How Will Wavefront Cross the Chasm? Part 2

Pyrhic victories are common in the technology world. It is not uncommon for the originator of an invention miss out on the profitable mass adoption phase. Deals made during hard times can cap the upside, dilute ownership or simply warehouse the technology as part of a large corporation's inventory. Crossing the chasm isn't for the faint of heart.

For a company with new technology to cross the chasm it needs persistence and staying power. 

Wavefront’s persistence comes from President and CEO, Brett Davidson. He has been relentlessly championing Wavefront’s Powerwave technology for over a decade (from theory to lab tests to field tests to commercialization.) This map shows the global footprint of Wavefront’s efforts to date.

Geographical reach of Powerwave Technology. The Company’s technologies have been broadly demonstrated in North America, and several key markets.

Geographical reach of Powerwave Technology. The Company’s technologies have been broadly demonstrated in North America, and several key markets.

Wavefront's staying power comes from its strong cash position (as of August 31, 2012 Wavefront still had $15.1 million in cash and $1.7 million in receivables) in combination with a growing revenue stream. This gives them a comfortable buffer.

Gross quarter over quarter growth in gross revenue.

Gross quarter over quarter growth in gross revenue.

Documentation of Powerwave's effectiveness in EOR applications was a critical component of Wavefront's commercialization strategy. Technology buyers want to minimize their risk and one of the best ways to win them over is through the use of case studies. Powerwave implementation typically results not only in increased oil production but higher oil percentages (oil cut) in the produced fluid (which is a combination of oil and water).

A recent independent evaluation of Powerwave results was undertaken by Gaffney-Cline and Associates, a subsidiary of Baker Hughes. The study analysed 5 fields involving 77 Powerwave-driven water injector installations. The objective of the study was to evaluate the production response at the surrounding producers that comprised the well pattern supported by water injection utilizing Powerwave. The decline trend was estimated before and after the Powerwave installations, and the difference in EUR was quantified. 

The figure below compares the decline curves of pre-and post-Powerwave application. As noted, the post Powerwave application increased EUR by 38% extending economic well life by approximately 8 years. 

Production decline curves of pre-and post-Powerwave application.

Production decline curves of pre-and post-Powerwave application.

Powerwave can't make an old oil field last forever. Most of the data from the first few years of Powerwave show stable trends that eventually must decline. Not many reservoir engineers can fit a decline curve to increasing production rates. The yellow "Post tool installation decline line" takes the increased production trend, reverses it at the last data point and then assumes a steeper decline curve. I'll spare you the philosophical discussion of the merits of optimistic vs. pessimistic reserve reports. My take is that in another year, if Powerwave is still applied in a consistent manner, that an updated report just might show even better numbers.

Wavefront's MD&A states In certain cases evaluated for the study EUR may be conservative because the decline has been applied, but the production trend is still flat or even increasing.

The most important point is that Powerwave consistently makes money for its clients on assets that are on life support. This type of verification will help Wavefront cross the chasm.

Next - What Else?