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FOURWORLD CAPITAL ISSUES RESULTS OF INDEPENDENT ANALYSIS OF FLOTEK INDUSTRIES’ FRACKING ADDITIVE CNF, CONCLUDES COMPANY OVERSTATES PRODUCTS’ VALUE AND FACES UNDISCLOSED BUSINESS RISKS

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FOURWORLD CAPITAL ISSUES RESULTS OF INDEPENDENT ANALYSIS OF FLOTEK INDUSTRIES’ FRACKING ADDITIVE CNF, CONCLUDES COMPANY OVERSTATES PRODUCTS’ VALUE AND FACES UNDISCLOSED BUSINESS RISKS

Report claims Flotek provided incomplete information to consultant who evaluated CnF in 2016 and that evaluation technique was inadequate; FourWorld analyses using complete data and proper controls demonstrates impact on well production from CnF is zero; analysis estimates attrition of CnF users since 2012 is 85 percent; full report, Flotek: Drilling Down to Zero, available at FourWorldCapital.com

FourWorld Capital Management, LLC has completed an independent analysis of the principal product of Flotek Industries Inc. (NYSE: “FTK”, “Flotek”), challenging the efficacy and value of the fracking additive known as CnF.

Houston-based Flotek, a supplier of specialty chemicals to the oil and gas industry, markets CnF as a high-potency fracking additive that it claims enhances the extraction of oil and natural gas from horizontal wells by 30% to 70% relative to similar additives. Touted as its “crown jewel,” CnF has long been Flotek’s primary driver of revenue and profitability, which is sold to operators of hydraulic fracturing oil and gas wells across the United States.  Flotek sells CnF at a premium that is multiples of the price of widely available generic surfactants.

New York-based FourWorld Capital is an SEC-registered investment advisor focusing on event-based investments prompted by specific tax, legal or regulatory drivers. The firm was founded by John Addis, formerly head of Americas Equity Finance at Bank of America Merrill Lynch.

FourWorld’s analysis reveals that Flotek overstates the impact of CnF on well productivity. In addition, an analysis using publicly available data on oil and gas wells shows the vast majority of major oil and gas producers have discontinued their use of CnF products in well completions in recent years.

“Through a painstaking analysis of CnF performance – using publicly available data on shale production from the leading industry data sources – we found that CnF has no measurable impact on oil production in fracked wells,” Mr. Addis stated.

Among its findings on CnF, FourWorld’s investigation has determined that:

  • Flotek may not have provided critical information to an independent consulting firm, MHA Petroleum Consultants, commissioned by a special committee of the Flotek Board of Directors to evaluate the product earlier this year. FourWorld contends that the resulting study, published by Flotek this past January, was based on incomplete data and used an evaluation technique that failed to control for key variables in the oil extraction process.
  • Employing evaluation techniques that properly control for the key variables in the oil production process (e.g., location, well length, water and sand volume), the estimated impact of CnF on oil production is indistinguishable from zero. The analysis covered the same focus areas indicated in DJ Basin report from MHA commissioned by Flotek.
  • Studies of CnF use in fracking completions from a nationwide database of over 117,000 well sites from over 1,000 oil and gas operators across 25 states, shows nearly 85% of the end users of CnF products since November 2012 are no longer using Flotek’s CnF product in their reported well completions. Among these are major operators like Anadarko Petroleum, Devon Energy, Aera Energy and ConocoPhilips, who all rank in the top ten operators by overall well count in the database during the study period.
  • In recent earnings presentations, Flotek highlights the “resilience” of CnF sales volumes stemming from its broadening base of CnF customers. FourWorld’s analysis shows the growing concentration of CnF use by just three operators – due to changes in well design – has masked the true level of CnF end user attrition, and demonstrates that consumption by new operators has been minimal.
  • Flotek’s financial condition is heavily dependent on CnF. FourWorld believes anyone reviewing the Company should carefully consider the impact on Flotek’s income statement if CnF sales were materially reduced from either a reduction in pricing more in line with competitor products or a decline in volumes from existing customers.

As of the publication date of the report, FourWorld, and FourWorld managed accounts, have a direct or indirect short position in Flotek stock, and stand to realize significant gains in the event the price of Flotek stock declines. The consulting firms hired by FourWorld, and referenced in the report, are receiving a fee based on the performance of FourWorld’s positions in Flotek stock, and, independent of FourWorld, may have a direct or indirect short position in Flotek stock.

Incomplete list of CnF trade names provided by Flotek helped overstate product’s efficacy

FourWorld believes that the list of trade names provided by Flotek to MHA, a Denver based consulting firm hired by a special committee of the Flotek Board of Directors, was incomplete and materially affected the results of their study in Denver-Julesburg Basin of Colorado. MHA relied on these trade names in order to determine which wells had Flotek’s CnF products in them. The trade names present in the focus areas of the published study include at least two CnF products not present on the list provided by Flotek, which accounted for an estimated 22% of CnF wells in the focus areas reported to show materially improved results from CnF. Without these additional trade names, wells that used CnF would be misclassified as wells not using the product.

Using its own comprehensive data set of wells in the same focus areas of the DJ Basin, FourWorld shows the impact of mislabeling these wells in a simple control study, like the one conducted by MHA, is material. The largest number of mislabeled wells in the data-set belonged to Noble Energy. The MHA study was commissioned by the Special Technical Committee, a committee formed from Flotek’s own Board of Directors, which was tasked with handling an SEC inquiry into Flotek marketing practices and evaluating the efficacy of CnF. Among the members of the Flotek Board is Ted D. Brown, senior vice president of Noble’s Northern Region, including operations in the DJ Basin, until January 31, 2015.

FourWorld’s own comparative study of 604 wells in the DJ basin shows no CnF benefit

FourWorld, working closely with two Houston-based energy and performance measurement consultants, RK Trading LLC and Sylvania LLC, tested CnF extensively using various methods.

The group performed analyses to evaluate the performance of wells located in the eastern Colorado section of the DJ Basin, the area reported in the study published by Flotek to show the highest levels of oil production outperformance from wells labeled as using a CnF product compared to wells determined not to contain a CnF product by MHA.

These analyses demonstrate that simply controlling for the key variables known to affect oil production, such as well length, location, water volume, sand use and operator, reveals that the estimated effect of CnF on oil production is indistinguishable from zero. In simpler terms, where and how you frack the well matters.

RK and Sylvania used robust regressions and Generalized Additive Models to demonstrate that production in the DJ Basin wells varies systematically with these key variables. The analysis indicates that all of the outperformance of wells using a CnF product was attributable to variable affecting oil production, and not the presence of CnF. RK and Sylvania indicate similar conclusions have been obtained for a large sample of wells completed in the Permian Basin, one of the most prolific oil and gas producing regions in the country.

An analysis of a publicly available database shows 85% attrition of CnF end users

Using FracFocus, the industry standard source for finding chemical data on oil and gas wells, FourWorld conducted a study of over 117,000 well sites from over 1,000 operators in 25 states to evaluate the use of CnF in fracking completions.  The results of FourWorld’s analyses show that of the 334 operators who have used CnF in any well completion over the last four years, nearly 85% of them no longer report using a CnF product in well completions. Among them are major operators like Anadarko Petroleum Corp. (APC), EOG Resources Inc. (EOG), Devon Energy Corp. (DVN), Aera Energy LLC and ConocoPhilips (COP). FourWorld analysis shows 160 of 183 operators are no longer using CnF products in well completions when the analysis is limited to horizontal fracked wells only.

Flotek highlights new CnF customers while avoiding the turnover among existing users: “{T}he base of CnF users broadened meaningfully in the third quarter” Flotek CFO John Chisholm said in a 3rd Quarter 2016 earnings call. Analysis of Flotek’s own presentation materials from an industry conference in November 2016 shows evidence of customer turnover of nearly 70% since the start of 2014, while the operator study described above shows a similar yet slightly higher attrition rate of 85% of CnF end users. Furthermore, using FracFocus data, FourWorld has identified just 19 “new” CnF end users in 2016, who have completed a combined total of 50 wells with CnF out of the 285 total well completed in the period.

FourWorld believes Flotek’s new customers have been almost exclusively smaller operators with minimal revenue potential. Water usage studies conducted by FourWorld show that the top three users of CnF have propped up CnF sales volumes despite a massively fall in CnF well completion counts for operators outside the top three, which highlight a worsening customer concentration problem and calls into question Flotek’s claims of a broadening customer base and accelerated adoption of CnF chemistries.

The collaboration of FourWorld, RK Trading and Sylvania produced multiple studies to measure the efficacy on CnF under strict variable controls. This powerful combination brought together expertise in data collection, database management, and statistical analysis of well chemistry and completion design.

Dr. Jefferis, partner at RK Trading and consulting statistician, added, “The analysis is very cut and dried. We evaluated the DJ Basin data using several different approaches, and obtained the same answer in every case. Once you recognize that a well completed by someone who has already drilled several hundred wells in a given location is bound to behave differently than a well completed by party who has much less local experience, and acknowledge the challenge of pushing oil through an 8,000-ft. wellbore, the results more or less fall into your lap.”

FourWorld’s full thesis, along with a white paper authored by RK Trading and Sylvania discussing their regression analysis and generalized additive model study, are available at www.fourworldcapital.com.

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Car sector seeks more UK government support as output tumbles

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Car sector seeks more UK government support as output tumbles 1

LONDON (Reuters) – British finance minister Rishi Sunak should use next week’s budget statement to help boost the car industry’s competitiveness, a trade industry body said on Friday, as production tumbled to its lowest January level since 2009.

Sunak is due to detail how he will further support the economy amid COVID-19 restrictions on March 3.

The Society of Motor Manufacturers and Traders (SMMT) said the furlough scheme that protects jobs should be extended, more support for training was needed and manufacturing investment should be encouraged through reform of the business rates tax.

“Next week’s budget is the chancellor’s (finance minister) opportunity to boost the industry by introducing measures that will support competitiveness, jobs and livelihoods,” SMMT Chief Executive Mike Hawes said.

“We need to secure our medium to long-term future by creating the conditions that will attract battery gigafactory investment and transform the supply chain.”

Output in January fell by 27% year-on-year to 86,052 vehicles, hit by factors including dealership closures during a latest COVID-19 lockdown, international supply chain problems and the change in trading terms with the European Union.

(Reporting by Costas Pitas; Editing by William Schomberg)

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Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up

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Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up 2

By Sergio Goncalves

LISBON (Reuters) – Portugal will start producing green hydrogen by the end of 2022 and already has private investment worth around 10 billion euros ($12 billion) lined up for eight projects that are expected to move forward, Environment Minister Joao Matos Fernandes said.

He told Reuters in a telephone interview there were also several “pre-contracts for the purchase and assembly of electrolysers” to produce the zero-carbon fuel made by electrolysis out of water using renewable wind and solar energy.

Such hydrogen is more expensive to extract than the heavily polluting conventional method of using heat and chemical reactions to release hydrogen from coal or natural gas, known as brown and grey hydrogen respectively.

Hydrogen is now mostly used in the oil refining industry and to produce ammonia fertilisers, but sectors such as steelmaking, transportation and chemicals are beginning to develop large-scale hydrogen applications to gradually replace fossil fuels as countries try to reduce pollution.

The European Commission has mapped out a plan to scale up green hydrogen projects across polluting sectors to meet a net zero emissions goal by 2050 and become a leader in a market analysts expect to be worth $1.2 trillion by that date.

“By the end of 2022, there will certainly be green hydrogen production in Portugal,” Matos Fernandes said. “Green hydrogen will, over time, allow Portugal to completely change its paradigm and become an energy exporting country.”

He said seven groups had submitted applications under Europe’s IPCEI scheme for common-interest projects to make part of a planned export-oriented “hydrogen cluster” near the port of Sines, from where hydrogen could be shipped to Rotterdam. Total investment there is estimated at some 7 billion euros.

A consortium including Portugal’s main utility EDP, oil company Galp, world’s largest wind turbine maker Vestas, among others, is behind one of the projects.

In Estarreja in north Portugal, local firm Bondalti Chemicals aims to invest 2.4 billion euros in a hydrogen plant.

Altogether, these envisage an installed capacity of over 1,000 megawatts (MW).

Matos Fernandes said Portugal was also negotiating with Spain the construction of a pipeline for renewable gases, including hydrogen, from Sines to France, crossing Spain.

LITHIUM PLANS

Spain and Portugal also want to develop an ambitious cross-border lithium project taking advantage of the geographical proximity of their lithium deposits and aiming to cover the entire value chain from mining to refining, cell and battery manufacturing to battery recycling, he said.

Portugal is already a large producer of low-grade lithium mainly for the ceramics industry, but is preparing to make higher-grade metal used in electric car batteries.

A much-awaited licensing tender for lithium-bearing areas that has been delayed by the COVID-19 pandemic should take place by the year-end, Matos Fernandes said.

He promised the tender would address environmental concerns by local communities and there would be no lithium mining “at any cost”.

The minister also said Portugal would use its six-month presidency of the Council of the European Union to finalise a landmark law that would make the bloc’s climate targets irreversible and speed up emissions cuts this decade, expecting it to be approved in the first half of 2021.

(Reporting by Sergio Goncalves; Editing by Andrei Khalip and David Evans)

 

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Under fire in EU, AstraZeneca CEO says ‘hopefully’ will meet vaccine supply goals

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Under fire in EU, AstraZeneca CEO says 'hopefully' will meet vaccine supply goals 3

BRUSSELS (Reuters) – AstraZeneca boss Pascal Soriot said on Thursday he hoped to meet the European Union’s expectations on the number of COVID-19 vaccines the company can deliver to the bloc in the second quarter, after big cuts in the first three months of the year.

The Anglo-Swedish drugmaker has been under fire in the EU for its delayed supplies of shots to the 27-nation bloc, which ordered 300 million doses by the end of June.

“We are working 24/7 to improve delivery and hopefully catch up to the expectations for Q2,” Soriot told EU lawmakers in a public hearing.

Under its contract with the EU, the company has committed to delivering 180 million doses in the second quarter.

Soriot did not mention the 180 million target, but said he was confident the company will be able to increase production in the second quarter using factories outside the EU that had no production problems, including in the United States.

He confirmed the company was trying to get 40 million doses of the COVID-19 vaccine to the EU by the end of March, which is less than half the amount it promised for the quarter in its contract.

The EU, which has fallen far behind the United States and former member Britain in vaccinating its public, has repeatedly urged the firm to deliver more.

Lower-than-expected yields – the amount of vaccine that can be produced from base ingredients – at its factories hurt output in the first three months.

Asked about supplies to Britain, which relies on the same factories used by the EU, Soriot said the former EU member with a population of around 66 million was smaller, and noted that most doses produced in the EU were used to serve the EU which has a population of about 450 million.

Executives from rival drugmakers that have developed or are testing COVID-19 vaccines, including Moderna Inc and CureVac NV were also part of the panel.

But most questions were directed at Soriot amid anger that the company has failed to deliver promised vaccine quantities to the bloc on schedule.

Moderna Chief Executive Officer Stephane Bancel said the company has experienced fluctuations as the U.S. biotech group ramps up output of its COVID-19 vaccine.

He said usually a company would stockpile product ahead of a launch, but it is shipping every dose it makes, leaving it without any spare inventory.

His comments came a day after the company increased its output target for this year and 2022 as it invests in additional manufacturing capacity.

(Reporting by Josephine Mason in London and Francesco Guarascio in Brussels; Editing by Susan Fenton, Bill Berkrot and Keith Weir)

 

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