Peter, thank you very much. Always a pleasure to be here.
First, ClearSign Technologies' safe harbor statements can be found on the investor tab of the company website. Next, investor questions are welcome throughout. Please enter them in the chat box and we'll make sure that those are delivered to Jim and his team. Very important here, if you'd like to request a meeting with ClearSign management, you can indicate that through the conference portal. With that, let's get started here. Jim, for investors joining us today who may be new to ClearSign, could you walk us through what the company does, the problem that you're solving for industrial operators, and how you've structured the business to address that?
Yeah, certainly. Thank you, Peter. We describe ourselves as an industrial technology company. We specialize in flames, right? We have IP and expertise that allows us to control the way flames are structured. What's important is we can make sure the flames do what they need to do, but we can also control the chemistry that forms pollution. Essentially, we can make flames that don't make pollution, or keep pollution down to the levels required by the latest regulations so that our customers don't have to put very expensive backend cleanup systems on their heaters. That is a very big savings for our customers.
If you've ever cooked with your kids in the kitchen, and all the work you have to do to clean up the mess afterwards, and then you have that conversation, "Hey, it would just be much easier if you didn't make the mess in the first place," that's pretty much the way that we're addressing the industrial pollution with our customers. As you said, we are a small company in a truly global marketplace. We have very sophisticated customers like oil refineries, petrochemical companies, that have large asset needs that we don't have. ClearSign is small, but we've come up with a strategy of forming significant collaborative partnerships with majors in the industry that have those assets and come up with relationships that are truly win-win for us and them. That allows us to have access to their assets.
It allows them to sell burners into the very low emissions part of the market that extends beyond the range of their equipment themselves. So it is a win-win for both. They also get to manufacture our equipment in their specialized shops, and they get profit in that. So these relations are set up on a win-win basis. On the sales front, we are able to work with a lot of our customers so that they carry our products in their offerings to their customers. So by setting it up that way, they essentially become an extension of the sales arm for us. While we are small, we can actually get a very extensive reach through the way that we have structured the business.
Something important, I think, for investors to understand, I would like to draw their attention to this, just to remind that your company is related to NOx regulations. This is not something that is tied at all to carbon policy. With that in mind, how would you characterize where that regulatory landscape kind of stands today across those key markets, and how much runway does this compliance cycle related to NOx give your company as a growth driver?
Yeah. Thank you, Peter. I think that is very important, right? The NOx regulations are one of the criteria pollutants that date right back to the formation of the EPA. It is a very big part of ground level ozone and the toxins at ground level. So our industry is driven by the need of local regulators to tighten up on emissions to maintain clean, safe air at ground level, and there are specific thresholds that the EPA mandates to the local regulators that drives their tightening of emissions. For timing, our biggest markets today are in California and Texas. The California modern emissions regulations have been out for about five years now. There has actually been very little equipment installed, so we are actually seeing a lot of activity now as the refineries get to crunch time that they are having to start to act on those regulations.
The biggest market for us in the U.S. is the Texas Gulf Coast. What is really exciting there, the TCEQ, the local regulators of those regions, are just rolling out new regulations there, tightening up on the NOx emissions from oil refineries and petrochemical plant down in that area. Fees on those regulations are due to start in 2017, and we are already receiving a lot of inquiries from the plant, the refineries, and the petrochemical companies down in that area as they look to address their equipment. When we look at the timeline, it typically takes 5- 10 years. We have already seen the lag on the California sites, so 5- 10 years to implement those regions. Beyond that, we do not see that as limiting. We are already seeing tightening of regulations and needs coming out of Canada.
We're seeing the regulations start to change in certain areas of the petrochemical business in Europe. As population grows and more and more hydrocarbons are burned, the ground level toxins increase, just requiring tighter regulations wherever that occurs. It's a rolling phenomenon. Just right now, our key markets are just getting very active with the latest regulations, which is exactly the pain point of customers that we're targeting with the ClearSign technology.
Let's talk about the technology itself and the impact it has on your customers. So really in kind of plain terms here, what are you doing differently to combat the NOx emissions when compared to, say, those traditional approaches, and how does that kind of change the economics for your customers?
Yeah. This is really fundamental to us. So, in a way, I explained that we specialize in flames and flame structure. If you get to control the way that flames are formed, you get to control the chemistry, you can not make the pollutant emissions in the first place. To put numbers to this, we have a project in-house for a California refinery, and they gave us their estimate for the cost of implementing one of the selective catalytic reduction systems. This is the large backend cleanup system. You basically spray ammonia or urea ahead of this big catalytic deck. It forces the chemical reaction and removes the NOx from the flue gases before it gets emitted into the atmosphere. It works. It's been around for years. It's extremely expensive. Their estimate for two heaters for this project was $50 million. They've come to ClearSign.
Our burners are designed so we just don't make emissions in the first place. Our burners will plug in. They'll take their existing burners out. Our burners will plug into the existing holes. They'll be straight, just standard operation. Our estimate for them using our technology is just under $10 million. A large refinery will have 40 to 50 heaters on a refinery. The cost to implement an SCR across that refinery, to comply with modern emissions, if they did that on every heater, would be in the region of half a billion dollars. If ClearSign's coming in about 20% of that cost, you can imagine that we're saving, or have the potential to save that refinery about $400 million. So there's a very meaningful cost saving for the customer.
You also, in terms of the landscape, or your asset light model, you compete against some very large, long-established burner suppliers. Yet ClearSign outsources most of its manufacturing to one of those companies. Could you talk about the Zeeco relationship? What that gives you that readily you will not be building on your own, and where you believe your durable advantages lie?
Yeah. This is part of the fundamental strategy. When I took over at ClearSign, I realized, all right, we have to be able to sell our equipment in a way that our customers are used to buying it. They have certain specific requirements. One is they require that process burners are demonstrated at full scale for article number one before you go and manufacture the full order. They require that the equipment is manufactured in a shop that they have certified. So they look at the quality control system, and they need to know the shop. We get that by working with one of the global majors, which is, in our case, we have a collaborative partnership with Zeeco. Working with them gives us instant credibility in the market. Everyone recognizes them. Zeeco is truly one of the top two global manufacturers of combustion equipment.
They're private, but our estimate is they're a $2 billion a year company. They have manufacturing and sales on every continent. They have sales or service people embedded in almost every refinery in the U.S. They're just a 15 minutes drive down the road from our Tulsa office. This relationship gives us access to their testing. They manufacture our burners. That is how they get their profit, too. We include money for Zeeco in that manufacturing. Zeeco now co-brand the ClearSign burners. So they carry ClearSign technology under their own name. It's advertised on their website, their sales people have it in their portfolio, and that allows Zeeco to bid for projects where they're competing with an SCR, where the NOx numbers are down at these new modern levels, which is below the level that standard burners can get to.
I think importantly, when we set this relationship up with Zeeco, it was, I think, very clear to both of us that for this to be sustainable and long-term, it had to be obviously beneficial for both parties. So, we obviously benefit from access to the Zeeco resources, and the Zeeco benefit from the profit on the manufacturing of our burners, and then extending the range of their product line. That has worked really well. I think it's in everyone's interest. They have very intent on growing the business. They've been incredibly supportive, and we're both looking to maximize the sales of ClearSign technology that we can.
In some of our past conversations, you've called the Gulf Coast petrochemical startup this year's single most important milestone. Could you describe for investors what that installation involves and why a customer's first hands-on experience with the equipment matters so much to these conservative buyers in your industry?
Yeah. I'll maybe address that last part first. I think from anyone looking at what we're doing and the simplicity of our solution and the fact that we save 80% of the cost for our customers, you'd ask, "Well, why would they ever do anything else?" The answer at this point is, in our industry terms, we are a relatively new technology. The industry is extremely conservative. One of their big requirements is they're just looking for installations where our equipment is up and operating and has been operating for some time, so they have the confidence to put this equipment into their refinery. Because when equipment's installed in a refinery and you close the heater up and you start the refinery back up, you don't get the chance to go back and work on it again.
So you have to be very confident that the solution is reliable. That is a hurdle that we're working to overcome. We do have installations out in the field. This Gulf Coast is a very large order. It's for a global chemical company in the heart of our biggest market. The project was managed and installed by a heater engineering company called Birwelco, and they are the premier engineering company in this market in the United States. So there's a lot of visibility to this project, a lot of people know about it. We've had a lot of customers talk to us about their future heater projects and then told us they're watching this Gulf Coast startup as part of their validation.
So it is extremely important, from a future sales, this will be our biggest reference and help to, we believe, give people confidence in bringing these future orders to us. In terms of the order itself, it's 26 burners. It's the biggest order we've had. It's also the beta version of our new flexible fuel technology that we developed and demonstrated earlier this year. So from an order and a technology standpoint, it's also a very important project for us. It's the first rollout of this new style of burner.
This year you have had very strong momentum with the M-Series, which is midstream. For our viewers, those are essentially kind of conditioning natural gas as it moves through gathering and processing. The Permian Basin in Texas, that is where we are seeing a considerable build-out, and that is an important growth area that has kind of picked up noticeably. Jim, with Tulsa Heaters Midstream, you have repeat business through to those top-tier Permian operators. I saw that one of those orders was structured so that the manufacturer builds the burner under license. What appealed to you there, and what could a royalty model mean as ClearSign scales from here?
Yeah. So it is true. The midstream business is a growing sector. These projects are for expansions down on these customer sites. All these orders, by the way, are going to household gas producer names. We are not allowed to name the customers, but they are top-tier customers. These are very big heaters, very big burners.
You mentioned Tulsa in the midstream, and there is also another burner manufacturer. So we have had a flurry of orders this year, three of them. Very recently, half went to Tulsa Midstream and half went to the other manufacturer. Where the refinery burners are bespoke and have to be demonstrated to the customers, the midstream heaters tend to be standardized, which allows us to have standard products. So the nice thing for us is these burners, once they are designed, we can just manufacture the same burners over and over again to fit into the standard heaters.
That lends itself to a model where we do not have to touch the drawings when they are done. We can just repeat the product. So where we have customers that have the capability of manufacturing the burners themselves, that leads to a lot of efficiency. We can avoid having to pay third-party manufacturers. The customers can control the schedule, and if they have special weld requirements or anything like that, they have the ability to do that.
So going to a licensing-like model allows our customers to actually get the finished product for less money. We still get the same profit. We do not have to give any of that up. As we get more and more licensed projects through, it just means that we have to use less ClearSign resources to complete those orders. So in terms of growth and scalability, it is a very big lever for ClearSign.
The more we can move into this licensing style model, the more product that we can deliver without having to increase our ClearSign resources. We believe that our customers like that way of working better as well.
Your flare business has moved from supplying a burner element to delivering complete systems, which is really changing that project value quite considerably. What drove that shift, and where does that line go next?
Yeah. So for everyone just to get their arms on what we're doing, the flare equipment is basically a waste disposal device. The new regulations require that even these burners now are required to operate under a NOx ceiling. It is 15 parts per million in California, as an example. So we would initially put our burners into an existing flare to convert them to meet the new requirements. We have seen a need for new flare equipment, and rather than have the third parties or have somebody else build the flare and let us just provide our burner, we saw the opportunity to provide the entire structure. So that has taken a $150,000, $200,000 burner opportunity, and now for us, turned it into a $750,000. In fact, there is one that we are installing now in California that is about a $1.5 million project.
That was a gap in the market and a need where our clients are expanding and needing new flares, and us basically, "Hey, we have the capability of doing this. It fits in our wheelhouse." It was basically a very good opportunity to expand our revenue and to expand our business. With this, it is actually becoming a meaningful part of our business. Incidentally, the flare that we are installing right now, that client has told us they have two more permits in progress based on the ClearSign technology as well. I think, just like the Gulf Coast startup, they are waiting on this flare to run just to give them confidence. We do have other clients out there in California as well with flare projects.
As with the new equipment going out into midstream, we are seeing this flare business really start to take off and to get some significant references out in the field. I think the other part just to mention, the first order that we had sold was a retrofit burner going into an existing stack. We got the formal testing results back from that first burner just over a month ago, and we came in about 60% of the allowable emissions. That was actually for the same client. So that also gave them great confidence that our technology is performing under the allowable NOx levels. Going forwards, there are more sites for that same type of flare. These are out in the oil production fields, burning off the off-gases. We have flares quoted for biofuel applications.
I see it more as a systems product line than just strictly flares. We've approached opportunities like biomass and biochar facilities where the burners would not be a horizontal stack, but maybe arranged more like a thermal oxidizer, and there's opportunities there as well. There's actually a very significant market as we broaden our horizons and think, "Where else can we take this technology? Who else needs it?" Then look at supplying the complete vessels, which we believe are all going to be in that $750,000 million plus price range. This is a very nice addition to the ClearSign business.
Let's talk about your balance sheet and your path to breaking even. How are you thinking about funding the business through your scale-up phase, and what mix of orders will it take to get you to that sort of break-even run rate?
We can put a number. So break-even for ClearSign, we've been able to hold our target margin. We need a run rate of about $16 million a year revenue to get to break-even. We have sufficient cash in the bank. Actually, we had a couple of efficient small raises early on this year. So I believe that we have a line of sight to break even with the cash that we have. One key consideration with the ClearSign projects is we're able to fund those projects with our customers' money. While we do recognize the bulk of the revenue late in the project, we're actually able to collect cash upfront and fund the operational projects. We do not generally need to dip into our cash balance to fund the projects as they go through.
In terms of the mix, the midstream burners and the flares, both of those products tend to cycle quite quickly. The midstream probably in three to six months from the time we get an order to the time that order's complete. The flares, about six months to a year, compared to the process burners, which can be up to two years. At this phase, the pickup in the midstream orders and the flares, it is actually really helpful as we're driving towards that break-even point. When we look at the mix, if we take that $16 million, my expectation is that about six of that will be spread across the midstream and the flares reasonably evenly. Then $10 million will be from the process burners. We definitely see the process burners being the biggest portion of business going forwards.
But that $10, I know it sounds like a big number, but when you look at our process burner orders, an order for a single heater has been coming in $2.5 million, $3 million+. So to get to that $10, we're really only looking at three to four of those large orders per year, which is not a big run rate. I see that as being very feasible. Then looping back to why that Gulf Coast installation is so important and getting that all-important reference out in that very large market for us and starting to free up those orders, I really believe that that and the cash balance we have gives us a line of sight to break even.
Okay, that's great. Well, we are getting close to our time. We've got a few minutes here, but maybe before we close out, would you like to share perhaps some of the key signposts that investors should be focused on or, and any concluding remarks?
Yeah. This is all about execution for us right now. Obviously, that Gulf Coast startup is due to be installed next month. It's due to start up in November. That is happening very quickly. So that's going to be probably the biggest event for ClearSign in driving our sales forwards. We have six very large or five very large and one smaller midstream burners going down into the Midland area, down in the Permian Basin of Texas. Those starting up and getting established with those major customers in that rapidly expanding market, and then getting these flares started up in California.
Right now, we're looking to get very credible references up and running in all of our major product lines, and we believe that that is the biggest barrier to our customers truly starting to give us orders, being confident in our equipment and in the new technology that we have today. So right now, we look for orders to follow once those are up and running. I think, three to six months after they're up and running, I do expect the orders to pick up. But on the near horizon, just for tangible things, just those startups in all of our product lines, the Gulf Coast, Texas, the midstream, and the flare startups are absolutely key for us.
Okay, great. Well, Jim, thanks so much for joining us today, and this has been a great discussion. On behalf of Water Tower Research, we really appreciate your time and look forward to having you back with us again soon here.
Hey, Peter, it's my pleasure. It's always good to talk to you, and I appreciate everyone's interest in ClearSign.
Thank you to everyone else who joined this session. If we did not get to your question or you'd like to arrange a meeting with ClearSign management, please indicate that through the conference portal. Additional research and content on ClearSign is available on our website, watertowerresearch.com, and on major research aggregators like Bloomberg and FactSet. For ClearSign, we've got a full due diligence package there. We have financial forecasts, all of which you can take a look at. WTR's platform, to remind, is entirely open access to all investors. We have another session beginning very shortly here, so please stay with us.