Canadian Oil Recovery & Remediation Enterprises Ltd
(TSXV:CVR)
(OTCQX:CRVYF)
CFO: Alex Gress
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Interview Transcripts:
JUAN COSTELLO: Good day from Wallstreet. This is Juan Costello, Senior Analyst at the Wallstreet Reporter. Joining us today is Alex Gress, the chief financial officer for Canadian Oil Recovery and Remediation Enterprises Ltd., otherwise known as CORRE. The company trades on TSX venture and their Ticker symbol is CVR and on the OTCQX, ticker symbol is CRVYF. Thanks for joining us today Alex.
ALEX GRESS: Thanks Juan. Thanks for having us back on.
JUAN COSTELLO: Great, always good to have you on. Now starting off CORRE has continued to develop operationally since our last interview in December, can you offer some further insight into these developments?
ALEX GRESS: Sure. This December, as the company continued to put in place, the operating infrastructure to successfully access the scale and the value of the contracts that we’re currently and actively competing for. Now Juan, there’s two parts to that. First, CORRE is now prequalified under three separate service lines. Now since we spoke last, we picked up an additional prequalification in Kuwait for the Kuwait Oil Company for the treatment of drill cuttings. So now we’re prequalified for soil remediation, where we’re actively bidding right now, waste management, and now the third one which is for the treatment of drill cuttings. That’s important for a couple of reasons; that we’ve accessed these pre-qualifications through our operating partnership with SAR, which is a leading total oil waste management company out of Norway, and there’s value in that for CORRE for a couple of reasons.
First, through this we are now a total oil waste management provider for the Kuwait Oil Company, and being pre-qualified in general is important. First, they’re obviously a validator of who you are as a company and their technologies; and then secondly, as an approved contractor, you are then on the short list of companies that are invited to bid for the contracts that are coming out in these different service areas. The value in having that position in Kuwait is important because we can leverage that now into other countries including Saudi Arabia, which I think we’ll talk a little bit more about as well. When you think about the Middle East and the Middle East-North Africa region, you are looking at about $96 billion in contracts in environmental services coming out over the next couple of years and growing.
Specifically, you are looking at two markets that we’re focused on. First is Kuwait. Kuwait is increasing its oil production to over 4 million barrels per day coming up over the next couple of years. This represents 7 percent of the world’s oil reserves; and secondly, Saudi Arabia, which holds 18 percent of the world’s oil reserve. So these markets represent a growing and long-term need for total oil waste management providers, so the prequalification is kind of step one in being an active contract provider.
The second thing, which I will comment on, especially important given what’s happening in the market these days and the volatility we’re seeing, is capital or financing. What I would say here is that, since we last spoke in December, CORRE has continued to be very well capitalized and the volatility in the capital market are not impacting us or delaying the contracts coming out of the Gulf region in the Middle East. There are a couple of reasons for that. From a CORRE perspective that is, at least. First, this past June our largest institutional shareholder that we call NAT or NAT for short, they had owned 20 percent of CORRE. Then in June, they executed another $4.25 million of Warren at $0.20 per share providing additional capital. Before, additionally we’ve raised another $1.4 million approximately in private placements. So, that’s brought us since we spoke last, another five and a half million of equity capital available for the company.
Since we operate through our partnerships and, that creates operating leverage, the company has a relatively low burn rate. With that equity in hand we feel comfortable that we’re well capitalized and that we could withstand what’s happening in the broader capital market and we don’t feel impacted by that. Equally, that’s not impacting the contract that we’re currently biding for or the release of contracts that are coming out, so that’s not going to slow us down in the short-term run.
JUAN COSTELLO: Well great. So you mentioned previously that CORRE is well positioned to immediately capitalize on some of the large scale contracts in Kuwait, can you provide us with an update on the opportunities and operations?
ALEX GRESS: Yes. We recognize that there’s been a lot of focus and attention that’s been paid to the first set of contracts that are coming out of Kuwait, these are the SEED contracts that they’re called that we’re bidding on through our SAR-CORRE MENA partnership. I really want to emphasis one thing here. This is the first set of contracts that are coming out under the SEED program that are coming out of Kuwait in soil remediation. To put it in perspective and what this represents, there were approximately 6,000 oil pits on the Kuwait Oil Company properties. This first set of SEED contacts represent a very small part of that, we’re talking about 50 to 60 oil pits. This is a start of a very long-term and lucrative business of which we feel as a company, we have a very strong first mover advantage for. We feel comfortable saying this for a couple of reasons and we spoke about this on our last interview.
If you recall, we successfully ran a full scale pilot program in Kuwait using our ARES I soil washing and oil recovery equipment and that process, and the confidence off of that, we have believe has strategically assisted us in getting us into this position. Now, in terms of what’s happening literally right now, which we know a lot of people are focused on and paying attention to our submission through our SAR-CORRE MENA partnership for our bids for the first set of these contracts. Now there are three separate bids, each bid that we submitted was about 90 million each, so $270 million in total value.
Thirty one companies globally, were eligible to bid. Only 12 actually bid, of which of course we are one of the 12. A winning contractor could only win one out of three, so what the companies, including ourselves, are being evaluated on are price, technology, the overall operating process and the effectiveness of our rehabilitation program.
Now where we are in terms of pricing, we are in the top half of the lowest bidders and we feel that that’s a competitive position to be in heading into the technology and operating process evaluation, and what I can say on that front right now, is that we are in an active dialogue in terms of going through the review of our technology and operating process with KOC. So, again, I would say that we believe we’re in a competitive position; it’s likely that KOC will want a contractor that offers what we offer in terms of the soil washing, and that’s a differentiating factor between us and other bidders that are out there.
A couple of things I’ll emphasis here is while others have bid lower with lower prices, the lowest price isn’t going to be the sole determining factor because having the lowest price doesn’t mean you have the capability to operate to the KOC specification. What I would say, Juan, is that we feel pretty good about this
process and just sort of briefly remind your listeners and readers what we believe are our competitive advantage in the process we are utilizing, a technology based on soil washing, which we believe is the preferred solution. We have a high operating capacity. We have low energy use, low carbon footprint. We have the ability through our process to clean soil, recover oil and recycle water in a fairly efficient closed-loop system, and equally important for what’s going to be needed in Kuwait and other parts of the world, but particularly for Kuwait right now, is the ability to remove salt from the recovered oil in our process and in the treated soil that results in an environmentally sustainable solution for the rehabilitated land.
Just very briefly, I will explain the difference between what we have here in terms of the positive attributes of our process versus some other competing high technology, which are probably akin to bioremediation, which is bacteria that thoroughly eats hydrocarbon or the oil and another technology may be something called direct thermal desorption, which is a form of incineration; where really these technologies besides, not recovering oil, have some other disadvantages relative to what I’ve described. So that’s roughly where we are, as we press released a bit earlier, a few weeks ago we expect the results to come out during this quarter.
JUAN COSTELLO: Well, I certainly appreciate the update on Kuwait, Alex. And in addition to those immediate opportunities, what are some of the other contracts opportunities that CORRE is working on right now?
ALEX GRESS: Yeah, I mean what I would emphasis here, Juan, is that CORRE is not a one trip pony and that we have multiple service lines and other contracts in other countries that we’re currently focused on. We recognize that the award of the first SEED contract, that I just described, would certainly be a transformational event and a transformational deal for CORRE, but that’s only part of what we’re capable of. Part of what’s kind of in progress for us right now. I would briefly count on two things.
First, other countries like Saudi Arabia. I want to remind the listeners and the readers that CORRE is 40 percent owned by the investment arm of the largest construction company in the Kingdom of Saudi Arabia. Right now, and we look forward to being more specific in describing more of what’s in progress there, but right now, we’re diligently working with them and completing structure for our Saudi Arabian business lines that will cover a range of total oil waste management services in the Kingdom of Saudi Arabia. This will include of course, treatment of drill cuttings, oil storage tank cleaning, waste management, and of course soil remediation and oil recovery.
I look forward to being more specific but what I would emphasis here is a couple of things. It can be very challenging at best for western companies to successfully penetrate Saudi Arabia and operate. For those companies that can, and we certainly confidently believe we are one of the companies that can, the contracting opportunities there are very significant, ample and long term, so there is a strategic advantage in terms of our equity stake holding and what they can be leveraged into in terms of operating lines and contracts there.
Outside of Saudi Arabia, coming back to other things that are kind of in-progress for us, still in Kuwait and again, Kuwait and Saudi Arabia was 25 percent of the world’s oil reserves, do represent very lucrative markets for oil waste management services that thus are our focus—our right focus to be in those countries right now. In Kuwait right now, we’re awaiting the tenders for the treatment of drill cuttings, which we understand will be released very shortly, we are in discussion and dialogue on oil storage tank cleaning projects, and of course following this there will be another round of the SEED contracts similar to what we’re bidding on now that will be released again. These SEED contracts that we’re bidding on now are just a third set of the long term business.
Speaking of Kuwait and outside of SEED, we still have what’s to come which is significant and that’s the clean-up of the Kuwait oil lakes. We talked a little bit about this the first time, Juan, you and I talked. I mean this is the largest environmental cleanup project that’ll probably be in history and again, this is the damage and implication to the ’91 Gulf War. So here, there’s over $3 billion of funds fully funded by the United Nations that are available to pay for clean-ups. This represents decades of work and I think internally, the way we think about this is that the SEED contracts that we’re working on now or bidding on now, we view them as precursor or test contracts for ultimately what will come out which is the clean-up of the Kuwait Oil Lakes.
So again, we’re part of that process for KOC evaluating multiple technologies and multiple bidders for what’s to come.
JUAN COSTELLO: And what are some of the other goals and milestones of CORRE’s hope to accomplish here over the course of the next few months?
ALEX GRESS: Sure. I think while we’ve done a good job over the last year in demonstrating significant positive development to our infrastructure and operations, I’m referring back to are prequalification status, the fact that we’re actively bidding now on contracts hopefully for a positive result in the short-term, and the fact that we accessed $5.5 million of new capital for the past year, to be more specific, our short-term goal, hopefully we will be able to announce our first contract whether it be the first KOC SEED contract or an opportunity out of Saudi Arabia.
But, Juan, I do want to take a moment first to add a comment here and sort of emphasize something, and that is we, as a company have read and seen a few institutions, which I feel somewhat wrongly comment that winning or losing the first set of SEED contracts is a binary event, and we currently believe that this is very far from being accurate; as a management team and board of directors, we have a high degree of confidence and laser-like focus on winning our first set of contracts. The outcome of the first SEED contracts that we’re actively bidding on, and let’s assume for a moment, which we hope is not the case, that we do not win doesn’t alter, bane or deter the on-going progress and development of CORRE.
Now I want to emphasize a couple of things to underscore that and why we believe that’s the case. We are a company that is well capitalized, especially in the light of what’s happening in the capital markets. We don’t feel we have to go back any time soon to access capital. We have an extremely strong operating partnership without strategic equity backing, you know 40 percent ownership from the largest Saudi Arabia Construction company, and most importantly we offer a much needed service in a market, in a growing global market that has high barriers to entry where we offer cutting-edge technologies.
So I think what our view is internally, as a management team and as a board of CORRE, it’s not a question of if we will win our first contract but the question of timing and when we will win that contract.
JUAN COSTELLO: Certainly. And so once again joining us today is Alex Gress, the Chief Financial officer for Canadian Oil Recovery and Remediation Enterprises Ltd., otherwise known as CORRE. The company trades on TSX venture, ticker symbol is CVR as well as on the OTCQX, ticker symbol CRVYF, currently trading at $0.30 a share, the market cap north of $24 million. And before we conclude Alex, to recap some your key points, is there anything else that you’d like to add today?
ALEX GRESS: Well Juan, I would just briefly add that we definitely view CORRE as a long-term investment opportunity and as a management team and a board; we are a group that is financially very well invested in the success of CORRE and truly put our money where our mouths are. We think that CORRE remains a bit undervalued in the market given our fully developed infrastructure, the operating partnership, the equity holding that we described, and equally important the bids in progress and the work we to look forward to announcing out of Saudi Arabia. So just to put this in perspective, the contracts that we’re bidding on now which we call the test contracts are 90 million apiece, and again that what we’re saying is this is a very scalable business with extremely large upside potential. Juan, thanks for giving me a moment and some time to make those points. We certainly appreciate it.
JUAN COSTELLO: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress and I’d like to thank you for taking the time to join us today, Alex, and update our investor audience on CORRE. It’s always good to have you on.
ALEX GRESS: Thanks, Juan.