CDK Services Ltd. (CDK)
Interview with: Wayne Thomson, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their Emission Eliminator, an environmentally responsible chemical injection pump that emits no fugitive gasses to atmosphere and improves customer economics by increasing the saleable natural gas produced and/or reducing operating costs.

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CDK Services’ emissions free chemical pump offers their customers an increase in natural gas sales and a reduction of greenhouse gas emissions



Services
Sector:
(CDK-TSX: Venture)

CDK Services Ltd.

Suite 1240, 330 5^th Ave., S.W.
Calgary Alberta T2P OL4
Phone: 403-319-2026



Wayne Thomson
President and CEO

Interview conducted by:
Lynn Fosse
Senior Editor

CEOCFOinterviews.com
September 2004

Company Profile:
CDK Services Ltd. is a TSX Venture Exchange listed, emerging oilfield service company whose product offering includes the patented Emission Eliminator. The Emission Eliminator is an environmentally responsible chemical injection pump that emits no fugitive gasses to atmosphere and improves customer economics by increasing the saleable natural gas produced and/or reducing operating costs. While offering significant economic benefits to customers, the Emission Eliminator also enhances safety and landowner relations and may accumulate carbon credits for greenhouse gas reductions.  The Emission Eliminator conforms to the updated Alberta Energy and Utilities Board Guide 60 soon to be implemented on the reduction of emissions of fugitive gases from well sites. The Company’s base business provides valve and BOP sales and service solutions to the oil and gas industry in Western Canada.

CEOCFOinterviews: Mr. Thomson, you have been with CDK for a short time, what attracted you?

Mr. Thomson: “The Company’s patented Emission Eliminator chemical pump for natural gas wells fills a timely market need and there are very real opportunities to significantly grow the sales of the pump. I also believe that sales of the chemical pump are all upside since the current market value of the company is supported by the existing businesses, which are valve and BOP Sales and Service.”

CEOCFOinterviews: Will you tell us about the base business and what is happening there?

Mr. Thomson: “We are located in three facilities across Alberta where we sell and service valves and Blow Out Preventors (BOPs) for the oil and natural gas industry.  Sales will be around nine million dollars this year and about a million dollars EBITDA. “

CEOCFOinterviews: Is that business growing?

Mr. Thomson: “The average growth over the last three years has been 18% on the revenue side and higher than that on EBITDA and we are on track to exceed that rate of growth in 2004.”

CEOCFOinterviews: Will you tell us about the emission eliminator?

Mr. Thomson: “Gas wells often require injection of methanol to keep them from freezing. The typical chemical pumps that inject the methanol have been the same for years. They take natural gas off the wellhead and used the pressure of this gas to drive the chemical pump and then vent the natural gas to the atmosphere. When gas was $1.00 per mcf, instead of the $6.00 that it is now, the gas that was wasted was not that valuable. The other factor is that now with global warming concerns, this vented, unburned natural gas is a very potent greenhouse gas, being 23 times more potent than CO2. Our pump requires only a small pressure drop to operate and that is typically available at the wellhead.  We use that pressure drop, drive the chemical pump and then the gas goes right back into the pipeline. With our pump, there are no emissions, the customer’s natural gas sales increase and greenhouse gas emissions are reduced.”

CEOCFOinterviews: How do you get people to use this?

Mr. Thomson: “We have about eighty pumps operating across Alberta. We have a sales force to start the sales process right at the field operator level and show the operating staff what the pump can do for them; how it can increase their revenue or save significant operating costs. We will install the pump and take it out at our cost if it does not meet our customer’s expectations. To date most of our sales have been repeat sales with three major companies.”

CEOCFOinterviews: Are there government mandates as far as the standards that you play into?

Mr. Thomson: “Yes and there is a new regulation called Guide 60 coming out this month in Alberta. This regulation specifies that if you are venting natural gas and if you can make a 7% rate of return before tax on an investment to stop that venting, then it is a requirement to make the investment. This low 7% rate of return would compare to a more typical industry expected return of 20% plus. This new guide has been negotiated between the industry association, environmental groups and the government.  Other jurisdictions have similar regulations or are developing them.”

CEOCFOinterviews: What about getting your product used outside of Alberta.

Mr. Thomson: “It is easier to operate in your own back yard and our strategy is to make sure that we have everything right with the pump and that it is performing exactly as we expect over the next few months. We see moving to the US likely through US divisions of some of our customers in Canada. We currently have a demonstration pump with Encana and we will be installing one with BP. These are the two largest natural gas producers in North America, with a large presence in the US. We see it as a natural progression that once we show them our product performance in Canada then we can move to the US with them and then expand to other operators in the US.”

CEOCFOinterviews: How long till they see a return on the investment?

Mr. Thomson: “Some of the remote sour gas locations use very expensive propane instead of natural gas, so our customers are getting payout in less than a year and in some cases in less than six months. If customers are currently using natural gas, two to three years is a typical payout of the additional capital, without counting any value for carbon credits.”

CEOCFOinterviews: Is there much competition and why is your emission eliminator the right way to go?

Mr. Thomson: “We find that the real competition is the desire to do things the way the industry has always done it. There are some reduced emission pumps on the market that will handle lower pressure, but we are not trying to compete on the very low rate, low pressure gas wells. Our market is the higher pressure and higher productivity wells and in that market we do not have any pumps that can effectively compete against our pump.”

CEOCFOinterviews: What is your patent protection?

Mr. Thomson: “We have multiple patents on the pump, so we feel we are well protected.”

CEOCFOinterviews: Can you give us a sense of the market for your product?

Mr. Thomson: “Right now in western Canada, we have 105,000 producing gas wells and we are drilling over 10 thousand new gas wells per year and in the United States there are 350,000 producing gas wells. Some of these wells are lower pressure and lower productivity, but we still believe that we have a market that is in the 10’s of thousands across Canada and the United States.”

CEOCFOinterviews: Please tell us about the financial condition of CDK.

Mr. Thomson: “I joined the board at the end of 2003, and raised $600,000 Cdn of new equity, which gives us the funds to complete the development and marketing of our Emissions Eliminator chemical pump. What has really been happening is that cash flow from the existing businesses has supported the development of our emissions free chemical pump.”

CEOCFOinterviews: What’s involved in producing the pump?

Mr. Thomson: “Our manufacturing is mostly a machining operation and we are able to choose from multiple local machine shops; whoever can give us the best service and pricing. At one of our company facilities we then assemble the pump and run it through our break in sequence to make sure that the seals are operating properly.”

CEOCFOinterviews: Are there service contracts involved once the pump is purchased?

Mr. Thomson: “At this stage, no. We have been involved in the early installations. Even if a company has their own person that they want to install it, we want to be there to ensure that it is installed properly. Most companies also want to maintain them themselves. We train our customer’s staff so that they can maintain the pump.”

CEOCFOinterviews: Are you still doing R&D on the product?

Mr. Thomson: “We continue to do R&D and as we start manufacturing in large volumes our next R&D project is to drive additional costs out of the manufacturing process while maintaining a high quality pump.”

CEOCFOinterviews: Address potential investors; why should they be interested and what should they know that they might not notice at first glance.

Mr. Thomson: “We have not been showing a profit as a company because the development of our Emission Eliminator has taken up the profit from the other businesses. We have published that by the end of this year we expect to be profitable with the continued growth of our base businesses and the increasing sales of our chemical pump. We now have a product that the industry needs and wants.”

CEOCFOinterviews: It would seem that your product would become standard throughout the industry at some point in time.

Mr. Thomson: “We believe that our pump will become the industry standard for higher rate natural gas wells.”

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“The Company’s patented Emission Eliminator chemical pump for natural gas wells fills a timely market need and there are very real opportunities to significantly grow the sales of the pump. I also believe that sales of the chemical pump are all upside since the current market value of the company is supported by the existing businesses, which are valve and BOP Sales and Service.” Wayne Thomson

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