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QS Energy redeploys oil technology, AOT: part 2

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World Pipelines,

Pipeline optimisation

Following deployment of an AOT unit on a condensate pipeline, which resulted in performance-enhancing design modifications, QS Energy's supply chain partners will modify additional units for upcoming installations in 2016. Mr. Bigger noted that re-tooling of the company's inventory of AOT vessels has been undertaken at the request of pipeline operators evaluating the technology under non-disclosure agreements. He added that during the current environment of depressed commodity markets and volatile spot prices, QS Energy and Temple University's jointly-offered crude oil composition analysis and viscosity reduction testing programme has been instrumental in enabling North American and overseas crude oil producers and transporters to quantify AOT's potential benefit to their pipeline infrastructure in controlling overhead costs and maximising flow volume.

"To some degree we have a backlog of pipeline optimisation proposals to process due to the re-engineering of AOT, which began in the middle of last year and just concluded this month with the much more efficacious and efficient unit we are shipping to the Eagle Ford formation before month's end," Mr. Bigger stated.

"The improved AOT technology we're now offering required setting a new and significantly higher baseline for the hydraulic analysis we use to calculate maximum flowrates, probable pump station energy savings and possible increased toll rate revenues. We're working through a number of new material transfer agreements with operators interested in having their crude oil tested at Temple University and are expeditiously processing the resultant laboratory results."

Joint ventures

In addition to seeking out conventional oil and gas assets, Mr. Bigger said QSEP may explore ownership or joint venture positions in renewable and alternative energy projects that meet certain criteria, including positive cash flow, predictable annualised returns, and the potential of capitalisation assistance in the form of federal or state grant programmes.

"Many of the world's leading energy companies such as Chevron, BP, Total SA, Shell, Valero, ConocoPhillips, Suncor Energy, and others have strategic investments in solar, wind, biofuels, geothermal power plants, tidal and wave turbines, cogeneration/landfill gas capture, and other emerging sources of alternative energy," he stated. "Our ability to deliver the economic benefits of increased pipeline flow while lowering the energy consumed by pumping stations positions AOT as a practical and OPEX-centric green technology, which is an appealing combination in today's business environment."

Furthermore, global investment in renewables continues to grow, Mr. Bigger noted, quoting a study commissioned by the United Nations Environment Programme (UNEP), a global agency focused on sustainable energy policy, which showed over US$270 billion going toward "green" energy on a worldwide basis in 2014 alone.

"To further leverage our existing franchise as an innovator in optimising the performance of energy infrastructures, we may elect to also capitalise on emerging energy sectors that show a high probability of building long-term value for our shareholders," he noted. "Cash generating events such as AOT equipment lease-purchase agreements and income-producing oil and gas assets may broaden our options for licensing our electrorheological-related patents to other industries or toward acquiring a stake in alternative energy verticals."

Re-calibrating AOT technology

With the extensive re-tooling of the AOT system now completed and readied for a full-scale installation with a US$30 billon pipeline operator, Mr. Bigger believes QS Energy is ideally positioned as the industry's sole vendor of flow improvement hardware based on the use of electrical charges to change the viscosity and mechanical behavior of a variety of crude oils, liquid gases and petroleum fluids.

"Our entire focus over the past two quarters has been an exhaustive effort to re-calibrate the AOT technology, fine-tune our M&A strategy, and ensure an extraordinary amount of due diligence is in place to inform each of these initiatives," Mr. Bigger stated. "The company will continue to dedicate itself to the development of the AOT technology and we are highly optimistic that the quality and scope of the acquisition opportunities provided by QSEP will continue to fall in line with our expectations, especially as the rig count continues to slide and oil field assets are taken offline."

Low crude price ramifications

As the ramifications of weak crude oil prices resonate across the energy supply chain, the volume of U.S. drilling activity continues to fall. Figures from the Baker Hughes Rig Count, a leading indicator of global oil drilling activity, show that, as of 19 February, there were 514 active rigs in the US., down from 1310 at this time last year.

The result, according to the Energy Information Administration's Short-Term Energy Outlook (9 February 2016), will be a drop in US production to 620 000 bpd, or roughly 7% from 1Q16 to 4Q16. Industry analysts such as the Goldman Sachs Group Inc. have projected in recent reports that falling production will likely re-balance the supply-demand curve, resulting in a price rebound by the end of this year.

"There is a rich history of companies within the energy sector and other industries prone to cyclical fluctuations that have rolled up assets when commodity prices were depressed and valuations negatively affected," Mr. Bigger stated. "It is QS Energy's intention to benefit from the current down cycle by making accretive acquisitions that generate meaningful cash flow for the underlying shareholder base."

Regardless of the direction of spot prices throughout 2016, Mr. Bigger said that any acquisitions under evaluation by QS Energy would be driven by internal due diligence and thoughtful consultation with the appropriate domain professionals, which would include geologists, reservoir engineers, and industry analysts to ensure that any final asset analysis would pass scrutiny by the Company's auditors, Weinberg and Associates, and general counsel Edward Gelfand of Gartenberg Gelfand Hayton LLP.

"Assuming that any transaction should result following 30 - 60 days of intensive review, the necessary letters of intent, purchase agreements and/or buy-sell agreements will be tabled and duly represented in an 8-K with further release and further information regarding the acquisition opportunity following promptly," Mr. Bigger added.

Edited from source by Stephanie Roker

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