This 6-month shareholder update is for January-June 2017 and includes salient details related to Operations, Partnerships, Pilots, Joint Venture’s (JV) and general business conditions for Cold Bore. We will also cover what we forecast will transpire over the second half of the year.
The first matter we address is the temporary delay we are currently experiencing in achieving revenue targets, and the reason for this. Our business model and scaling projections are based on providing a service to the end users, which are E & P companies (Exploration and production or oil companies). We achieve this by being partnered with very large multinational companies who provide the E & Ps with wellheads. The relationship with large service companies like Schlumberger, for example, consists of Cold Bore digitizing their currently analog wellheads, tracking that data and organizing it through the use of machine learning into easily consumable reports. These reports track pressure, valve position, flow path and most critically they track non-productive time, tracking this data allows operators to easily understand their minute by minute lost operating costs. This currently does not exist.
At the start of this year, we were working substantially with General Electric (GE). This was our first large multinational wellhead supplier and there was an expectation of significant growth with them servicing clients like 7 Gens, Shell, Encana etc. Initially, the agreement was 2-fold, first GE wanted us to partner with them to provide an enhanced solution to their wellhead customers by digitizing their assets and providing a digital twin to transform their dumb iron into a digitized and trackable technology. The second aspect of the relationship was for us to share the gathered data and send it to their industrial cloud platform that they had spent billions on. Approximately 4 months ago GE wanted to change the commercial agreement and their partnership proposal included Cold Bore giving them 50% of its revenue. This was not attractive nor was it economically viable for us. After months of trying to work out a different more agreeable commercial relationship, we realized that it would not be possible to reach a satisfactory agreement with them. We, therefore, ended our relationship with GE which has temporarily caused a slowdown in revenue.
The good news is that GE is actually a new and very small player in the wellhead Business. There are in fact much larger companies in this space such as Cameron, Weir, and FMC, all three of which operate globally with large presences in both Canada and USA. Once we realized we were not going to scale through our original plan with GE we began aggressive business development efforts to secure new partnerships with their larger competitors. Currently, we have agreed to a pilot for potential full partnership with one of these large multinational wellhead companies though further details are currently covered by an NDA.
We believe that this is a significantly better partnership for us and will help us hit our revenue targets quicker than with GE. The new group we are working with is much larger in Canada and the US, and they have expressed interest to fully integrate with them. If the pilot goes well they anticipate a full roll out across their fleet. This roll out in Canada alone would put us back on track with our projections. This projection does not include possible US expansion as well.
It is worth mentioning we are also now in similar talks with Weir and FMC out of the US to provide them with digital wellheads as well. Which could also dramatically grow our business. These are earlier stage relationships but fall into the same scope of work as our current large potential partners.
One other significant development that should be mentioned is that we have worked out, and have verbally agreed in principal to, a JV with one of the largest service companies in the Middle East. We will be submitting the documents and agreements to our board shortly for their approval on this. This JV will be called Cold Bore Gulf. We have partnered with a very substantial group that provides much of the services for ADNOC - the Abu Dhabi state oil company. Fracking is a relatively new market in the Middle East, so the market size is yet undetermined but we will be one of the first companies there providing expert frack process monitoring and reporting. This will be immensely valuable for the relatively new market in that part of the world. Typically, service company’s rates are significantly higher in the Middle East than in North America as well.
To summarize the unfortunate loss of a major commercial relationship like GE may have a silver lining which will allow us the ability to pursue not only one or two of their competitors but the entire market freely.
We hope this summary has been useful and as always welcome anyone reaching out to us if you have any more questions.