The Exchanges

Q that pivotal moment from the top of the show, the offsite retreat. Well, first of all, what happened at this team retreat? How did you kind of work through some of these challenges? And I think honestly, you know, telling folks, like, how do you communicate in moments like this of deep tension is really beneficial for folks to hear. But then where did you wind up going from there?

A I think it was really helpful to get out of the office, and we did it overnight. Like, we went and stayed at a little lodge up in the mountains of Santa Barbara. And we had a facilitator come in, and it was a full retreat, but it was really important to get people out of the office and to talk about the perspectives that everybody was coming from, because we had the technical team, I mean, hearing me, but not really hearing me about the expectations that our investors have for us, and, you know, me hearing them on, this is not just another Idea that we're filing IP on to go out and to go block in the space, or file blocking IP, or just cover all the bases, this really solves the core challenges. And around that same time, uh, we brought on our now CTO, Patrick Hanks, who had spent 15 years leading novel process scale-up at Exxon. And so, we were having him come out to interview, and the technical team said, well, I don't understand why we need this new leader. And there was, you know, pushback just to the role, uh, itself really. And then when they met Patrick within a week, they said, this guy's amazing. We should have had this guy sooner. And so, you know, I think there's a leadership component to it as well of, you know, you need a strong technical leader who can go toe to toe with PhDs or has a PhD themselves to be able to explain this is why we're solving problems in, in t…

AI assessment note: “we had a facilitator come in, and it was a full retreat”

Q So, I mean, this sounds like a super ideal solution, that effectively what you're doing then is building the pilot in a way that it's flexible to both approaches. Did that involve a significant cost increase compared to what you were originally planning, or kind of what were the things that you had to do to make that possible?

A It's been a little bit more expensive, and I think that as a result of that, there are parts of the pilot that are not designed the way that we would have originally designed them. So there's a, there's been a little bit of a trade-off there, but One of the things that we're really fortunate to have is that the pilot is at the Southwest Research Institute, which is able to do all sorts of on-site fabrication, like the core reactor vessel was actually built, um, on-site. So, in order to go make changes to anything, we're able to go, you know, have the welding crew come walk up and look at it, get the crane, take the reactor vessel off, take it back to the welding shop, Make some tweaks to it, go back, set it back in the pilot, all with just the folks that they have on site there. So I think one of the things that really enabled that was the flexibility of, ah, of, of Southwest.

AI assessment note: “It's been a little bit more expensive, and I think that as a result”

Q So Graphitic has officially decided to commit to using the new technology, but that doesn't spell the end of the challenges. In fact, it means a whole new set of them. More about that after the break. So, once you're all in on this new approach that you're pursuing, and obviously technique biz as well, what were the things that changed with respect to particularly your products?

A The big change was really around the carbon, and we as a company were slow to appreciate that. I mean, as we were running campaigns in the lab, obviously we're looking at the carbon, Looking at the XRD and say, wow, that's, that's really graphitic. But the carbon that came from the previous approach was, was not, it was basically soot. And so we, all we had really ever thought about in the carbon was, how do we get our molten media back? So we don't have to keep, you know, replenishing that. And it really just was not in the company's DNA to think about that carbon as being a valuable co-product. And so, Around the time that we were finalizing the initial FEL work with Technique, our now CFO, um, but at that time VP of Finance, Steven Swager, who has a product development background, he had previously been the CFO of a carbon nanotube company, said, I don't think we should just assume that this carbon is going to go back into the ground and be a coal mine in reverse. We should get some samples out. So he sent some samples to To his old company, and then went out and recruited the former CTO of the biggest graphite producer, uh, in the United States to come be an advisor and has been able to sort of really help develop that market, um, on the carbon side. And when people think graphite, they usually think lithium ion batteries, but they don't appreciate that there's a tremendous…

AI assessment note: “The big change was really around the carbon, and we as a company were slow”

Q but say a bit more about kind of the, the main goals of the pilot. It sounds like at least one was to generate enough material that you could really get, you know, customer proof points on the graphite side. What else were you trying to do, and how else were you thinking about the scope, like how much engineering scale up you were taking on with that particular pilot?

A Yeah. So, one of the things that was critical to have Patrick lead with the help of TechNeep was, how big should the pilot be? So, my previous comment about, well, we're going to overbuild the pilot, that's just the skid. We just want to make sure that the steel structure has plenty of room to go fit all the different components into it. So, it was really working with Patrick and Technip and also an organization called the Particulate Science Research Institute that's kind of the leader in fluidized solids to say the height of the carbon formation reactor, which is the core vessel, is really determined by the velocity That you need to send all these particles around on, and that's 40 feet, and we knew that from the lab. And then diameter is based on, you need to really get to a foot in diameter with a fluidized bed before you get away from wall effects. So if you can get to a foot in diameter or larger, you can get away from wall effects and be very confident that you can take the data that comes out of that and scale it to whatever diameter that you want. And so, one of the great things about our pilot, there are some not great things, and there have been some challenges too, but one of the great things is, despite that sort of initial flexibility that we built in, we feel really confident that that will give us all the scale-up data we need. It isn't a, well, we built this pi…

AI assessment note: “we feel really confident that that will give us all the scale-up data we need”

Q Okay. And so once you brought him on board, Tell me how the conversation went. Were you basically like, here's the approach we've spent all this money on and are ready to execute on. Here's the approach that the technical folks in the company want to pursue that solves problems. Pick one, or how did that work?

A When Patrick flew out for his interview, he did all his interview prep based on the old approach. So, you know, studying the fluid dynamics of bubble columns, being ready to not just look good himself, but also interview the startup Startup company and say, am I going to go leave Exxon to go work for a startup company that's doing this? Like, is this technology going to work? And so, he got to the office, and the first thing we did was give him a new presentation on, actually, we have a new idea, and we want your first sort of decision to be to help decide if the new idea is better than the old idea. And, you know, he got it. It wasn't instant, But, um, we obviously got him to join, so he, uh, was supportive of the idea, and he said, this is a really elegant solution to the core problem that exists in methane virolysis. How do you get the heat in? So that was one of his, one of his very first things that we did with Patrick as a company was say, hey, this is a good idea worth pursuing, but we still had the pilot. Um, so while this was happening, We had to be building a pilot, and that was part of what we talked about at the retreat, which was we always have to be building a pilot. We've raised enough money, and we've been at this, you know, two years that, like, we have to be pushing that forward, because there are no points awarded for the best idea on a whiteboard. You've got…

AI assessment note: “we want your first sort of decision to be to help decide if the new idea”

Q That's very cool. Ok, so at this point though, are you all in on the new approach?

A We became all in on the new approach. It really took technique energies doing the initial FEL studies, because the devil is in the details. It's not in the chemistry. We knew we could get the chemistry to work, and we knew that because, because it's really a fluidized bed, that we could get the fluid dynamics to work. It was a question of, can you build the flow sheet for this In a way that will make the resulting hydrogen and carbon economical. And so, Technib completed their, uh, FEL-I studies of our technology at both the minimum efficient scale, which is about six tons of hydrogen a day, and also the maximum efficient scale, which is 270 tons of hydrogen a day, which is a world-scale hydrogen plant. They completed those, it looked good, and then they approached us and said, we want to invest in you guys and have a partnership Because we think that this is going to be competitive with blue hydrogen and in parts of the world is going to beat blue hydrogen hands down. And so that was certainly, that was certainly enough of a signal for me to be like, okay, all right, there, we have a good idea here. This is going to work. A company that does a third of the world's hydrogen projects is wants to put some money into this. So that's a pretty big signal.

AI assessment note: “We became all in on the new approach.”

Q And so how did that work? How were you able to manage your investors around all of this, around a Pretty big technological pivot that you made around, you know, some of these things that you mentioned that include cost overruns. What was your secret to keeping everyone in lockstep with you?

A Well, on the pivot part of this, I think we were transparent about the challenges as we incorporated them, but the real, real fundamental change is how do you put the heat in? And so, as we were going through this, you know, flexibility within the pilot, the way that we talked about it was, yeah, and we've got a couple of different ways to go put the heat in, all of which need to be determined at pilot scale. And talking about that sort of flexibility and that ultimate down selection process, I think was, I think was helpful. We obviously, we had to make some trips to Asia to go explain, hey, here's why the plan is changing a little bit, um, which is, you know, it's culturally important to really, nobody likes it when the plan changes. Um, but I think that talking about this as, hey, it's not like, it's not like we're pivoting to say, oh, and guys, we're going to take the rest of your money and go mine Bitcoin with it. I mean, We're still solving the same challenge here, which is extracting hydrogen from natural gas without using electricity or making CO₂. And so I think that was helpful, is that this is a, this is really sort of a different heat integration approach to doing the same thing that we are solving. On the budget front, we've had great groups of investors that have invested, um, two or three times with us. I think because we've got a lot of corporates who understand…

AI assessment note: “I think we were transparent about the challenges as we incorporated them”

Q And so, as you're going in and starting to build this pilot, what are some of the initial challenges that you've encountered?

A Initial challenges have all been balance of plant related. There are very few vendors that want to build pilot scale pieces of equipment. They're an order of magnitude bigger than things that are built for labs. They're an order of magnitude smaller than pieces of equipment That are built for refineries. So, all the balance of plant stuff, and I think this is true of any pilot, it's always an awkward scale. The heat exchanger, or the compressor, or whatever it is, is like a one-off unique job. The companies that are making those for you know they're not going to go sell, it's not going to become a new product line for them. And so, because everything's a little custom, Uh, everything has the tendency to have issues and be a little bit buggy, and so we've had pieces of equipment where we've rebuilt the thing almost twice over, and had, oh, and then the truck that was bringing the new flange got in an accident, and so we actually have had pieces of equipment that we didn't even get to break ourselves at the pilot, that actually just broke trying to get to the pilot that we then had to go back. And, and work on. And so, I think that's what makes pilots so challenging, is that it's a weird scale, and everything's bespoke, and it's never been put together before in, in these configurations. But, fortunately, it's all been related to the balance of plant. Um, and, you know, every tim…

AI assessment note: “Initial challenges have all been balance of plant related.”

Q imagine it's probably that, but also, they must see something around the value proposition that you're bringing to the table, and something at the end of the rainbow that they're, that they remain committed to. So is that true, and how do you, how do you think about that and characterize it, and what do you think makes you all different? Like, why are they willing to stick with you?

A I think it's having the right inputs and outputs to the process at a very high level, and the real, the core prize of, hey, we're trying to get at Hydrogen that is trapped in natural gas that costs 80 cents a kilogram. That core prize is, is still there, and that's why the company is still exciting to me, is that that hasn't changed. Nobody thinks that's going to change, and so I think that communicating that and staying focused, I mean, within the, within the spectrum of like, this is what we're trying to accomplish, and by the way, the carbon also has value here, and here's how we're going to go utilize that, has been Really helpful to keep everybody sort of on the same team.

AI assessment note: “the core prize of, hey, we're trying to get at Hydrogen”

Q vast majority of people probably think pencils. So just to calibrate us a little bit here. But that's, I mean, this is really exciting. So how do you think now about the relative market size and sort of, you know, ability of you all to capture market on the graphite side versus the hydrogen side? Where do you think the majority of your revenues are eventually going to come from?

A The most important thing is to get the first of a kind Built as quickly as possible, which means getting the carbon qualified with customers as quickly as possible. So we think that based on conversations we've had with specific customers that we have demand for 300,000 tons a year as produced from our process going directly into, um, their processes and their customers end uses downstream. First of a kind plant will produce about 45,000 tons a year, so we've got enough to build multiple copies of that just with the customer conversations that we have. The three million tons a year in North America would be, enable us to build multiple world-scale plants, so, you know, when that gets saturated, we're in the twenty-forties. And then the big, big picture vision is that, you know, if you're willing to pay three dollars a kilogram hydrogen, you can throw the carbon away. I mean, it's still, even without any carbon value, if you build a big plant, this is still, we think, the cheapest sort of non-SMR-based hydrogen that you're going to be able to produce.

AI assessment note: “if you build a big plant, this is still, we think, the cheapest”

Q Yeah. Well, and I imagine at 80 cents a kilogram, you're, you're really in a pretty incredible position to be competitive, almost regardless of the market, but have any of your conversations gotten more difficult as the political landscape has shifted, I'll say to put it mildly, in the United States?

A I think that there's no doubt that there's maybe been a decline in a hydrogen interest, but That's really almost entirely, um, hydrogen from electrolysis. And so what we do is remind, um, everybody that, hey, we use a fossil fuel, natural gas, to make a critical mineral, graphite, and that has the benefit of ameliorating the, the negative aspect of using natural gas, or the primary negative aspect, which is CO₂ emissions. And so, This is something that is a great idea thermodynamically and economically, because gas is going to be cheap for a long time in the United States, and everybody's on board with that. And if you can ameliorate the CO₂ emissions in the form of making the carbon valuable, how is extracting natural gas any different than mining cobalt for batteries or some other sort of Extractive type of process. So it isn't, uh, it isn't helpful that the rules are kind of changing all the time, but I think we've got a really good story about how, um, we'll be able to get the first of a kind, um, up and running and be able to build more of them.

AI assessment note: “no doubt that there's maybe been a decline in a hydrogen interest”