September 2018

Can you talk about your career journey ending up as the CEO of NXT Energy Solutions Inc.?

Liszicasz was born and grew up in Hungary where he received his degree in Electronics in 1975. In 1979, Liszicasz immigrated to Canada where he studied 200 words per day to achieve an academic proficiency level of English in just one year. In 1980 Liszicasz enrolled in an undergraduate program at the University of British Columbia studying general sciences, majoring in physics. This fed Liszicasz’ passion in the creation of 52 inventions, including electronic control systems, early warning systems, medical lasers, new pyroelectric materials, and various geophysical instruments, etc. In 1986, Liszicasz established his R&D company and offered consulting services and developing special devices for various industry applications. His company also evaluated and made recommendations on various technical patents and new technologies for the Science Council of British Columbia, Canada.

While Liszicasz was developing a new high efficiency transducer material that would convert body heat into electricity (so that pacemaker batteries would not have to be replaced every 4 months) the material under specific conditions exhibited new quantum mechanical and electrical conduction behaviours, that was never seen before. Studying the phenomenon further, Liszicasz realized that it was the key to creating a new detection mechanism that would use gravity as a proxy to explore and utilize the physical relationship between gravity gradients and subsurface stress leading to the development of the Stress Field Detection (“SFD^®”) technology.

In 1996 Liszicasz founded what would become NXT Energy Solutions Inc. (“NXT”) and seven years later he became NXT’s President. Stress Field Detection was commercialized in Canada in 2007 under the profitable stewardship of Liszicasz. Today Stress Field Detection surveys are being conducted for NOC’s and E&P companies driving efficiencies into their exploration process by focusing their G&G programs and capital on areas conducive to trapped fluid potential within sedimentary basins worldwide.

In addition to his scientific activities and strategic development, Liszicasz leads a team of Ph.D.’s of mathematics, Physics, Electrical Engineers, and Geoscience who continue the evolution of the SFD® technology.

Liszicasz has served as a member of the NXT Board of Directors since 1997.

What is NXT Energy Solutions main business?

NXT is a publicly traded company based in Calgary, Canada. The Company offers a unique geophysical service to the upstream oil and gas industry using its patented gravity-based SFD® remote-sensing survey system. SFD® sensors remotely respond to gravity perturbations and changes in subsurface stress regimes that are meaningful for oil and gas exploration. These responses are captured as raw data that, when interpreted, can provide an indirect method to detect the presence of geological features such as structures, faults, fractures and reefs that are often associated with traps and reservoir accumulations. Currently, SFD® is the only airborne tool that provides information on areas conducive to fluid entrapment in the sedimentary column.  As SFD® data is collected via an airborne survey, it is used to rapidly identify and rank prospect level leads to aid clients in focusing their exploration efforts through the evaluation of large surface areas for their exploration potential.

The SFD® survey is complementary to existing geophysical methods, particularly seismic programs.  In pre-seismic applications, SFD® can generate high-potential prospect leads in large underexplored areas.  In post-seismic applications, SFD® can prioritize seismic prospects based on their reservoir potentials.

Following completion of the aerial surveys, we deliver to our clients a detailed report and maps of the surveyed area that identifies, ranks and recommends areas with SFD® indications of reservoir potential. NXT’s primary business model is to earn revenues by conducting SFD® surveys for clients on a fee-for-service basis. In accordance with this model, we have not invested either directly or indirectly in exploration or development wells or engaged in other exploration or production activities. Our current business model minimizes our capital requirements, thereby conserving cash, and minimizes any perceived or real conflicts between the interests of NXT and its survey clients.

In June of last year, NXT began to expand in business model by acquiring 37,596 line km of SFD® data for the shallow water Bid Round 2.1 covering the Tampicao-Misantla, Veracruz and Cuencas del Sureste exploration areas in the Gulf of Mexico and has made this data available on a multi-client basis for purchase through the Comisión Nacional de Hidrocarburos’ (CNH) website; Mexico’s national hydrocarbons commission.

In addition, as we continue to progress and build our pipeline, we may also look to negotiate to earn revenue from gross overriding royalty and/or other incentive fees from clients should they generate production on areas recommended by SFD® surveys. Finally, in the future, we may earn a fee by providing other related geological and geophysical integration services to clients.

 What has your company’s biggest success/ breakthrough been in the past 12 months?

NXT’s largest breakthrough over the past year has been the granting of six SFD^® patents worldwide in the USA, Canada, Japan, Russia, Mexico and China. We also have SFD^® patents pending in the European Patent Office (38 countries), Brazil and India.

The patent protection application process is a lengthy process that requires disclosure and independent review of core aspects of our SFD® technology to not only determine the novelty of the process but to verify the scientific principles supporting its application. The granting of NXT’s SFD® is ultimately a process which has been more than five years in the making and required the Company to provide numerous responses to an independent panel of scientists and physicists to verify the technology. As a result, SFD® patents granted in the U.S.A. and other countries serve an important purpose beyond protection of our proprietary SFD® technology. They also provide multiple independent third-party recognitions of the technological invention in terms of the practical applicability, conceptual novelty, and knowledge advancement.

Thus our patents are a very important step in an industry which is very cautious on adopting new technologies. An upstream executive with a supermajor summarises this by saying “consumers and IT-based firms know the early bird gets the worm, but oil and gas players would rather be the second mouse that gets the cheese. This is because it's more costly to be the first to adopt new oil and gas innovations, so they stick with what's tested and reliable. Even when innovations are adopted, there's usually a step back period before benefits begin to arrive.” 

We believe our patents can help to address this first step by demonstrating the independent vetting of our scientific principles and process. In addition to our patents, NXT has also completed 30 SFD® surveys and flown over 500,000 line km of reservoirs since commercialization of the technology in 2007, thus providing a strong track record performance important in the oil and gas industry.

 Where do you see the opportunities for growth within the industry in the next 5 years, how are you positioned to support this?

Oil and gas companies are currently grappling with a new era of disruption. Over the past several years, the industry has dealt with price shocks, changing consumer sentiment and vast technological advancements both within and outside the oil and gas sector. During this time, price shocks on the upside advanced grants for renewable technologies which have created a fundamental change in the longer-term outlook for oil demand growth.

Such is the impact of new technology and the expected diversification of the world’s energy mix that Wood Mackenzie, one of the world’s most influential oil and gas consultancies, released a forecast in July 2018 predicting global oil demand will peak within 20 years or around 2036.  Even Royal Dutch Shell’s CEO, Ben van Beurden estimated the global demand for oil could peak as early as 2025 when he was quoted saying “if somehow the nations of this planet are going to get our act together, are going to be effective in devising and enforcing policies that will decarbonize the energy system, my expectation is then that oil demand will peak in 2025, 2026. That’s the Goldilocks scenario. It all needs to come together.” And although this is unlikely to be Royal Dutch Shell’s base case forecast for the future, it is worth noting that big oil (and others) is taking notice of a shift in the oil and gas sector’s outlook.

Under pressure from a significant decline in commodity prices and resulting drop in profitability over the past few years, along with growth in renewables, energy groups are again looking to technology for answers. The lower-for-longer downturn and moderating operational gains provided an extra incentive for companies to save millions from their operating costs and, most importantly, make their $3.4 trillion asset base smarter and more efficient. However lower prices also pushed exploration activity and more importantly oil and gas discoveries to multi-decade lows. As a result annual discoveries of petroleum liquids were less than 5 billion barrels in 2017 according to the International Energy Agency, a figure that is only slightly more than 5% of annual consumption and which you have to go back to the 1940’s to find time when so little new oil was discovered.

Although growth in renewable energy and the gradual electrification of the global automobile fleet will assist in tempering oil demand and rising oil prices, renewables cannot be brought to scale cheaply enough to make the difference needed over the next two decades for a major shift in the energy equation. Thus exploration will remain critical to continuing to replenish the world’s oil reserves in a global economy that will likely continue to increase its appetite for oil for another 15-20 years to come.

Despite this continued necessity for oil and opportunity to meet the demand of this market, exploration performance has continued to underwhelm. During 2017, Wood Mackenzie reported the sector achieved a commercial drilling success rate of just 4%. Although this will improve over time as plans for the year's discoveries crystallise and appraisal programmes proceed it remains a significant challenge to attracting capital required to meet the exploration need. Furthermore Wood Mackenzie reported on a full cycle basis during, the decade ended in 2017, the industry eroded US$192 billion and achieved returns of just under 8%.

Part of the issue appears to be the lack of adoption of new technology within the exploration end of the oil and gas business. 3-D seismic technology pioneered by ExxonMobil nearly 50 years ago remains at the forefront of exploration tools but according to comments from Dr Keith Myers, founder of Richmond Energy Partners, in a study released in 2015, it has not led to an improvement in frontier success rates from a commercial perspective because of the difficulty in mapping effective traps and good-quality reservoirs.  For example, since the 2007 Jubilee discovery offshore Ghana, of the 67 frontier wells that targeted analogous deepwater Upper Cretaceous prospects at a cost of [$6.85 billion], there were only two commercial discoveries—one oil at Barra in Brazil and one gas at Mzia in Tanzania before Exxon Mobil’s Liza discovery in Guyana.

NXT recognized this challenge in the industry and has developed a tool in the form of its patented SFD® technology which can assist companies in highgrading their exploration portfolios and prospects and significantly improving their commercial success rates in drilling. NXT’s SFD® technology detects trapped fluid accumulations subsurface by responding to changes in homogeneity induced by density and stress variations in and around the reservoirs. SFD®’s sensors oscillate at their natural frequencies and are deployed over an area by airborne survey at 10,000 feet and 500 kilometers per hour. Sensor perturbations are detected, amplified and converted into electrical signals via an active interface to produce a time-dependent visual waveform output.

Our tool can be deployed rapidly covering an area of 5,000 square kilometres in approximately two weeks with a full interpretation report provided to clients within a month following collection of data. SFD® data is independent of seismic and is able to provide information on areas of interest with trapped fluid bodies which seismic cannot provide. As a detection tool, SFD® does not provide depth or basin architecture, however when integrated with 3D seismic data, NXT has achieved a commercial drilling success rate of over 70% on 21 SFD® recommendations made outside of North America since 2007.

Over the last few years, NXT has focussed its strategy on NOC’s as these companies also have an interest in advancing the development of their home country’s resource bases. Thus they have been early adopters of NXT’s SFD® technology to help attract renewed exploration interest and capital to domestic basins. It is also one of the key reasons we choose to sponsor and participate the Oil & Gas Council’s 2018 NOC Assembly.

With worldwide patent protection now granted and an increasing demand for a more economically efficient oil and gas explorer, we believe NXT’s SFD® technology is very well positioned to become an essential exploration tool which complements seismic over the next 5 years.

What question or industry issue are you looking forward to hearing about at our upcoming NOC Assembly?

As the NOCs have been key focus area for NXT over a number of years, we are generally interested in hearing from them on all topics being presented at the NOC Assembly. However we will have a particular focus on how the disruption in the global energy market is going to impact a key client base for our company and the changes they are implementing in their strategies moving forwards.

As a technology company within the oil and gas sector we are also interested to hear how NOCs as a whole look to utilise and potentially accelerate their use of technology advance their businesses.

 Tell us about the session you are speaking on and why you chose that topic at the 2018 NOC Assembly?

NXT will be speaking at the beginning of Day 2 on “Technology and R&D: How are NOCs transforming their fortunes with advanced technology and digitisation?” In our past work with NOCs such as PEMEX, YPFB, Ecopetrol and others, we have focussed on how SFD® could be used not only to specifically improve their exploration success, but also to increase exploration interest in their home countries by integrating SFD® data with existing seismic data.

NOCs have been early adopters of SFD® and continued to utilize our technology through the downturn in oil prices. As oil prices and demand have recovered, we believe the requirement for the utilization of technologies such as SFD® which can make the sector and finding of resources much more efficient will continue to increase. Thus we viewed our participation in the NOC Assembly as a core part of our overall marketing strategy.

Endnotes

1. Jim Montague, “Bright oil and gas future will rely on innovation, efficiency,” Control Global, March 16, 2017.