and indeed, this recent award is a positive beacon to that extent.
E: I think that makes a lot of sense. What you've said could really characterize almost the whole of the oil industry.
E: That being the case, even though we haven't officially confirmed that Aramco is the customer, do you have any thoughts how the Aramco IPO might affect the pace of progress?
JG: You know the pace is so deliberate as it stands. I don't see that derailing it at all. Which is to say, it's not as though we are moving at a cheetah's pace here. We're somewhere between a snail and a cheetah... it's probably closer to a snail. I think the potential IPO is quite exciting. It would offer Aramco a tremendous liquidity event, but I do not believe that would affect the parts of the organization that we are working with.
E: Ok, thanks. One final question in gas... You previously stated that you have no plans to sell to Iran. Might there be any update on that there given the changes in regulation there?
JG: No, it's still far too difficult just based on the concentration of our supply chain.
- It's much more difficult for American companies than it is for European companies and the last thing we are going to do is run afoul of sanctions.
- If you consider how nascent our technology is and how de-minimus our market share is, in both gas processing and pipelines, it's not as though we don't have other viable markets that we can develop and penetrate outside of Iran.
So, no, we will not be pursuing business in Iran.
Disclosure: I am/we are long ERII.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.