Tech News
Mt. Gox investors seek creditor support to save bitcoin exchange
(Reuters) - A group of investors, which is seeking to buy Mt. Gox, has launched a website to garner support from creditors of the bankrupt bitcoin exchange to prevent a liquidation of its assets.
"We need your help to stop a liquidation, which would be good neither for Mt. Gox creditors nor Bitcoin's reputation with the general public and regulators," the investors wrote on the website.
The Wall Street Journal had earlier reported that Mt. Gox had given up plans to rebuild under bankruptcy protection and had asked a Tokyo court to allow it to be liquidated.
The investor group, which offered to take over the assets of Mt. Gox and revive it, has received backing from many creditors and hopes to convince the court to reconsider their rehabilitation proposal, the Wall Street Journal reported on Thursday. (https://r.reuters.com/keh68v)
Mt. Gox, once the world's biggest bitcoin exchange, has about 127,000 creditors.
The exchange filed for bankruptcy protection in Japan in February, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking.
(Reporting by Supantha Mukherjee in Bangalore; Editing by Sriraj Kalluvila)
[Image via Agence France-Presse]
FBI facial-recognition program uses low-resolution photos and employment mugshots
Another FOIA lawsuit brought against the government by the EFF has resulted in the release of previously withheld documents. The papers cut loose this time detail the FBI's facial recognition database and other parts of its "Next Generation Identification…
[Image via Agence France-Presse]
Google, IBM worries could raise questions about other tech-sector companies
Disappointing results from Google Inc and IBM may unnerve investors shaken by a strong recent selloff in tech stocks, underscoring the challenges the Internet and IT sectors face as corporate report cards come due in coming weeks.
The two companies, both barometers of their respective industries, posted March-quarter results on Wednesday that missed Wall Street's revenue targets, and their shares fell in after hours trade.
IBM blamed weak hardware sales for its lowest quarterly revenue in five years, worsened by an 11 percent slide in overall sales in emerging markets including China, Brazil, Russia and India.
That spells trouble for other tech companies reliant on enterprise-spending, such as Oracle, Cisco, EMC and Hewlett-Packard, which report results this month or next. Like IBM, they have struggled to grow their businesses, particularly in China, whose economy is down-shifting after years of hyper-growth.
Enterprise spending in general has been on the wane for traditional computing giants as corporations and even governments increasingly turn to software-as-a-service (SaaS) and other cloud offerings instead of maintaining their own in-house technology infrastructure. Many, including IBM and Oracle, have been left behind by smaller, younger rivals as spending goes toward emerging areas like big data, cloud and cyber security.
"We're seeing a lot of traditional technology vendors struggle," said FBR analyst Dan Ives.
"You're seeing spending go away from big-bang projects toward smaller, more modular types of deployments, which speaks to why a lot of SaaS players are doing well. Customers want to buy just the drink rather than the whole bar."
Google's and IBM's poor results on Wednesday may do little to change investors' sentiment following a recent drop in tech stocks. Since early March, the tech-heavy Nasdaq index has fallen over 6 percent.
Mobile ad worries
With the latest results factored in, including IBM and Google, tech earnings growth estimates for the quarter have fallen by roughly two-thirds since the start of the year, according to Thomson Reuters data.
On January 1, as the first quarter got under way, analysts on average predicted tech earnings would grow by 7 percent. But now, as first-quarter reports trickle out, analysts on average expect growth of just 2.4 percent, according to the data.
That also marks a deceleration in tech profit growth from the fourth quarter, when it totaled 10.3 percent, but it is an improvement from 2013's first quarter, when tech profits shrank by 1.2 percent.
In Google's case, investors initially pummeled the stock in after-hours trading after the world's largest Internet company reported its miss, plus a drop in margins as cost-per-click, or the average price of an online ad, slid 9 percent.
The shares rebounded after CFO Patrick Pichette attributed that profitability decline to a spike in expenses partly because of its $3.2 billion acquisition of home automation pioneer Nest last quarter, which tacked on a raft of payroll and research costs.
More broadly, the three largest Internet corporations - Google, Facebook Inc and Twitter Inc - have each grappled with advertising on mobile devices, where the growth is currently concentrated, and where smartphones with smaller displays typically command lower ad prices than on desktop PCs.
For investors in Google, accustomed to the company enjoying one of the highest ad margins in the business, mobile ads have translated to a steep drop in ad rates. The transition has been less jarring at Facebook, which once relied almost exclusively on low-margin display or banner ads.
Twitter, which had difficulty monetizing its 140-character stream-of-consciousness messaging model, is catching on with TV advertisers because of its growing position as a "second screen" to accompany TV viewing.
"People are trying to adapt to a new delivery system which is mobile," said B. Riley & Co analyst Sameet Sinha. "It is a challenge for most companies, and it's going to be here for the next couple of years."
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'Chief Yahoo' David Filo and banking magnate Charles Schwab named to tech firm's board
Yahoo announced the nomination of three new board members, including company co-founder David Filo, who earned the nickname and formal job title of "Chief Yahoo."
Filo was named along with Charles Schwab, head of a big investment firm bearing his name, and H. Lee Scott, former president and chief executive at Walmart.
"As a co-founder and long time Chief Yahoo, Filo is the heart and soul of the company and in re-joining the board, he adds 19 years of deep and personal knowledge of Yahoo's business and culture to the conversation," Yahoo chief executive Marissa Mayer said.
Filo has been outside the board and executive leadership in recent years but he has continued to hold the "chief Yahoo" title, drawing an annual salary of $1 over the past three years.
Filo co-developed Yahoo in 1994 with Jerry Yang while working towards his Ph.D. in electrical engineering at Stanford University, and he has been an officer since the company was founded in 1995.
"I am incredibly proud to return to the Yahoo board," said Filo. "Jerry and I founded Yahoo as a product focused company that creates compelling experiences through technology, and I'm excited that today we are solidly back on that path."
He added "I am very familiar with Yahoo's history and with the technology underlying everything we do today and more importantly, everything we want to do tomorrow. I look forward to working alongside the other directors as we continue our mission to build the best possible consumer experiences for our users."
The appointments come with Mayer seeking to revive the fortunes of the Internet pioneer, which is seeking a new direction since losing its crown as the leading search engine to Google.
Yahoo also filed documents showing the compensation of top executives including Mayer and Henrique de Castro, who walked away with a huge payout after clashing with Mayer.
Mayer's total 2013 compensation was $24.9 million, down from $36.6 million in 2012 when she was lured from a top job at Google.
De Castro was paid $10.9 million in 2013 for his brief tenure as chief operating officer. But he got a whopping $39 million credited for 2012, including his payout for leaving the company in early 2014.
De Castro was given a million dollar "make good" cash bonus when he was hired from Google in October of 2012, and his annual base pay was $600,000.
He also secured an award of $20 million worth of "make-good" stock shares, which are his to keep if Yahoo is letting him go without cause, according to a termination clause in his hiring letter.
[Image via Agence France-Presse]
European publishing mogul accuses Google of developing a digital 'superstate'
Mathias Döpfner, head of Europe's largest newspaper publisher, says internet search engine is abusing market dominance
The chief executive of Europe's largest newspaper publisher has accused Google of abusing a monopoly position in the digital economy to discriminate against competitors and build up a "superstate."
In an open letter to Google's Eric Schmidt published in Wednesday's Frankfurter Allgemeine Zeitung, the head of Germany's Axel Springer SE publishing house, Mathias Döpfner, said the US company was operating a business model that "in less reputable circles would be called a protection racket", discriminating against competitors in its search rankings. Google's motto was "if you don't want us to finish you off, you better pay", he said.
Döpfner -- whose publishing portfolio includes Europe's best-selling newspaper, the tabloid Bild, as well as the centre-right broadsheet Die Welt -- admitted that his own company was completely reliant on Google, a fact that made him and other publishers scared.
"Google's employees are always decidedly friendly to us and other publishing houses, but we don't communicate on a level playing field. How could we? Google doesn't need us. But we need Google."
Döpfner argued that there had been a "fundamental shift in opinion" about Google among European citizens since Edward Snowden had revealed "close connections between big US online providers and the US intelligence agencies" last year. "No one knows as much about its customers as Google. Even private and business emails are read by Gmail and analysed if the need exists," he said. He described the view, which he attributed to both Schmidt and Facebook's Mark Zuckerberg in response to the NSA revelations, that "if you have nothing to hide, you have nothing to fear", as disconcerting.
"It stands for a mental attitude and a view of the world that is common in totalitarian regimes, not in free societies. The head of the Stasi or any other secret service in a dictatorship could have come out with a line like that."
Referring to Google's recent acquisition of drone manufacturer Titan Aerospace he said: "Is Google really planning a digital superstate ... ? Please, dear Eric, explain to us why this interpretation of what [Google co-founder] Larry Page does and says is just a misunderstanding."
Responding to an opinion piece by Schmidt published in the same newspaper, Döpfner denied that his concerns were born of a "Luddite conspiracy theory."
"To criticise Google is not to criticise the internet. Those who are interested in a flawlessly functioning internet have to criticise Google. For us as a publishing house the internet is not a threat but one of the greatest chances in recent decades."
Döpfner, a former journalist who wrote a PhD thesis on the history of German postwar music criticism before editing a string of newspapers, also took to task the work of the European competition regulators, who in February reached a settlement with Google after investigating the company in an anti-trust inquiry.
"Will European politicians fold or wake up? Institutions in Brussels have never been as important as they are now," he said.
In Germany, Axel Springer has in the past been accused of exercising a monopoly role similar to the one Döpfner accuses Google of benefiting from. Its newspapers' largely conservative views turned the publishing house into one of the main bogeymen of the 1968 student movement.
Recently, Axel Springer SE has expanded to eastern Europe but closed down some of its magazines and local newspapers with the reported aim of concentrating on its expansion as a digital media company.
© Guardian News and Media 2014
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Canadian 'Digital Privacy Act' threatens to be a boon to Internet trolls
Michael Geist is raising the alarm on a dangerous new bill in Canada, called the "Digital Privacy Act" (Bill S-4), which will actually serve to undermine many people's privacy. Much of the bill is focused on security breach disclosure rules, something…
[Image: "Communications Concept," via Shutterstock]
Megaupload's Kim Dotcom launches the Internet Party as he fights extradition to the U.S.
By Naomi Tajitsu
AUCKLAND (Reuters) - Internet tycoon Kim Dotcom holds court while bathing in the pool of a sprawling New Zealand mansion, fist bumping and chatting with some of the 700 guests gathered to celebrate the political party he launched last month to promote Internet freedom.
His latest ultra-encrypted file storage site, Mega, will soon go public after a deal that values it at NZ$210 million ($180 million), and Baboom, an online streaming music service designed to bypass record companies, is nearing its hard launch.
In Dotcom's alternate universe, he is fighting extradition from his adopted country to the United States, where the hulking 40-year-old stands accused of massive copyright infringement related to the Megaupload file sharing site he founded in 2005.
Last week, Hollywood studios filed their own lawsuit against Megaupload and Dotcom, and a few days later four major music labels followed their lead, cranking up pressure on the father-of-five who faces an extradition hearing in July.
The parallel lives of the man born Kim Schmitz in West Germany collided dramatically in January, 2012, when his $20 million rented country estate outside Auckland was raided by dozens of New Zealand police in a dawn swoop carried out at the request of the FBI.
Dotcom was cut out of a safe room in the mansion and locked up, and millions of dollars of assets in property, cash, luxury cars and art were seized. He has been released on bail with access to some funds, while his movements are restricted.
His anger over the injustice he says he faced during and after the dramatic raid, which was swiftly followed by the closure of Megaupload, prompted him to set up a political organization called the Internet Party.
"The raid on my family with two helicopters and 72 cops with machine guns, the illegal spying against my family, the unlawful restraining orders - I felt it was a gross abuse of power," he told Reuters, seated in a living room dotted with stained glass windows inlaid with "M" for Mega.
"When you're in an environment like that ... you feel like you want to do something about this injustice."
SEPTEMBER ELECTIONS
The launch of the Internet Party, whose policy platform will be crowd sourced and whose leader will be selected in a process reminiscent of an audition for TV talent show "The X Factor", comes ahead of general elections in September.
Some political commentators have dismissed the party as Dotcom's latest vanity project to goad New Zealand Prime Minister John Key, whom he forced into an apology for illegal surveillance by a government spy agency.
But a proposed tie-up with another fringe party could see it influencing the parliamentary balance of power in New Zealand's German-style proportional voting system.
Dotcom cannot contest a seat, because he is not a New Zealand citizen, and his political career could be cut short if the U.S. Department of Justice succeeds in extraditing him at a July hearing that follows numerous delays.
That would rob New Zealand of one of its most colorful characters.
Dotcom, whose large frame matches a larger-than-life character, is cast variously as commercial visionary, digital martyr, online freedom campaigner, swindler and thief.
Evidence of his days as a freewheeling adrenalin junkie hang on the walls of his home, in portraits of Dotcom posing with private jets and yachts, and petting a leopard.
Love him or hate him, people are interested in what he says, at least in New Zealand, where he boasted the most Twitter followers until he was dethroned by pop singer Lorde last year.
"It's not the cult of personality that's important," said Anatoly Kern, an IT worker and Internet Party member attending the party, where guests lounged poolside, wandered through the estate's hedge maze and took "selfies" with a life-size giraffe statue that overlooks the grounds.
"It's his ideas that are important ... The ideas he is driving are much bigger than him. Yes he's a big guy, but the ideas are even bigger."
CRITICS LINING UP
Not everyone is as sympathetic.
Sunday's pool party ended a week in which Dotcom was slapped with separate civil suits from the U.S. film and music industries, which say Megaupload rewarded users for uploading pirated content and did not do enough to disable access to files containing infringing material.
Dotcom concedes Megaupload offered monetary rewards for extensively shared files, but says restrictions on the size of uploaded files and steps to remove copyrighted material allowed it legal protection.
The Motion Picture Association of America, the film industry lobby group, says it believes copyright infringing activity also occurred on Mega, launched last year, but Dotcom scoffed at the prospect of another lawsuit from the MPAA.
"Let them look at Mega. There's nothing to see (because) it's all encrypted. If they look at Mega, they have to look at Dropbox, Box.net, and every other cloud storage business out there," he said.
"This is a war about a technology and innovations they don't like, and I'm being made an example (of)."
MPAA Senior Executive Vice President and Global General Counsel Steven Fabrizio told Reuters there was an "enormous" difference between file storage services which "might enable some incidental infringement", and Megaupload, which was designed "for the very purposes of facilitating massive copyright infringement".
"He's a huckster, he's a fraud artist, he's a crook," Fabrizio said of Dotcom.
The U.S. Department of Justice declined to comment on the ongoing case against Dotcom and Megaupload.
Set up in 2005, Megaupload accounted for around 4 percent of total traffic on the Internet in its heyday as users stored and shared files containing everything from wedding videos to Hollywood films.
U.S. prosecutors charge that a significant amount of the site's activity was driven by the latter, releasing evidence in December that movies were downloaded from the site up to 500,000 times over a six-month period.
The FBI alleged Megaupload defrauded copyright holders of $500 million and generated over $175 million in proceeds from subscriptions and advertising - some $42 million for Dotcom personally in 2010 alone.
"THEY WANT TO DESTROY ME"
If Dotcom ends up in the U.S. justice system, he believes he will have an uphill battle to win over the public there.
"The biggest problem I'm going to have in the U.S. is that almost 90 percent of the media is controlled by the same parties that are suing me, that want to destroy me," he said.
"I think they are going to manipulate the media to make sure that I will be portrayed as a villain, and as a criminal."
But he said that search engines and content-sharing sites like Google and YouTube, which could be impacted by the outcome of the case, were likely to support him.
"If I lose, (all file sharing sites) lose, and they all know that," he said.
"In their dream world, once the Department of Justice is done with me, they are going to go after Google, YouTube, Dropbox and all these other sites."
($1 = 1.1514 New Zealand Dollars)
(Additional reporting by Julia Edwards in Washington; Editing by Mike Collett-White)
Heartbleed fix may cause some online confusion and delay
The heartache from the Heartbleed Internet flaw is not over, and some experts say the fix may lead to online disruption and confusion.
The good news is that most sites deemed vulnerable have patched their systems or are in the process of doing so.
The bad news is that Web browsers may be overloaded by the overhaul of security certificates, leading to error messages and impacting Web performance, said Johannes Ullrich of the SANS Internet Storm Centre.
“A good percentage of the websites are patched,” Ullrich told AFP.
The patches enable the Web operators to obtain new security certificates that demonstrate they can be trusted by Web browsers.
But Ullrich noted that for each patch, Web browsers must update their list of “untrusted” certificates or “keys” that would be rejected.
“For the fix, the website needs to obtain a new private key and the old key has to be revoked,” he said. “Browsers will not trust the old keys.”
Browsers may usually update dozens of keys on a daily basis, but because of Heartbleed, that may rise to tens of thousands.
If the verification process takes too long, Ullrich said, the browser may simply declare the site invalid or show an error message.
“People will see errors,” he said. “They will see an invalid certificate. They can either accept the certificate or consider it invalid.”
The big danger is that Internet users may become so confused or frustrated that they ignore the warnings or reconfigure their browsers to no longer perform the security check.
“If people turn off those lists, then a hacker could get in,” Ullrich said.
With thousands of websites seeking new security credentials, “some certificate authorities and website administrators have been making careless mistakes,” online security firm Netcraft noted.
Warnings about the danger have grown over the past week, with everyone from website operators and bank officials to Internet surfers and workers who telecommute being told their data could be in danger.
The bug is a flaw in the OpenSSL encryption at “https” websites that Internet users have been taught to trust.
The Heartbleed flaw lets hackers snatch packets of data from working memory in computers, creating the potential for them to steal passwords, encryption keys or other valuable information.
The security firm Cloudflare reported last week that it appeared impossible to use Heartbleed to steal certificates to impersonate a website, but then reversed itself after a “challenge” to the security community brought out evidence these thefts were possible.
Google said that some versions of its Android mobile operating system may be vulnerable to Heartbleed. On Monday, it urged developers to create new security keys to ensure apps and other services can be trusted.
Trend Micro security specialist Veo Zhang said the latest evidence shows mobile phones are potentially vulnerable in two ways:
“This is because mobile apps may connect to servers affected by the bug,” Zhang said in a blog.
“However, it appears that mobile apps themselves could be vulnerable... We have found 273 in Google Play which are bundled with the standalone affected OpenSSL library, which means those apps can be compromised in any device.”
Some of the first evidence of hackers using Heartbleed have begun to surface in recent days.
British parenting website Mumsnet announced Monday that users' data had been accessed, potentially compromising 1.5 million accounts.
Officials in Ottawa said personal data for as many as 900 Canadian taxpayers was stolen after being made vulnerable by the “Heartbleed” bug.
The Canadian Revenue Agency last week shuttered its website over concerns about the Heartbleed bug.
Reddit rolls out real-time breaking news tool in social media turf wars
Reddit, a website with a retro-'90s look and space-alien mascot that tracks everything from online news to celebrity Q&As, is going after more eyeballs, and advertising, by allowing members of its passionate community to post their own news more quickly and easily.
Reddit, majority owned by Conde Nast parent Advanced Publications, last month rolled out a new feature that lets users of the nine-year-old site post live updates, allowing them to report in real time.
The live updates allow selected users, dubbed "reporters" by Reddit, to instantly stream unlimited posts during the course of an event such as the conflict in the Ukraine, an earthquake in Los Angeles, or a game played in real time, without having to refresh the page.
The capability is still in testing mode. So far only users selected on a case-by-case basis can create a live thread. The feature has attracted attention. For example, live threads linked to "Twitch plays Pokemon," in which users of the Twitch website played an old Nintendo game, garnered 2 million page views in 30 days.
"Reddit members are doing amazing things with very minimal tools and were hitting some barriers," said Erik Martin, general manager.
Martin, who said the site is not yet profitable and declined to give specific revenue figures, added: "We want to give people a more powerful way to make updates."
Reddit's move toward enabling users to fluidly update is the latest move in a battle between social media sites including Facebook, Twitter and LinkedIn to use news to engage users, and attract more ad dollars.
Before, Reddit users could not update in real time. The new feature is similar to how people instantly send tweets but keeps the updates together through one thread or "subreddit."
Reddit, which also gets revenue through e-commerce, has ramped up efforts of late to attract more advertisers. Next week, it plans to unveil city and country targeting capabilities that allow advertisers to address users by geographic market.
One recent ad, specific to Reddit, featured the actors Jeff Goldblum and Bill Murray, stars of the movie "The Grand Budapest Hotel," as individual threads.
Some 62 percent of Reddit users get their news through the platform while about half of all Facebook and Twitter users do the same, according to a recent report on the State of the News Media from the Pew Research Center.
"Reddit is all about the community, that is the value they brought to the site as they created it," said Kelly McBride, a senior faculty member at the Poynter Institute, who has been following Reddit since it was founded.
"News has always been really important to Reddit," she said.
Reddit has more than 114 million unique visitors worldwide and has doubled its traffic in 12 months, said Martin. Facebook has more than 1 billion users and Twitter has more than 240 million.
Reddit's community of millions can quickly coalesce to unearth news as it did on developing stories such as the shooting in Aurora, Colorado, where Reddit members first found a dating profile of the accused shooter James Holmes. After the Boston marathon attack, on the other hand, Reddit members falsely identified suspects.
"People are using self-text posts and editing it to aggregate stuff about a subject," Martin said.
"We never thought people would use it to make 50 updates in an hour. All new things on Reddit is a response to something our users are doing already."
The site's users vote on threads and content meaning the hottest stories or discussions rise to the top of the "front page of the Internet." Users vote on an entire thread rather than individual live posts. The community also places a high value on one's Reddit score determined by how active one is on the site.
'Tax evaders': Turkish officials take a veiled shot at Twitter over lack of office presence
Social media firms operating in Turkey should open offices there and pay taxes, authorities said Tuesday, amid a row with Twitter which the Turkish prime minister has branded "tax evaders".
Without mentioning Twitter by name, Finance Minister Mehmet Simsek said social media platforms were dodging taxes if they operated without opening a physical office.
"When you take a look at double taxation agreements, a foreign taxpayer must have an office in order to pay tax," Simsek said.
"Social media companies must definitely open a representative office here," he added.
"If they have good intentions, they open a representative office. If they harbour bad intentions, then we will sit down and mull alternatives," stressed the minister.
The comments came as Twitter executives, led by Colin Crowell, the San Francisco-based company's head of global public policy, held a second round of closed-door talks in Ankara at the presidency.
Twitter bosses held a first meeting with Turkey's telecommunications authority on Monday, which officials hailed as "positive".
Prime Minister Recep Tayyip Erdogan's graft-tainted government blocked Twitter in March after the micro-blogging side was flooded with anonymously posted audio recordings allegedly portraying the premier and his inner circle in corruption.
But Ankara had to lift the much-criticised, two-week ban after the nation's top court ruled on April 3 the blockade breached the right to free speech.
Turkey's combative prime minister hit back at the court ruling and on Saturday threatened to "go after" Twitter, accusing the social media site of tax evasion.
The finance minister has said the court ruling had weakened the government's hand to push the social media companies to pay taxes.
Local media reported that Twitter officials were "not categorically against" the opening of an office in Turkey but no final agreement had been reached.
The ban on Twitter was among a wider crackdown on social media ahead of crucial March 30 local elections, in which Erdogan's Islamic-rooted Justice and Development Party (AKP) scored a nationwide victory despite corruption allegations.
Another popular social media site YouTube has been blocked in Turkey since March 27 despite two separate court orders to lift it.
The Internet ban has sparked condemnation at home and abroad, generating concerns about freedoms and democracy in Turkey, which has long aspired to join the European Union.
[Image via Agence France-Presse]
Futuristic walking, 'talking' drilling rigs aim to modernize fracking
By Ernest Scheyder
WEST CHESTER, Pennsylvania (Reuters) - The backbreaking life of a roughneck, the iconic worker bees of oilfield drilling rigs, is getting a little easier.
Schramm Inc, which built the drilling rig that four years ago helped rescue 33 trapped Chilean copper miners, has designed a 500,000-pound rig for the oil and natural gas industry that can walk, rotate 360 degrees, be operated with a remote control, and load pipe automatically.
The T500XD rig's futuristic control room has touchscreens and joysticks, rather than the valves and dials on conventional rigs, appealing to a generation of oilfield workers raised on video games. More than 200 sensors monitor pneumatics, oil flow and myriad other processes, "talking" via satellite or Wi-Fi to Schramm's Pennsylvania headquarters and signaling any problems.
Riding the global boom in fracking - the practice of injecting sand, water and chemicals deep underground to release oil and gas - Schramm's latest rig, although pricey, allows producers to sharply reduce labor costs, the company says.
It's all part of what Schramm, controlled by private equity firm GenNx360, says is an attempt to make the process of drilling a new well safer and faster.
So far, selling the rig to the slow-to-change drilling industry has been a challenge, and the risk of technological theft looms over much of the energy sector. But executives say they are pushing forward regardless, and some analysts say the company could be an appealing acquisition target, especially if its new rigs start selling.
"We designed the rig to have lots of automation and to be simpler to run," said Ed Breiner, Schramm's president. "That means less fatigue and fewer injuries for oilfield workers," who often have 12-hour shifts.
SELF-ASSEMBLING RIGS
Conventional oilfield drilling rigs must be assembled in pieces, often requiring a crane. To ship parts to an oil well, it typically takes 40 truck loads of supplies. Time is wasted building and breaking down such rigs, especially if the next well to be drilled is only a few hundred feet away.
Schramm's T500XD ships in roughly half the amount of loads, can assemble itself, and walk to the next well. At 30 feet per hour, the speed is not exactly a jackrabbit's pace, but it reaches a new well in a quarter of the time and is faster than the few other rigs on the market that can walk.
On a conventional rig, a roughneck needs to stand on top of the derrick tower to guide and move oil pipe into a well. Schramm's rig lets the operator sit in the control room and, with joystick controls, guide an automated arm to pick up and load pipe.
"Pipe handling is probably the biggest area of injury in the oil industry," Breiner said. "This rig removes that risk."
Highlighting the risks, a Chevron Corp natural gas well in eastern Pennsylvania exploded earlier this year while roughnecks were preparing to run tubing down the well, killing one.
SAFETY VS. JOBS?
Schramm's new rig, which took three years to develop, also uses about 40 percent fewer workers than traditional rigs. For remote regions with vast energy supplies but few workers, such as North Dakota or west Texas, the T500XD could be a welcome relief. But in regions with workers hungry for jobs, such as Pennsylvania, Ohio or even China, with its rapidly growing population and thirst for oil, the T500XD could be seen as a job-killer, analysts said.
It's an assertion that Breiner rejects, saying new technology in the industry will boost production and reduce injuries.
Energy Drilling Australia, a subsidiary of Ausdrill Ltd, is paying $8 million for Schramm's second T500XD in order to frack in Australia's Cooper Basin, which the U.S. Department of Energy estimates has the world's seventh-largest deposits of shale oil.
The company picked Schramm's rig, rather than buy from rivals that include Sweden's Atlas Copco or Italy's Trevi Group, because of its safety features and also because "you need fewer people on the rig," said Allen Pais, a manager with Energy Drilling Australia.
"This rig can move faster and drill deeper," Pais said. "It's got a high-tech kind of design, which makes it as easy as possible to run."
Energy Drilling Australia spends about A$1 million ($940,200) every time it tears down and moves existing rigs, meaning that, in time, Schramm's walkable rig should help pay for itself, Pais said.
Even so, the new rigs are expensive - nearly three times the cost of Schramm's earlier model, the TXD - and that has caused some prospective buyers to hesitate. Schramm, which customizes each rig it builds, has yet to ink new agreements to build more T500XDs.
Still, Schramm considers the T500XD a big step up, technologically speaking, from its TXD model, which has far fewer electronic controls and weighs less than half than of its larger sibling, meaning it has far less power.
Many contract drillers - companies like Ensign Energy Services Inc hired to do the actual drilling of wells for oil and natural gas producers - have a fleet of oil rigs that, while older, do the job perfectly fine. Rig companies are often reticent to make quick changes given the long life span of rigs and the immense capital that must be invested up-front.
Ensign Energy, for instance, had 238 North American rigs operating at the end of 2013, compared with 356 for Nabors Industries Ltd, which operates the world's largest land drilling rig fleet.
"The oil industry is saturated with old technology," Breiner said. "It has to, eventually, transition to new technology."
AMERICAN-MADE
In may ways Schramm's success during its 114-year history belies a series of modern myths about the inferiority of American manufacturing. Its breakneck growth in the energy industry since building its first natural gas rig in 2000 has shown how American dominance in the fracking sector extends beyond energy companies to include technology-driven manufacturers.
Sales to the energy and mining industries are the largest chunk of the company's revenue, taking up roughly 48 percent each of the company's 2013 sales, though Schramm does have a small business building rigs for water wells.
All of its rigs are built by its roughly 200 workers at a 26-acre suburban Philadelphia campus, nestled amidst a high school football field and cookie-cutter houses.
The company achieved international celebrity when its drilling rig reached the trapped Chilean miners before two rival rigs, an achievement touted widely in company literature.
GenNx360, founded by former General Electric Co executives, bought its majority stake in the company two years ago from the Schramm family, eyeing the company's "diverse blue-chip customer base" around the globe. Breiner and other executives retained a small stake. Terms of that deal were not disclosed.
GOING PUBLIC?
Schramm, analysts say, clearly punches above its weight-class, making it an attractive prospect either for a stock market listing or outright sale. Roughly half of the company's $100 million in revenue last year came from exports, a geographic diversity that many corporate leaders would covet.
Now may be the best time for GenNx360 to make a move, as the market for niche suppliers to the rapidly growing energy market is white-hot. It was only last year, for example, that GE bought oilfield pump maker Lufkin for nearly $3 billion to bolster its shale business.
Schramm isn't for sale today, said Breiner, who sits on the company's board along with several GenNx360 executives. GenNx360 did not return phone calls seeking comment.
Schramm also retains value from its intellectual property rights, and it stores patent data and other material at offsite servers to keep thieves from eroding its market lead.
While Schramm has applied for some patents, including one for a feature that allows pipe to be lowered into an oil well automatically, Breiner said the company strategy is to focus on innovation rather than suing potential copycats.
"If somebody in China wants to steal a rig design, all they have to do is come to the United States and buy one on the secondary market," Breiner said.
Schramm even commissioned a model of the rig used to save the Chilean miners from a Chinese artist, who crafted it with extreme accuracy using only a photograph. The model sits in Schramm's lobby.
Breiner brushed aside concerns about the company's intellectual property and said the most effective defense against theft is a good offense.
"The best way I know how to compete on the global market is to continue to advance our technology," he said. "If you think you've got it figured out and stop innovating, you've probably made a mistake." ($1 = 1.0635 Australian Dollars)
(Reporting by Ernest Scheyder; Additional reporting by Zachary Goelman; Editing by Terry Wade and Ken Wills)
[Oil drilling image via AFP]
Mt. Gox founder won't appear in U.S. for questions about bankruptcy case
By Devika Krishna Kumar
(Reuters) - Mark Karpeles, the founder of Mt. Gox, said he would not come to the United States to answer questions about the Japanese bitcoin exchange's U.S. bankruptcy case, Mt. Gox lawyers told a federal judge on Monday.
In the court filing, Mt. Gox lawyers cited a subpoena from the U.S. Department of Treasury's Financial Crimes Enforcement Network, which has closely monitored virtual currencies like bitcoin.
"Mr. Karpeles is now in the process of obtaining counsel to represent him with respect to the FinCEN Subpoena. Until such time as counsel is retained and has an opportunity to 'get up to speed' and advise Mr. Karpeles, he is not willing to travel to the U.S.", the filing said.
The subpoena requires Karpeles to appear and provide testimony in Washington, D.C., on Friday.
The court papers also said a Japanese court had been informed of the issue and that a hearing was scheduled on Tuesday in Japan.
Bitcoin is a digital currency that, unlike conventional money, is bought and sold on a peer-to-peer network independent of central control. Its value has soared in the last year, and the total worth of bit coins minted is now about $7 billion.
Mt. Gox, once the world's biggest bitcoin exchange, filed for bankruptcy protection in Japan last month, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its computer system.
According to Monday's court filings, the subpoena did not specify topics for discussion.
In the court filings, Karpelès' lawyers asked the court to delay the bankruptcy deposition to May 5, 2014 but said that Mt. Gox could not guarantee that Karpeles would attend that either.
The case was in Re: Mt Gox Co Ltd in the U.S. bankruptcy court for the northern district of Texas, Dallas division, No. 14-31229-sgj15.
(Reporting by Devika Krishna Kumar in Bangalore; Editing by Eric Walsh)
[Image: Mark Karpeles, chief executive of Mt. Gox, attends a news conference at the Tokyo District Court in Tokyo February 28, 2014. By Yuya Shino for Reuters.]
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