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Synthesis Energy Systems, Inc. Is An Emerging Technology Leader In The Gasification Of Low Rank Coal Into Value-Added Products That Address The Growing Demand For Clean, Affordable Energy And Related Products, Particularly In Emerging Markets Such As China And India - The Company’s U-GAS® Technology Has Been Proven To Unlock The Value Of Low Rank Coal Through Its Commercial Operations In China

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Alternative Energy
About Synthesis Energy Systems, Inc. (SYMX-NASDAQ)
Three Riverway, Suite 300, Houston, TX 77056
Phone: 713-579-0600
 

Synthesis Energy Systems, Inc. provides advanced technology products, including its U-GAS® fluidized bed gasification technology and related services and equipment, to enable the clean conversion of low cost, low rank coal and biomass feedstocks into high value energy and chemical products, such as transportation fuel and ammonia. U-GAS® technology, which the Company licenses from the Gas Technology Institute, gasifies coal in a cost-effective manner, without many of the harmful emissions normally associated with coal combustion plants. The Company currently has offices in Houston, Texas, and Shanghai, China.

Robert W. Rigdon
President and CEO
Robert Rigdon is President and Chief Executive Officer of Synthesis Energy Systems. He was appointed President and Chief Executive Officer in March 2009 and became a director in August 2009. Mr. Rigdon previously served as the Company’s Chief Operations Officer since November 2008. Mr. Rigdon joined SES in May 2008 as Senior Vice President of Operations and was responsible for overseeing the implementation and operation of the Company’s coal gasification projects worldwide. From June 2004 until joining SES, Mr. Rigdon worked for GE Energy in a variety of capacities, including Manager—Gasification Engineering, Director—IGCC Commercialization, and Director—Gasification Industrials and Chemicals Business. For the 20 years previous to this, Mr. Rigdon worked for Texaco, and later ChevronTexaco, as an engineer and in the Worldwide Power & Gasification group, where he ultimately became Vice President—Gasification Technology for the group.  Mr. Rigdon is a mechanical engineer with a B.S. from Lamar University.
 

Interview conducted by: Bud Wayne, Editorial Executive, CEOCFOinterviews.com, Published – October 22, 2010

CEOCFO: Mr. Rigdon, Please tell us a little bit about Synthesis Energy Systems and your strategy and vision for the Company.
Mr. Rigdon: Synthesis was formed in 2004 to commercialize a revolutionary, patented, coal and biomass gasification technology that converts low rank, low cost lignite coal and biomass into value-added energy-related products in a clean, cost-effective manner. As someone who had spent almost 15 years in the coal gasification industry at big companies such as Texaco and General Electric, I recognized the commercial potential of the Company’s U-GAS® technology and the positive impact it could have on the world’s energy future. Simply put, I was excited by the challenges and opportunities.

With respect to our strategy, Synthesis is a clean alternative energy technology company that creates value through applying our technology to convert ultra low cost coal feedstocks and biomass into high value products such as fuels, synthetic natural gas, chemicals and power. We do this primarily in three ways. We provide our proprietary technology and equipment to third parties through licensing; we make investments in projects which we develop, design, build and operate; and through unique opportunities to gain access to coal feedstock resources through implementation of our technology.

In terms of my vision for the Company, I believe we have the right technology at the right time to grow into a major industry player through using our technology to create value from the uplift in ultra low cost coals and biomass into high-value products.  

CEOCFO: Why is gasification of low rank coal important?

Mr. Rigdon: Low rank, low quality coal has the potential to be a very significant source of clean, low-cost energy to help power the global economy. It is abundant, particularly in emerging countries such as China, India and many others. The problem, essentially, is that low rank coal can be difficult to gasify with current technologies in a clean, economical way, making it unappealing as a wide-scale feedstock. However, our technology now makes it possible to realize the enormous potential of these very low cost, low rank coals. The technology has already been demonstrated and commercialized in China and we are actively engaged in licensing discussions in many areas of the world.

CEOCFO: What are some of the Company’s key accomplishments over the last year or two?

Mr. Rigdon: Most importantly is that we were able to demonstrate the utility of our coal gasification technology through our first commercial operating plant, in Shangdong Province in China, which is called Zao Zhuang New Gas Company, or just ZZ. This joint venture plant started up in early 2008 and went into commercial operation in late 2008. With the ZZ plant, we have demonstrated the technical capabilities of our U-GAS® technology as well as our ability to implement our technology in a commercial setting. Since that time, in September 2009, we completed the financial closing on our second project, in Henan Province, China, which we call Yima. Yima is a much larger project, about four times larger than ZZ. The Yima project is well into its construction phase and is expected to come online in the middle of 2012. Those are two key accomplishments for the Company. In addition to these, based on the success that we had in China, we have made our U-GAS® technology available to other parties through licensing, which we only began to do less than a year ago. Through the licensing process, we have established a very robust list of potential customers and we are in various stages of discussions and negotiations on their utilization of our U-GAS® technology. We are very excited about our licensing strategy because it will enable a more rapid commercialization of our U-GAS® technology. In addition, we expect that our licensing activities will generate near term revenues, which are very important to a small company like Synthesis as we wait for the longer-term revenue streams that should result from our larger projects such as Yima.

CEOCFO: Would you please explain the difference between your gasification technology and whatever else is available in the marketplace?
Mr. Rigdon: There are numerous gasification technologies available today. I will simplify a bit by saying that there are two basic types of gasification technology that have been introduced around the world over the last several decades. The first type is slagging gasifiers and the others are called ‘non-slagging gasifiers’. The differences between these are highly technical but the key point is that slagging gasifier technologies melt the ash in coals and convert the ash into slag. These technologies are limited more to higher quality coals, which are almost always significantly more expensive than low-rank coals. High quality, expensive coals are usually lower in ash, have higher heat content and are relatively low in moisture content, making them relatively easy to gasify economically. In comparison, our technology is a non-slagging type gasifier based on advanced fluidized bed technology that is able to gasify the low-rank coals in a very cost effective and environmentally friendly manner. Our technology does not melt ash and therefore can run much higher ash content coals as well as much higher moisture content and lower heat content coals. Technical jargon aside, what this means is that the gasification technologies that have been employed around the world over the last several decades operate on much more expensive coals. However, our technology is the most advanced commercially proven technology that can gasify much lower quality, lower cost coals in a clean and efficient manner. These coals are abundant in many places where other sources of energy, such as oil or natural gas, are not available or not practical. So our U-GAS® technology allows us and our partners to have a very low cost of operation. When you combine that with the fact that our capital costs to build our technology tend to run lower anyway, it is a very compelling economic case for our customers.

CEOCFO: Would you give us a sense of the value that Synthesis brings to the marketplace; how big the market is and the end use for your products?
Mr. Rigdon: The value we bring is the ability to utilize abundant sources of low rank coal in a clean, cost effective manner, to produce value-added products. The market for clean, affordable energy and energy-related products is enormous and growing, particularly in the emerging countries of the world, including China and India. Our ability to convert their low-cost coal feedstocks into high value energy products that would otherwise be produced from oil or natural gas creates a tremendous opportunity to provide energy products such as fuels, synthetic natural gas and power from low cost indigenous coal resources.

CEOCFO: Please tell our readers a little bit about syngas and what it can do. 

Mr. Rigdon: Syngas is made up primarily of carbon monoxide and hydrogen. Through our technology process the coal or biomass feedstocks are converted into carbon monoxide and hydrogen. Once syngas is produced in a clean and efficient manner it can then be converted into a multitude of products. Think of syngas as a basic building block needed to make these products. When we combine our technology with the right downstream technologies our syngas can be converted into fuels like gasoline through methanol-to-gasoline processes or diesel through Fischer-Tropsch processes. We can also convert our syngas into chemicals like methanol, which is a building block chemical for olefins and glycol or ammonia and urea, which is used in the fertilizer industry. Our syngas can also be used as a fuel gas for power generation, which is normally referred to as IGCC or integrated combined cycle gasification. When we gasifiy biomass feedstocks we make the same syngas that can be converted to the same type of products but in the case of biomass it can be considered renewable energy technology. I have only mentioned a few of the different types of products that can be made from syngas; there are many others in addition to what I have described. One last point that I would like to make, because it is important to our current business in China, is that we can also convert our syngas, taking low-rank coal and making it into synthetic natural gas, which in our industry referred to as SNG. And these types of projects are certainly important to many regions in China today due to rapidly growing demand for gas in China. So there are a multitude of different market segments that we can address because we can convert low-rank coal to this basic building block gas called syngas.

CEOCFO: Let’s talk a bit about your activities in China. Is your current Zaozhuang plant a test plant or is this an actual revenue generator?
Mr. Rigdon: It is a commercial demonstration plant and a revenue generator. It is a plant where we convert coal wastes from local coal washing stations, generally in the local area around this plant, into syngas, which we sell over the fence to our next-door neighbor Hai Hua, who then converts the syngas into methanol for the chemicals market. So we picked a project that is probably about a quarter to half of the size of many of the more commonly sized commercial plants, but we are fully commercial and we have been operational now for about three years.

CEOCFO: What about selling syngas end products versus traditional energy products?
Mr. Rigdon: The energy and chemicals products manufactured from syngas are the same or better quality than what you would find through the traditional means, which are normally manufactured from oil based or natural gas based feedstocks. These are sold into those commodities markets such as methanol, ammonia, fuels and power without any issues.

CEOCFO: And the pricing is the same.
Mr. Rigdon: Right. These are commodities markets that these products are sold into, so those prices are set by the markets. This is a very good point that you are bringing up, because this is why it is so important to use a technology like ours that uses the cheapest feedstocks, and that is how our customers build in margins; between the market pricing and their feedstock costs.

CEOCFO: Let’s talk about relationships that you need to be successful in China, because China is about relationships.  How do you approach this and building those relationships?
Mr. Rigdon: You are very right, because China in particular is a region that operates through relationships; not only with the government, but also with business partners, managing good relationships is the way that you conduct yourself in China. Success is strongly influenced by your relationships with your partner companies. That said, we have a team of about 55 people in China at our Shanghai office and a team of about 150 people at our operating plant site. For the most part these are all local Chinese employees who understand the Chinese business landscape. We have had our office in Shanghai for a number of years now, so we are very Chinese and we feel that in some ways we are almost a Chinese company. So our culture in many ways very much resembles a Chinese company. We have professionals on staff who are local Chinese nationals, who have deep experience working with the Chinese governments, both at the local, provincial, as well as the Beijing level. And we interact with these government entities frequently and particularly at the local and provincial levels where government support for projects must exist to be successful. It is critical to our success to be able to have that sort of competency in China.

CEOCFO: How will you approach the United States marketplace?
Mr. Rigdon: The U.S. marketplace has actually been evolving over the few years.  In our opinion, coal gasification has a large future in the United States for clean coal technologies like ours. However, today the lack of clear regulations in the United States regarding clean coal and the disposition of CO2 from a greenhouse gas standpoint are not well defined. So at present, developing projects related to clean coal energy are not moving forward in the U.S. due the significant expense of development combined with the lack of regulatory certainty. Therefore, we are not currently investing in development of clean coal projects in the U.S. That said, on the renewable side of our business with biomass feedstock, the U.S. government has been supportive of growing cellulosic biomass to fuels projects through a range of government incentives that Congress has passed or is considering passing. And this is creating some momentum in this market segment. Our technology has a strong commercial background in gasifying biomass feedstocks and earlier this year we signed our first license in the U.S. with a customer that plans to use our technology to convert woody cellulosic biomass feedstocks to ethanol. So we see potential growth in the bio-fuels market if government incentives continue long enough to allow this segment to mature. I want to mention for clarity that cellulosic biomass feedstocks are non-food based biomass feedstocks which can be used to make ethanol as well as other fuels utilizing woody waste from the agricultural industry or forest industry.

CEOCFO: That is interesting because the use of food-based feedstocks is a growing concern in the U.S.

Mr. Rigdon: That is true in the U.S. and other parts of the world as well.
 

CEOCFO: Are acquisitions a part of your growth strategy or are you looking at purely organic growth?
Mr. Rigdon: We continually seek to advance our technology and further improve its capabilities. We don’t have an acquisition strategy per se and we have no plans at present to make an acquisition. However, we wouldn’t rule out the possibility of a strategic acquisition that would align with our technology offering and help accelerate our growth.

CEOCFO: Development is expensive; what is the financial picture like for Synthesis Energy Systems today?

Mr. Rigdon: We believe we have sufficient financial resources to execute our business strategy and grow the Company. You made the comment that “development is expensive” and you are absolutely right. Our technology was developed over the past 30+ years and requires no fundamental development any longer. We make incremental improvements from what we learn from our projects. Also, we have significantly scaled back the project development activities related to our own equity projects because of the amount of expense involved. We believe we will accelerate the adoption of our technology faster by making it available to third parties who are developing their own projects. In fact, we see potential opportunities for us to participate in some of those projects and in certain cases we have been invited to participate. We can keep our development costs very low this way because we are actually not doing the development; we are the technology provider and in some cases, we could be carried into the projects. On that point I would like to say that when we are looking at these low quality coals and the projects that are being developed by our customers, in many cases these coals have not been mined because there has not a gasification technology available to unlock the value. When we come into the picture, that changes the value proposition, so we can open up these low cost coal resources to projects utilizing our technology. In this way we have the potential to create more value than technology licensing fees and equipment sales alone. We believe we can participate in the value associated with the coal resources themselves, which can be realized through equity carries into the resources and the project or other similar means. So these are very exciting opportunities for us and it is our technology that allows us to have the ability to do that.

CEOCFO: In closing, what are you doing to attract investors to your Company and why should investors consider your stock?

Mr. Rigdon: Effective communications with the investment community as well as our shareholders is a key goal for the Company and it is something that I am involved in personally. We are taking steps now to ramp up that whole process. We have recently engaged an investor relations firm, MBS Value Partners, as part of the overall strategy to communicate with our shareholders and potential investors. To answer the first part of your question, the steps that our Company must take and what our shareholders want to see is the solid execution of our business plan and continuing to meet the milestones that we have identified. So we will continue to deliver the business, continue to grow our revenues as we have been, manage our costs, and demonstrate that we are on the path to being a cash-positive and profitable company. The second part is communicating that this potentially can be a very large business. We are active in very big, very deep markets where we can convert low rank coal and biomass feedstocks into value-added chemicals and energy projects. So the potential just from regions of the world that are growing, like China and India, for example, and some of the surrounding areas in Asia, could be extremely large.

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The gasification technologies that have been employed around the world over the last several decades operate on much more expensive coals. However, our technology is the most advanced commercially proven technology that can gasify much lower quality, lower cost coals in a clean and efficient manner. These coals are abundant in many places where other sources of energy, such as oil or natural gas, are not available or not practical. So our U-GAS® technology allows us and our partners to have a very low cost of operation. When you combine that with the fact that our capital costs to build our technology tend to run lower anyway, it is a very compelling economic case for our customers. - Robert W. Rigdon