ClearSign Technologies Corp (CLIR) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to the ClearSign second-quarter 2015 results conference call. All participants will be in listen-only mode. (Operator Instructions) At this time, I'll be turning the conference over to Matthew Selinger of Three Part Advisors, Investor Relations for ClearSign Combustion Corporation. Matthew, please go ahead.

Thank you, Cassia. Greetings and welcome, everyone to ClearSign Combustion Corporation's second-quarter 2015 results conference call. During the course of this conference call, the Company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the Corporation's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

These risks and uncertainties associated with the forward-looking statements made on this conference call are described in ClearSign's public periodic filings with the SEC, including the discussion in the risk factors section of our 2014 annual report and on Form 10-K. Investors or potential investors should read these risks. ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

On the call today will be Steve Pirnat, Chairman and CEO of ClearSign Combustion Corporation, and Jim Harmon, Chief Financial Officer. With that, I will turn the call over now to Jim. Jim?

Thank you, everyone, for joining us this afternoon. Before I turn the call over to Steve, I'd like to review the numbers as they have been reported in this afternoon's press release.

For the second quarter of 2015, we recorded a loss of $1.796 million, compared with a loss of $1.626 million in the second quarter of 2014, an increase of $170,000. This increased loss is primarily due to an increase in our field testing of our Duplex Technology. As to our cash resources, we had $14.6 million of cash at June 30, and our cash balance decreased by $1.6 million in the second quarter. As such, you can see that we have about two years of cash on hand based on our current rate (technical difficulty).

Since we are now working on our first commercial installation, it is worthwhile for me to make some comments about revenue recognition. Regarding our Duplex Technology, in recent months our trial activity has picked up and our pipeline on trials is growing. Oftentimes, these trials include payments once the project is completed and the installed unit is operating in accordance with specifications. As each of these trials are completed, we expect to recognize small amounts of revenue. As we move forward with commercial sales of Duplex, we would anticipate more traditional sales terms but still recognize the revenue once we are assured of customer acceptance.

Our business plan contemplates licensing our technology after we prove commercial liability. Licensing would significantly change the makeup of our revenue mix, revenue recognition and margin. While we are currently pursuing various licensing arrangements, we have no agreements at this time. So while it is difficult to predict, we are pleased to be nearing the point of our initial revenue, and we'll keep you updated as we develop a backlog.

With that, I'll turn the call over to Steve.

Thank you, Jim, for the color commentary and for walking us through the numbers. As many of you know, I accepted the position of Chairman and CEO earlier this year after three years as an independent Board member of ClearSign. Now after almost eight months in the role of CEO, I am more excited than ever about ClearSign's unique game-changing technology and remain optimistic about the Company's future.

I spent more time lately talking to investors and articulating ClearSign's story. I've come to realize that certain aspects of our technology and business model may not be fully appreciated, and I would like to spend a moment to discuss the size, market drivers and our sales cycle before moving into a discussion of our current pipeline of commercial opportunities and corporate development initiatives. I think it would be helpful -- I think it would help give perspective on our road to commercialization.

ClearSign technology focuses on improving key performance characteristics of combustion systems, including emissions control, operational performance, energy efficiency and overall cost-effectiveness. Boilers, furnaces, process heaters account for two-thirds of the energy used in US manufacturing. These systems are found in industries like petrochemical refining, utility power, commercial heating and steam generation. We have identified and are actively pursuing the commercialization of our technology in three targeted industry segments. They are enhanced oil recovery, steam generation, and refinery and petrochemical.

First, you may have heard us mention once-through steam generators, or OTSG, during previous presentations. These very large steam generators used for enhanced oil recovery -- are used for enhanced oil recovery. Simply put, the operator creates steam, injects it into the ground and uses the steam to push oil out of the ground, and therefore to enhance the recovery of the oil.

There are 1,000 once-through steam generators in North America, 768 of which are located in San Joaquin Valley, where our Duplex Technology is being field tested and now used in day-to-day operations. Much larger once-through steam generators are used extensively in the oil sands of northern Alberta.

The second targeted segment is commercial boilers. We believe there are approximately 300,000 commercial boilers in the US used to generate heat and electricity for office buildings, hospitals, schools and manufacturing. Interesting, there are approximately 500,000 similar boilers in China.

Third, our process heaters. Our third segment is the backbone of the global refinery industry. There are over 700 refineries worldwide, 140 of which are located in the United States. Each refinery has on average approximately 20 of these process heaters. This represents an addressable market of more than 14,000 heaters. Last year, we announced we had entered into an agreement with Tesoro to evaluate the performance of our technology. And on Tuesday, we announced encouraging preliminary results at another refinery in our first field installation in the San Joaquin Valley.

What does this matter, and what do these operators care -- why do they care? Emissions standards have been in the news quite a bit lately with the Paris climate summit conference last December and the current administration's clean power plan domestically. California, where many of our field tests are being conducted, is leading the nation in new and ambitious emission standards. The South Coast Air Quality Management District, which covers the greater Los Angeles area, has proposed cutting NOx emissions to half of their current levels by 2020.

Operators in all three of our target markets are under intense pressure to meet the current and proposed federal, state and local standards. Companies are facing substantial fines for non-conformance -- non-compliance. And when you look at our Duplex Technology, it's a simple, elegant solution that is uniquely cost-effective. It is important to highlight that our Duplex is the only pollution control technology for which we are aware that actually increases operational efficiency, thus driving down costs and providing a payback solution to environmental compliance.

Now that we have defined the addressable market, how do we penetrate this market? What does the sales cycle looks like? Keep in mind we are dealing with very large organizations here -- major multi-national oil companies, et cetera. We are working with some of the largest refinery operators in North America, for example. In many instances, a purchase order can take six to 12 months or longer from the time we initially have conversations with our customers. It may be determined at the plant level that they understand and value our technology, but they need further approvals within their organization in order to go forward and issue a purchase order.

Keep in mind we need to fit into a maintenance schedule, a shut-down cycle, in order to actually demonstrate the technology once the purchase order is issued and approval is granted. This can also take six to 12 months. Nevertheless, as the technology is demonstrated and becomes ubiquitous, this cycle will decrease significantly. Also, once installations begin -- we have recently been able to demonstrate to refinery customers that we can completely retrofit their heaters well within the allotted time they provide us.

As you have seen from our announcements, these large operators have provided us with trial installations based on the compelling value proposition ClearSign technology has provided our customers. We are happy to report that our technology has performed extremely well within these trials. For example, the once-through steam generator unit operating at Aera in the Belridge field outside of Bakersfield has been operating at a high firing rate and continues to provide sub-five ppm NOx while maintaining steam capacity and quality.

Now, what also do you need to take into account with respect to the operators, particularly with respect to macroeconomic factors? For instance, if you are an integrated oil company and crude prices plummet, your list of priorities and your timing and spending of capital needs to be re-prioritized. The energy segment profits have decreased and capital budgets have been slashed with the large decrease in exploration.

The plant operators we have been dealing with may be worried about cutting costs, even the security of jobs for many of the people that we work with day to day. Nevertheless, the reduction in oil prices which impacts the exploration and production market improves the operating and performance of refineries because within a refinery the crude prices actually cost input. And thus, what is a disadvantage to the operators and production is a clear advantage to the refiners. That said, let's segue into a discussion of our pipeline.

I previously mentioned completion of our field demonstration at Aera Energy, and this is the process of moving into production. During the field demonstration, we were able to validate that the Duplex Technology could meet the regulatory requirements of five ppm NOx in the San Joaquin Valley, which is among the most stringent in the world. But even more significantly, we were able to show meaningful reductions in energy consumption. Specifically, we demonstrated that, with the help of Aera, an efficiency improvement of up to 4% due to Duplex Technology's superior radiant heat transfer characteristics combined with the elimination of flue gas recirculation and the associated more horsepower.

As a direct result of the performance at Aera, we've received a contract from another oil producer in the Bakersfield area, which we announced in May. With over 1,000 once-through steam generators in operation in North America, we are confident that enhanced oil recovery space will be an area for growth for us based on the compelling value ClearSign can provide compared to the next technical alternative (technical difficulty) in the past.

While not in the second quarter, as mentioned earlier, we were very pleased to announce last week an agreement with Tesoro to retrofit multiple burners within a refinery heater in the Los Angeles area. In the initial stages of this agreement, several performance criteria will be evaluated, including NOx emissions that will meet or exceed California South Coast Air Quality District's ambitious NOx reclamation program goal of reducing refinery NOx emissions to half the current level by 2020.

I would like to now take a moment to address the development of our ECC Electrodynamic Combustion Control, or ECC technology. This is the technology on which the Company was originally formed. We are still very focused on developing this further and getting to commercialization. We believe ECC is well-suited for solid fuels like coal, an industry that would embrace technology that could reduce particulates and offer other emissions reductions. Our research on ECC remains in the laboratory stage, and we remain enthusiastic about its possibilities. We look forward to updating you on our progress on ECC in the coming months and remain committed and excited about the opportunities here.

In terms of patents, we are exiting the fourth quarter with over 180 issued patent applications. We will further refine our intellectual property activity surrounding our Duplex Technology as we enter the commercialization phase.

As Jim has mentioned in his commentary, we believe we are adequately capitalized to support the development and commercialization ramp-up of our technology. Clearly, the ability to reduce omissions and reduce energy consumption is a win for both customers and for the environment, and a strong indicator that our game-changing technology will gain traction within the target markets in the long term.

In closing, I would like to address how we are communicating with our investors. I know it can be frustrating when there are times when it appears to be quiet. But I encourage you to remember that this is not reflective of what's happening within the Company. As a matter of practice, we only announce news of deals and contracts once they are actually signed. We don't hint or forecast on upcoming deal activities prior to the actual event. Specifically, and for a variety of obvious reasons, we don't want to prejudice a potential opportunity to negotiate a proper deal by forcing an announcement prematurely. It's not in the customers', it's not in ours, and it's not in our investors' best interest. We want to sign the right deal at the right time.

Also, for competitive reasons there are times when our customers do not wish to be identified in press releases. There is a variety of reasons for that including the process which they go through for proper permitting and for engineering review and analysis of their admissions requirements. And as a major supplier and because of our good relationships with these operators, we must respect the intrinsic needs and be sensitive towards their requirements.

Before I move on to questions, I would like to thank our investors for their commitment and their appreciation of our game-changing technology and the Company we are all working to build together.

At this point, I would be pleased to answer some questions.

(Operator Instructions) Lou Basenese, Disruptive Tech Research.

Hi, Jim. Congrats on the progress this quarter.

Thanks, Lou.

Just a couple of quick questions for clarification. On the refinery installations, can you just give us some color around the timeline when you think final testing might be complete in that installation?

Are you speaking of the one that we talked about for the San Joaquin Valley?

Yes. For the San Joaquin Valley; the one that's unnamed. Yes, the one that was recently announced.

If we follow the customer's current timeline, and I qualify it by saying that, it should be 30 to 60 days on the outside. The challenge we always have, as you know, is that we have asked them to make certain modifications to the heater, and that requires them to buy some material that -- again, we're hoping it comes in on time and they install it on time. Again, to perhaps defend them a little bit, operators' number one priority is making product, not testing our product. So if there's a glitch in the schedule, that could easily defer that 30 days, and we've experienced a lot of that. But to answer your question, I would be disappointed if 60 days from now we don't have a final resolution.

Okay. And then another question -- I think that there was one other refinery -- refiner that was in the backlog from last quarter. Is that -- can we just get an update on where that's at?

That one was announced -- the name of the refinery. It's an asphalt plant called Tricor. And we're still probably a month away from knowing exactly when they are going to let us into their refinery again. We're ready to go, frankly, but we've got to work with their schedule.

Okay. And then to confirm -- maybe this is a question for Jim -- once these are done and the installations are done, they convert to a receivable. Right? So there will be revenue coming in from both of these?

If it's successfully input and the customer is satisfied, yes.

Okay. The last question I have, just more general about the competitive landscape, are -- since you are getting the compelling data coming in from Aera of below 5 ppm, are you aware of any other emissions control tech that can reduce NOx below that level without FGR or FCR? Is there anything else that you are competing directly against?

No.

Okay. Thanks for answering the questions. I'll jump back in the queue.

Bill Noble, William Noble.

So on the ECC, is there any rough estimate on the time period of commercialization on it, number one? And the second question is once it's commercialized, how do you weight the revenue potential of the ECC versus the Duplex?

Well, I'd say that the commercialization of ECC is clearly a year out. We've -- again, as I said in just a second ago, we're still in the laboratory working on solutions to prove it out. So we're a year out, easily.

And then candidly, to your question, if this turns out -- and just think about it -- to be the game-changing technology to save the coal industry, I would hesitate to tell you how big the opportunity is because people will think I fell out of a tree or something.

Thank you, Steve.

I tell you, I'd love to call you back later once I know.

(laughter) Thank you.

Joe Pratt, Stifel.

Just in the Tesoro case, they might need 60 days to test before making a commercial go or no-go decision. How many units would they -- if they decide to go commercial, what might be the timeline on the commercial -- the timeline on the commercial sources?

Joe, just to clarify, the 60-day window I was talking about was another refinery in the San Joaquin Valley. It wasn't Tesoro. With respect to a question about the timing of Tesoro, we have a meeting tentatively scheduled in Los Angeles next week to lay out a schedule for the test protocol. But the current schedule that we have is a working document; doesn't have us in their heater testing the technology until the first quarter of 2016. Now, they want to do it a lot faster than that. But I'm only repeating what I know, not what I think is going to happen.

So, we won't have the meeting until next week. And I assume that that meeting -- the schedule will get moved up. Again, we're, as you can imagine, pretty anxious to move faster here. And Tesoro has got it penciled in for the first quarter of 2016, but I understand that they'd like to move that forward, and we're ready to go.

And then the last piece of it -- just not to over-communicate -- is they retained a very well-known third-party engineering company to do quite an extensive evaluation of the technology. And the interaction with that third-party engineer, while it's a great idea, is only going to add a little bit of complexity and time to the process.

And then to answer your final question, if this is successful Tesoro will use it in every one of their refineries where applicable. So they've got 9-plus refineries, and that could be a very, very large opportunity.

Okay. And how many refineries are you doing as commercial Tesoro?

Well, the ones that we've announced have been Tesoro has been Tricor and has been the other refinery that we haven't announced, which is in Kern County, California. They've asked us not to mention their name. So those are the three that are active. Candidly, there's multiple units that were being talked about while we speak. And as I said again earlier, our practice is we'll tell you when it happens, after it happens and not before. And we're not trying to be secretive, but there are so many things that impact the schedule and the customer's ability to move forward that when you try to predict these things, you wind up disappointing people more than you wind up informing them.

Okay. You've talked about three refineries. But are you further along in the commercial testing with other refineries, but you just can't talk about that?

The only three refineries for which there is active commercial testing are the three I mentioned.

Okay. Thank you.

Jared Mayer, Confido Holdings.

Hi, guys. Congrats on a great quarter. One quick question -- on the ECC, you mentioned a little bit about the impact on emissions. Is there any sense from the lab work about what you might see on the efficiency side of the equation?

Not yet, really. We see improvement in flame luminescence, which would infer an improvement in efficiency. But we haven't done any direct efficiency testing. So it would be -- if you see a change in flame luminescence, you can infer an improvement of efficiency. But, again, we are a technology Company, so we try to stick close to the facts. So the answer is no.

Okay. I'm just trying to get a sense around (multiple speakers) --

I know you are, Jared. I'm just trying to give you the facts as opposed to what I would like to happen.

Fair enough. Thanks, guys.

Richard Deutsch, Ladenburg Thalmann.

Yes. That's Ladenburg Thalmann. I would like to see if you could explain the difference between the Aera facility and the Tesoro facility so that we can understand whether it's a parallel test, where we could have a high level of confidence on the repeatability, or whether there is some parameters in size or BTUs. It's still open to question as to how it's going to work out.

Well, they are completely different applications. The Aera facility is a once-through steam generator; it's more like a boiler. The Tesoro and the refinery test we talked about are true refineries. The geometric configuration of them is different. In the refineries, we are firing the burner up. In Aera, we are firing the burner horizontally.

The reason that Aera is so significant is Aera is a very large single application. So it's 50 million BTUs an hour. That's probably the size of five or six burners that we would typically use in a refinery. So the general rule of thumb in combustion is it easier to scale down than it is to scale up. So Aera gives us a much higher level of confidence that if it works at 50 million, it will work at 10 million or 5 million.

Wow. Okay. So what are your consultants and your engineers saying might be the positives or negatives in comparing the expectations of what's going to happen with this different configuration? You just mentioned something I think is very significant, which is the opposite of what I was thinking -- that you were scaling up, which is harder to maintain efficiencies. The fact that you're scaling down, I understand, is only one factor. But I guess you're saying that you might get better results, and that's not an issue. Are there other issues with the configuration that you are thinking about that we've got to put into the formulas to expectations?

Well, I think the essence of what you said is really the case -- we're scaling down. So with respect to our confidence level that the refinery applications and the Tesoro application will be successful, we are obviously confident because we're scaling down. But I would say that there's a big difference in probably more detail than you'd want to get here. There's a big difference between what takes place in a refinery either and what takes place in a once-through steam generator. For one thing, typically in a refinery you are burning a combination of fuels. There's a lot of hydrogen in refinery fuels, which burns at a different speed and has different combustion constituents. In a once-through steam generator, we're burning basically natural gas.

More opportunity for discovery and patent solutions. One other question, and I'll get back. You said that you are going to be doing your tests during shutdown periods. How long generally is the shutdown period at Tesoro? And how many shutdown periods do you think it will take for them to get enough data to go ahead and make a decision?

Well, we only need a couple of days on the outside to get in and get up and operating, and that's not going to be a burden to them. When they schedule the shutdown, they are going to be down for a longer period of time than that. And once we're up and running, then they can take data online for a continuous basis. So the question I ask is do they need to see it for six months before they are satisfied, or will they be satisfied in three months? I don't know the answer to that.

When they shut down, do they shut down all the operations all at once, or do they shut down sequentially where you can continue to move your technology from one to the next?

Well, refineries is a general process -- what they call a turnaround. And a turnaround typically gets scheduled on a five- to seven-year basis. And in those cases, the entire refinery is shut down for major maintenance. In this particular case, we're not expecting a major refinery turnaround. We're expecting them to take this heater off-line for inspection, which they also do. And in those -- in the case of a major refinery turnaround, you have two to three weeks to do the work.

The kinds of events we are talking about is a couple of days. So we'll slip in and out of that heater in a couple of days and be able to get good data beyond that. And that's what we did for the two heaters that we're -- certainly the ones that we just talked about, but we had the preliminary results in Kern County, California. We were in and out of that heater in less than 48 hours.

And have you ever tried your technology with horizontal, or has it all been vertical?

Well, the Aera -- as I mentioned earlier, the Aera is actually horizontal.

Oh. And the Tesoro is vertical. Is that it?

Tesoro will be vertical.

Okay. I got it. All right. Thanks so much. Congratulations on your effort since you've come in. It's really a great thing to see.

Thank you.

Bob Meyer, UBS Financial.

I've just got a couple of questions. Could you discuss a little bit what will be the primary driver for sales going forward in your target markets for Duplex? Is it going to be EPA mandates? Is it going to be cost savings? And are there any EPA changes on the horizon that could increase urgency? And could you also address what kind of installation capacity you have as you start to get orders before you license this, but are really installing it through channel partners or whomever is installing it now.

Thanks, Bob. Three good questions. The first one is -- the principal driver is environmental regulations. And we're seeing environmental regulations, as I alluded to, continue to march downward. And that, interestingly enough, despite the fact that oil prices are now half of what they used to be, the EPA isn't calling up the operators and saying, wow, if oil is $50 a barrel please feel free to produce 50% more than you did last week. I mean, that environmental driver will continue and, frankly, probably transcends whatever administration is in office.

The encouraging thing, as we've been saying for some time, about our technology is our clients are forced to install new burners to reduce emissions. But in our case, the energy savings associated with the unique Duplex design gives them a payback. So if you were to just maybe take two sheets of paper and say if there were no emissions regulations at all, would you put in Duplex Technology because of the energy savings? And the answer is you might in certain sizes, but the payback is going to be a lot slower than it is if you have an environmental issue.

Okay.

And then with respect to the third question, we've set up a series of very confident subcontractors that do the actual installation work for us on a geographic area. We've got a guy in California, we've got a guy in Texas, et cetera. And their bandwidth is wide -- more than wide enough to cover the kinds of volume we would expect. And, frankly, if we're so well blessed that we have twice the business we think, we just find another similar subcontractor to help us.

Okay. One more question -- on enhanced oil recovery business, is that new drilling, or are you retrofitting existing wells to squeeze more oil out or whatever product out of them? I'm trying to get a feel with do we follow the rig count or what do we do?

We are -- the 1,000-plus once-through steam generators we talked about are existing wells. And with the current price of oil, I think the amount of new drillings that are going to take place in the next two years is debt-to-equity minimis. But the fact that there is 1,000 at-bats for us with existing wells is really the opportunity that we're dealing with. More specifically, there is like 700 of those once-through steam generators in San Joaquin County which have very, very strict -- is what alluded to -- emissions requirements. So I think the first tranche of business is going to be the 500-plus once-through steam generators in San Joaquin County.

Okay. And did you mention that this would also have applications for the oil sands in Canada?

Yes. We did in the last call. And we have -- we have proposals into several of the operators in Western Canada.

All right. Thank you very much.

Jim Venerty, Private Investor.

Could you comment on what the implications are, positive or negative, of the Chief Marketing Officer leaving the Company?

Well, as the announcement said, Geoff Osler, who was one of the founders of the Company, left for personal reasons. We intend and will continue to have a business relationship with him, and he will do certain work for us on a consulting basis. So we won't completely lose his services. And, therefore, I don't think there's any major gaps between the capability he was providing us and his current interest in doing some other things. You know, personally, I like Geoff. And so I guess I'm not going to see him as much, so I'll probably miss him. But in terms of business, I think we're pretty much covered.

So should we expect to see a new Chief Marketing Officer appointed sometime fairly soon?

No. I think the tasks that Geoff was doing will either be done -- continue to be done by him as a consultant or will be reassigned to other people.

Thank you.

Lou Basenese, Disruptive Tech Research.

Steve, I just have a question -- you mentioned -- we talked about once-through steam generators and the refinery market. Just curious if you could give us some color on the package boiler market. You mentioned in the prepared remarks that there was 300,000, I think, boilers. Can you give us any idea where you are at with discussions with potential partners in that market and how you plan to commercialize that? There would be a field test -- just any color on that.

Yes. We have active discussions with several of the major participants in that space. And to some degree I've had discussions with them for some period of time. We are independently building and testing some burners that will be applicable for that market and are pretty close -- like 30 days away from seeing able to demonstrate that internally. So we're pretty optimistic about how that will flow out into what will likely be a license agreement. But as I said earlier, Lou, if I started talking about the people I'm talking to, I think I'd have a tougher time negotiating with them later.

Fair enough. I just wanted to get an update on just where the progress was on that number, so I appreciate it.

As you point out, it's a big vertical for us and one that we're all over.

Okay. Thanks, guys.

Jason Cavalier, Private Investor.

Hi, just a couple of questions. If I was interested in sort of penciling out a financial forecast on the Aera relationship and the Tesoro relationship, specifically the once-through steam generator opportunity with Aera -- again, you said this a couple of times; I might be a little bit confused. How many once-through steam generators are with that project? And if the tests go well, how open is Aera to an installation on all of their specific units? And how can we think about the revenue collection from each of them, each of them being the individual units?

Well, Aera has multiple units. And we have been told by Aera that based on the success of the test -- the test is over and it's been successful -- their intention is to buy more units. But, candidly, the recent change in oil prices has really affected their capital budgeting process. And they're involved right now in really assessing their capital needs and where they are going to spend money. And until they go through all that, obviously I'm pretty enthusiastic on why they ought to spend all their money buying solutions for their once-through steam generators. But of course, they probably have a broader range of needs than I'm aware of. So we're not privy to the timing and the magnitude of future sales with respect to Aera other than we know they have many additional units and that they have an interest in using our technology based on a successful demonstration.

So would the revenue per unit be within $50,000 and $100,000 or $100,000 and $200,000? How -- it sounds like that (multiple speakers) --

I'm not in a position where I want to speculate on that.

Can you comment more specifically on the refinery heaters at Tesoro? Specifically how many -- you've made some representations that if the testing goes well that they might very well consider your solution for all of their heaters. How many individual heaters are there as it relates to Tesoro?

We asked them, so I'll tell you what they told us. They have between 35 and 45 heaters per refinery. I seem to recall they've got 9 refineries. And then, just to be clear, the range of these heaters varies significantly. So a solution for one heater might be $100,000 or $150,000, and on the extreme end it to be $0.5 million or more. And I don't have a specific inventory of which heaters would be affected based on the success of the testing. That's a little bit further in the future. But as you can imagine, if there's 10 refineries and they've got 40 heaters, that's 400 heaters; that's a pretty big opportunity.

No question. And last question, which is in a slightly different direction, can you give us an update on your patent strategy? What if anything has happened with the patent office? Who is the third party? And if you can comment on them that's assisting you and/or advising you on the portfolio and next steps.

Well, our patent strategy really hasn't changed, and it's been a pretty good process that the Company has had since its inception. We had a patent agent that we used, Chris Whitlock, who's been (multiple speakers) -- he's our employee, so he is really not a third party. He's an employee. He's got a tremendous experience in IP. And he works really as an integral part of our research and development team.

And as a practice, our research and development people meet with our patent agent Chris regularly -- if not monthly, certainly quarterly -- and review not only inventions that are coming down the pipeline within our organization, but look at prior (inaudible) on a global basis and see what else is out there and what steps we have to take to protect what we have or to work within the confines of the space that's available to us.

So as I said in the opening remarks, we have over 180 patents filed, and we're -- we've got three granted. We're looking to accelerate the granting process of certain IP around the Duplex Technology. The patent office tends to move a little more slowly just because of staffing than we would like. And in the case of Duplex, because we're so active in marketing that, we thought we would push some of those patents forward. But once we're filed, we're protected. So I think our assessment of our patent is that our portfolio of IP is pretty robust.

I think I would add to that that -- this is Jim Harmon, by the way -- I think I'd add to that that we go forward and file our applications as best we can see when we're creating the inventions, and as we move along the process, we have an opportunity to analyze it and optimize our portfolios so that we're trying to spend the money as cost effectively as possible to maximize the benefits and minimize cost.

I think something that's -- again, it's obvious to me but maybe not obvious to the outside investors is that a lot of the success around IP in the combustion space is based on inherent knowledge of what goes on and the understanding of the technology. In our case, our Chief Technology Officer, Joe Colannino, has spent essentially all of his working career, 30 years, in the combustion market. Dr. Ruiz -- Roberto Ruiz, who is our Chief Operating Officer, similarly has spent 30 years in the combustion space. We recently hired Donald Kendrick. Dr. Kendrick, again, has been involved in 20 years in the combustion space from the gas turbine perspective.

So we have a fairly knowledgeable and experienced group of researchers who thoroughly understand the technology and what exists out there and what unique attributes we're bringing to the party. And that's very, very helpful when it comes to filing claims because it helps you sort through what's there and what's unique about what we're doing. Our guys are pretty excited about the stuff we've done so far.

Thank you very much.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Steven Pirnat for any closing remarks. Go ahead.

Okay. Well, again, I'd like to -- if there are no further questions, I would like to thank the investors for their time, and we'll talk to you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.