Letter to the Shareholders
August 03 2009Dear Shareholder,
The 10K has been filed with the SEC and is available for all of you to read. As CEO of the company I personally put a lot of time and effort into this filing to make sure that all of the information was accurate and up to date.
This in turn caused the Audit to be delayed, as we knew it would change significantly based on the outcome of the pricing negotiations with our customer in Wyoming. Due to this, the notice of late filing was put out one day late which led to “e” symbol being added to our ticker code. This clerical error has been rectified with the filing of the financials on Friday. We should see the symbol removed within 24 hours.
During these proceedings I spent a lot of time going over the company’s performance which is reflective of my own performance. It can be frustrating as the company’s previous direction has created many of the current problems that I have inherited as CEO. This in addition to the current economic conditions has resulted in RG Global’s current standing. I would like to address these items so we can understand how and why they became issues and what we are doing to resolve them.
The Interceptor Plant, in the Powder River Basin of Wyoming, was originally negotiated by Lou Knickerbocker and was to be the first of three plants, side by side, to complete a 100,000 barrel a day facility. With the rising demand to clean CBM produced water, Lou felt the most important thing we could do was to move our technology from concept to that of an actual proven process. While the overall design and profitability of the plant was good, the original cost calculations were based on a regen waste (plant byproduct) of 2% to 0% and their associated disposal charges. In actuality the plants regen waste was almost 4% and while the plant would have not been as profitable as originally estimated, it gave us a platform to prove our technology and by all estimates would have still turned a profit. The larger issue and ultimately the reason we attempted to renegotiate the per barrel pricing was due to the actual regen hauling costs.
Our hauling (disposal) fee for the waste water was originally calculated at a cost of $6.00 per barrel. The customer reassured Lou that a disposal price of $1.00 per barrel of waste was in line with local costs. Directly relying on the customer’s expertise and knowledge of local vendors, we accepted the $1.00 figure and Lou agreed to a contract price of $0.125 per barrel to clean the CBM processed water. After the plant was built, the lowest disposal price we could secure was $3.00 per barrel. While the customer did provide some concessions, ultimately the plant continued to run at a loss. In addition to this negative cash flow, there was a learning curve that is always part of new startup technology.
Knowing the average price to clean CBM processed water was between $0.20 and $0.40 per barrel, it was always Lou’s belief that we could easily renegotiate with the vendor to reach a more reasonable price per barrel at a later time. As this was part of Lou’s original plan, we felt it made sense to continue running the plant at a loss while we negotiated a new price. However, the board soon decided that with the rising debt from the plant, it was best to sell the plant and receive a royalty for every barrel of processed CBM water that was cleaned. As CEO, I also decided that if the customer did not make further concessions that it was also best to close the plant until a higher per barrel price could be agreed upon, relocate the plant to an area where higher processing fees could be charged and/or lower disposal fees were available.
In November we informed the customer of this intention but the following month we received an MOU from FBE of Texas to purchase the plant (announced in a previous press release.) One of the MOU requirements was to keep the plant running. Negotiations with FBE went on until April of this year and were finally stopped when our customer in Wyoming verbally agreed to a higher operating price per barrel but would not commit to the construction of the originally agreed upon second and third plant. These negotiations were further hampered by the natural gas price dropping from $7.50, at the time of the MOU signing, to a low of around $3.20. Depending on the operator, the average price of CBM gas needs to be at least $4.50-$6.00 to drill new wells. Without the agreement to build the other two plants, FBE was no longer interested as the infrastructure to operate only one plant was more expensive than the potential return and the price of Natural Gas (in their estimates) was not expected to rebound soon enough.
In April, we again notified the customer that we would be forced to close the plant unless a more reasonable price per barrel could be reached. Unfortunately, several months of negotiations with the Wyoming customer came to an unsuccessful conclusion in early June 2009. This outcome will show up in this Audit as impairments costs of around $5 million, which is another term for paper losses. The December 31, 2008 accounts there was an amount of $ 2,663,822 in the assets, called “Assets Held for Sale”. This had to be reversed and a negative valuation was added based on the plant not currently operating. In June we did reach the target goal of 25,000 barrels per day, so this in no way diminishes the value of our proven proprietary technology. This plant was a great success and gives us the credibility we need to move forward.
In looking to the future, I am pleased to announce that RG Global (RGBL.OB) recently signed an LOI to acquire an injection well facility that will be utilized for treatment, reuse and disposal of Produced Waters and regenerative waste. We began formulating this plan to utilize our technology and generate a positive cash flow. Current companies are very successful in utilizing injection wells and evaporation/seepage ponds for water disposal. While this pay to dispose model has a great revenue stream, RG Global has based their model on Strategic Utilization. RG Global will take this same water and turn it into multiple revenue sources. This would include water for fracking, agriculture, live stock, municipalities or replenishment of surface water. While both injection wells and seepage ponds are successfully utilized, RG Global chose to invest in injection wells as they are not subject to freezing and ultimately closure during winter months.
With the North American CBM business at an all time low, this Injection Well immediately opens the door to new business through current Oil and Natural Gas customers. Furthermore, unlike CBM, in the oil fields a new well produces a small amount of water in the early stages, but additional water is needed for Fracking (creating fissures in rocks and flow ways for the oil). As the field matures, the water use and the produced water volume grow exponentially. As the volume of ground water grows, it has to be cleaned to be disposed of or re-injected. This creates a repetitive cycle of charging the customer for produced water, cleaning the water and then selling it back to them (usually as Frack Water).
The initial stage of the Injection Well is to get the revenue streams flowing and create a cash flow that will sustain the everyday costs of running the company. Current projections show us taking in seven figures the first year alone. As we continue down this path, our goal is to relocate our Wyoming plant to this 10 acre facility where our regen disposal costs will be well under $3.00. This new facility will serve as a showplace for our customers. In addition to the DynIX™ plant, we will also have a laboratory and testing center where we will invite other companies to come and pilot their new technologies. The ultimate goal is to create a “Technology Showplace” that nurtures new and upcoming ventures that can be proven and then brought into the RGBL Corporation.
With our existing technology and through our strategic partnerships we will continue to pursue new and more advanced directions in water purification technologies. The corporate goal is not to re-invent the wheel, but build a great company utilizing the best available technologies currently available. It will model the best in technology and provide a hands on environment for testing, which will lead the way to increased royalties as Oil and Gas Operators purchase systems for their own locations.
With the addition of new legislation being implemented by state and federal governments, the demand to process water for re-use will increase every year. The other factor that will continue to drive the demand is the worldwide shortage of clean drinkable water. As population density grows, industrial requirements flourish and supplies dwindle, the demand and price of processed water will continue to rise. It might be inconvenient to get by without gas but it is impossible to get by without water.
As previously announced, we recently signed an agreement with World Environmental Solutions (WES) of Australia. They will provide exclusive representation in the coal bed methane (CBM) industry, or Coal Seam Gas (CSG) as it is known in Australia, for utilization of our proprietary DynIX™ technology. This deal serves as a pivotal tool in expanding RG Global's DynIX™ technology into the ever growing CSG industry of Australia.
Australia is in the midst of a Coal Seam Gas rush, led by major industry players such as the BG Group of the UK, Petronas of Malaysia and ConocoPhillips of the USA. They are taking advantage of rapidly emerging opportunities to supply coal-bed/seam methane gas to the lucrative Asian markets. RG Global and World Environmental Solutions are poised to take advantage of this demand, as current water recovery rates in these plants are very expensive and most process are limited to a recovery rate of 70%. The leftover regenerate waste presents producers with a major problem. The Australian government is now requiring significant reductions in waste and improvements to the discharge water quality. WES is currently in talks with several major CSG processors to use a combination of our DynIX™ technology to reduce their energy costs and reduce their overall regenerate waste.
Although the outcome of this 10K filing is not our brightest moment, I am confident that the difficulties we have faced have brought this company to a new plateau and a better future. We currently have multiple projects that will keep the companies excitement level elevated, which in turn will keep the investor interest high. The first new project is on the table and I am confident that it will come to fruition. As we begin to show a positive cash flow from this success we can increase the momentum of future projects, to both the benefit of RG Global and its shareholders. I remain excited about our future and I ask for all of your support in keeping the excitement flowing through your personal investments in the company as well as those from your friends and families.
Thank you for the confidence that you have in me and my team and we will do our best to make RGBL a leader in its field.
Parties interested in receiving periodic updates on RG Global via email should send an email with a subject line of “RGBL Email Update Request” with their first and last name, company affiliation and phone number to updates@rgglobal.us.
Sincerely,
Grant King
CEO