Quarterly report pursuant to Section 13 or 15(d)

6. Lease

6. Lease
6 Months Ended
Jun. 30, 2015
Leases [Abstract]  

Kinder Morgan Crude & Condensate, LLC Lease


On July 15, 2014, the Company entered into an Equipment Lease/Option to Purchase Agreement (“Lease”) with Kinder Morgan Crude & Condensate, LLC (“Kinder Morgan”). In accordance with the terms and conditions of the agreement, Kinder Morgan agreed to lease and test the effectiveness of the Company’s AOT technology and equipment on one of Kinder Morgan’s operating pipelines. Equipment provided under the Lease includes a single AOT Midstream pressure vessel with a maximum flow capacity of 5,000 gallons per minute.


The initial term (“Initial Term”) of the Lease is four months, with an option to extend the Lease for up to a maximum of 84 months. During the Initial Term, either the Company or Kinder Morgan may terminate the Agreement for any reason on 45 days’ written notice. Lease payments shall be $20,000 per month; provided however, that in the event the Equipment is removed from service at its initial location during the Initial Term, the monthly lease payments shall be reduced to $5,000 until the Equipment is placed back in service at its new location, at which time the Lease payments shall resume at $20,000 per month. The agreement further provides that Kinder Morgan shall have an option to purchase the equipment during the term of the Lease for a fixed price of between $600,000 and $1,200,000, depending upon the date of purchase.


The equipment was delivered to Kinder Morgan in December 2014 and installed in March 2015. In April 2015, the AOT pressure vessel experienced an electrical short and was subsequently replaced by another AOT pressure vessel. Subsequently, it was determined that the unit needed further modification to optimize the system configuration for crude condensate operations. A replacement unit has been modified at our manufacturer’s facility and is scheduled for delivery to Kinder Morgan during the third quarter of 2015. The initial term of the lease will commence upon installation and acceptance of the replacement unit.