Once fully commercialized sometime in 2016, Schlumberger will pay royalties based on the number of Vorteq pumps in use. Previously, the Company had planned to lease the Vorteq pump to oil and gas producers, retaining all risk in the asset functionality and useful life. While not yet tested, the leasing arrangement appeared to be a low-margin business model.
Shares of Energy Recovery had been stagnant for months despite a widely publicized launch of the Vorteq hydraulic fracturing pump in December 2014, and its plans to field test and eventually lease the equipment in the U.S. oil and gas patches. The reluctance of investors to accord value to the Company’s unproven leasing business model for the Vorteq could be understood. Now that the Company had proven its ability to craft a profitable business arrangement for the Vorteq, in our view the value of the other oil and gas applications of Energy Recovery’s pressure pumping technology should be recalibrated.