Current ACFN Stock Info

U.S. Seismic (USSI) is Acorn Energy’s (ticker: ACFN) core holding company that builds and manufactures a new fiber-optic geophone used in oil and gas exploration, 4D-seismic, assessment of oil and gas well completion jobs, and permanent downhole well monitoring.

For those not familiar with the story, USSI is replacing 50-year old seismic copper-wire geophone technology with its propriety and patented fiber optic geophone powered only by light. Legacy geophone technology lacks the ability to perform in high pressure/temperature fields, and many geophysicists now agree that 90% of the subsurface data is in the low frequency shear waves (S-waves) not successfully monitored by current downhole geophone technology.

At this point, companies are using USSI’s technology in two ways:

  • 3D VSP: Prior to drilling a well, permanent and/or retractable seismic sensors are sent downhole to provide engineers and E&P companies a clearer picture of the subsurface in order for the company to better identify and design placements of frac stages to enhance production.
  • Seismic while fracing: A company can monitor the actual hydraulic fracturing process using real time microseismic to identify the “perfect frac” – meaning a company would know when they are under- or over-fracing a reservoir.

Acorn reports seven successful tests with seven successful orders – however, the buzz has been around the opportunity to “commercialize” the product.

Supermajor Shootout

USSI was one of five companies participating in an undisclosed Supermajor’s “seismic shootout.” On October 2, 2013, ACFN reported USSI won the seismic shootout and received orders for the next phase of the evaluation. The terms of the new orders for cabling, deployment systems and field service expenses are confidential. Judging by the reaction in the market, OAG360 believes the market was looking for a transformational order resulting in a large influx of cash.

We want to bring readers’ attention to ACFN’s longer-term picture. Jim Andersen, President and CEO of USSI said in a recent news release: “…the customer focused on validating the key features that set us apart from the competition, namely, performance at substantially higher frequencies and long-term operation in a high temperature downhole environment. We further understand that our high frequency performance was verified via downhole testing by the Supermajor last month and we have been told that our system performed even better than our published specifications. We are now moving on to what we believe will be a final qualification or “cook test” that will verify our claims, based on laboratory data, that our products have the inherent high temperature and pressure performance needed for long term deployment in a deep high temperature oil well.”

Three Important Takeaways

First, 50% of oil and gas fields are high temperature/high pressure where legacy technology will not perform. John Moore, CEO of Acorn, believes the seismic tool business is a $2 billion industry meaning USSI’s current addressable market is enormous.

Second, deployment issues are the inhibitor – not the technology. Deploying a new technology in an industry as robust as the oil and gas industry has its speed bumps. John Moore said at the company’s recent shareholders’ meeting that USSI’s customers remain committed to help USSI through these issues. For example in the recent five company shootout, Moore said the Supermajor mentioned USSI’s systems performed better and were more sensitive than expected – but the Supermajor wanted a high frequency clamp to address a higher “vector fidelity”. In seven days, the team created a high frequency clamp. It was tested and they are now awaiting results for a third-party validation of USSI’s sensor technology. Additionally, a small seismic company performed a downhole test with 25 of their own conventional sensors, as well as 20 of USSI’s sensors. The company concluded USSI’s high temperature system greatly enhanced their services. Unfortunately, the system was broken as it was being taken out of the hole. As long as third-party service companies and Supermajors remain committed to helping USSI solve these deployment issues – we believe the company can overcome these hurdles.

Last, 2014 will be an important year as Acorn and USSI perfect its technology and address the long lead cycles of the industry. Moore said in order to advance USSI into commercialization –all 2014 investments will be going to USSI.

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