March 10th, 2014
Dear Propell Technologies Shareholders:
To begin I want to extend my gratitude to our shareholders, our team of executives, directors and advisors for their commitment and support during this past year of transformation into a company focused on the successful commercialization of its proprietary Plasma Pulse Enhanced Oil Recovery (EOR) Technology.
After a year of domestic operations, successful well treatments and repeat orders from well operators, we are secure in knowing the technology delivers substantial value and believe it will become disruptive in the EOR field and gain increasing acceptance amongst operators as a cost effective and practical tool in maximizing oil recovery.
Looking back we’re pleased to have achieved the following important milestones in 2013:
Acquisition of Novas Energy USA, exclusive licensee of the Plasma Pulse technology and now wholly owned subsidiary of Propell Technologies in an all-stock transaction. The technology, originally used in Russian defense applications, was funded by the prestigious Skolkovo Foundation. Extensive testing and deployment of the technology has taken place in Russia, China, Kazakhstan, Uzbekistan and the Czech Republic for several years and with hundreds of treatments and we are fortunate to have acquired this exclusive US license.
Successful Phase I commercial deployment in over 25 US wells In 2013, we treated over 25 wells in five U.S. states in multiple geological formations including the Arbuckle, Mississippi Lime and Red Fork Sands demonstrating its commercial viability using multiple business models. Based on the data, average initial production increased 295% with an 88% sustained increase after 60 days. The treatments produced promising initial results that we continue to monitor and we intend to return to the sites and treat more wells.
Re-engineered tool design and supply contract awarded Because of the challenges and business limitations of adapting foreign electronic configuration and tool diameters to US standards, we determined a complete redesign was in order, one designed to allow universal compatibility with US well casing diameters and wireline configurations. Once we take delivery of these new tools – expected in Q2 of this year – we expect to be able to treat a vastly expanded range of wells more profitably, greatly expanding our addressable market for the technology while strengthening our intellectual property.
Re-location of corporate headquarters to Houston Our relocation from California to our new corporate headquarters in Houston, Texas, a city whose principal business is oil which allows us to capitalize on the density of customers in the region, secure strategic capital and attend relevant trade events, like the recently attended North American Prospect Expo (NAPE).
Expanded board of directors The addition of two directors, John Zotos and Dan Steffens, to our board provides management with improved business development and financial opportunities in addition to the strategic and tactical guidance they bring. Steffens is a financial veteran in the oil patch with experience with the likes of Amerada Hess and most recently as founder of Houston based Energy Prospectus Group. Zotos bring years of operational E&P and commercial real estate transactional experience.
Award for technology innovation In November we were pleased to have been awarded the Total Energy USA’s Chairman’s Innovation Honorable Mention Award at the Total Energy USA conference in Houston, Texas, coming in second to Halliburton.
Website launch New corporate sites were launched for Novas Energy (www.novasenergy.com) and Propell (www.propell.com) which provide customers and investors detailed information on the technology and the company as well as a channel to receive information from prospective well operating customers.
Milestones for 2014
Acceleration of service revenue growth With the corporate and business framework established in 2013, we expect 2014 to be a year of accelerated business and value growth. Upon anticipated delivery in Q2 2014 of the reengineered tooling, we expect treatment opportunities to broaden and service revenue to grow significantly. In addition, we anticipate that opportunities to leverage our proprietary technology to gain production participation through JV’s will continue to grow.
Meanwhile, demand from well operators seeking to enhance production with Plasma Pulse continues to grow. We continue to engage in strategic discussions with major operators that once completed would be a significant value driving event. The feedback and other data received from existing customers, with the exception of the Permian tests that underperformed due to weather and unexpected bottom hole well pressure, further validates our conviction that we have licensed a technology with great disruptive potential.
Expanded strategic discussions We intend in 2014 to intensify efforts to strike strategic relationships with mid size and major producers and services companies. With each treatment performed more data is collected further validating the technology in the eyes of potential strategic sponsors seeking to gain a competitive edge in oil recovery capabilities.
Financial strategy We intend to maintain a capital structure optimized for growth, which means a reduction of convertible debt and a cash balance that allows tactical flexibility in execution of our business. We continue to have discussions with investors that are familiar with the EOR field and that demonstrate the same long-term confidence we have in our business. Strategic investment with minimal dilution and maximum efficiency is our objective.
A brief introduction to the technology: a Plasma Pulse is created via an electro-magnetic discharge that creates elastic waves causing nano-fractures in the surrounding formation. These nano-fractures increase permeability and porosity of the formation while the initial plasma pulse clears the casing perforation zone. This double action supplies hydrocarbons with additional pathways to flow and allows for an easier gateway into the well bore thus increasing production.
With increasing issues surrounding the use of fracking fluids it’s important to note our technology is also environmentally sustainable using no chemicals, pressurized water or sand and produces no waste.
Plasma Pulse is applied to a broad spectrum of oil well types. The positive results we’ve seen thus far provide well owner/operators the ability to transform marginal and/or shut–in wells into flowing producers. We believe the potential to tap reserves previously considered “unrecoverable” presents a major market opportunity for Propell Technologies and has the potential to unlock production from long forgotten marginal wells.
The US EOR market is enormous in size with hundreds of thousands of marginal or “stripper” wells (wells producing less than 10 BOPD or barrels of oil per day) in the U.S. In 2009 strippers accounted for 275 Million barrels of oil; approximately 20% of all U.S. production. Our ultimate objective is to capture a significant portion of this market, as well as the larger producing wells, maximizing the reach of our unique technology through optimal business models and diverse sales channels.
The support of our shareholders is invaluable in this mission and we’re grateful for your continued support as we accelerate growth and deliver value-driving milestones and this game changing technology in 2014.
John W. Huemoeller II
Propell Technologies Group Inc.
This letter includes forward-looking statements of our current expectations and projections about future events. In some cases forward-looking statements can be identified by terminology such as “may,” “should,” “potential,” “continue,"“expects,"“anticipates,"“intends,"“plans,"“believes,“ and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and include statements regarding our ability to reach our milestones, the expected results of reengineered tool and the market for our technology. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements include, among others, our ability to successfully reengineer our tool and expand our market presence and other factors described in our on Form 10-K for the year ended December 31, 2012, and any other filings with the SEC. The information in this letter is provided only as of the date written, and we undertake no obligation to update any forward-looking statements contained in this letter on account of new information, future events, or otherwise, except as required by law.
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