Why this is really interesting is that it is not justpetroleum byproducts, but liquefied propane. That is something that we know will happily come back up the well in thegas portion of the product stream.
So we get past the hype, we have an initially capitalrich methodology (you must first buy a lot of expensive propane and everyonecringes when you shove all that good money back in the ground) . The good news is that you get it all backalong with production products. Thequestion is about how soon.
The initial projects will be the best of course.
However vast reserves of conventional oil exist that cannot be lifted because their natural gas drive is insufficient to lever the oilout of its pores. As much exists as hasever been produced. Some of this is aslittle as a thousand feet down. Puttingin a horizontal well along the base of the productive formation is well withinour capabilities and petro fracking methods. This would allow propane to penetrate the pores and as pressure isreleased, the oil will be pushed out. The key is to go slowly so that little is left behind. This obviously makes propane recovery adelayed process.
The fact is that it is been vigorously adopted because itsurely works a lot better than expectations.
It means that every old field can be dusted off andreengineered. The problem fields will bewet formations and those that have been treated to water flood. Even heavy oils should respond well becausethe viscosity would be nicely lowered with dissolved propane.
I sat through most of the Hicks pitch and it lasts anhour. The gist is in this itemhere. If we can use this method to getjust the oil we know about, then we are good for centuries.
“U.S.
This isthe latest teaser ad from Brian Hicks for his $20 Trillion Report, which teasesus about a new idea in fracking technology that will release more oil and gaswith lower environmental costs … all you have to do to learn about his favoritesmall cap oil stock is to subscribe to his report for $99 … or, if you prefer,just read on and I’ll dig through the clues and tell you who this littlecompany must be.
This isone of those irritating video ads, one that doesn’t even spit back a lovelytranscript when you try to click out of it as some do — so my quoting will belimited, but I’ll share the gist of the tease.
Hickssays this is …
“Used at 236 drill sites and counting…
“One company holds the key to 1.525 trillion barrels of oil and 900%profits for early investors!”
Thetechnology is reportedly “quickly taking over drilling sites all over the US and Canada
And theytell us that some of the biggest drillers in the world use this company’stechnology, they give us a list, most of whom I’ve heard of:
“Apache,Corridor Resources, Devon, Caltex, Husky Energy, Murphy Oil, Nexen, Paramount Resources, Trilogy”
We’realso told that this particular stock just went public in August, and it’salready up 67%. They’re already capturing market share and he says they’re not“pie in the sky”
We getsome numbers, too — and unlike so many small cap teases, they’re actuallyprofitable. They had revenue of $26 million in the last quarter ($55.7 million, versus $9.6 million a year ago. Market cap of $247 million.
As youcan imagine, Hicks is convinced that the company is undervalued and unknown(why else would you pay him to learn about them), and has generated zero WallStreet interest.
Hickshas been around for quite a while and teased many stocks for us — he takescredit for being an early analyst to recommend Northern Oil & Gas (NOG),which had a huge run with the growth of the Bakken (I don’t know if he wasfirst, but I can confirm that he was teasing it in ads almost three years agowhen it was in the single digits, it’s closing in on $30 now). He compares thetwo in terms of valuation, which is obviously a bit off because NOG is an oilcompany and this is a drilling/service company, but apparently this teaserstock trades for far lower PE and Price/Sales numbers than NOG.
There’seven a quote from the CEO, which I can only assume was inserted to make yourfriendly neighborhood Stock Gumshoe’s sleuthifying a bit easier — here’s whathe reportedly said about the last quarter:
“I am very pleased with these results, which demonstrate the increasingadoption of our technology…”
And
“we … more than doubled EBITDA to $5.3 million from $2.4 million in thethird quarter of 2009″
So whois this little company? First a couple more details:
He tellsus what the technology is — he calls it “Petro-frack Technology” and says thatit “uses petroleum to produce more petroleum.”
This isa new technology that apparently enables the fracking “stuff” to be recoveredmuch more fully than older technologies, and which is supposedly muchfriendlier to the environment than hydraulic fracturing. He includes the video,now gone viral, of the man whose water supply became flammable because of, Ipresume, the fracking going on in the Marcellus Shale (I haven’t researched thevideo details, but I’ve seen it a number of times). Having the water flowinginto your sink catch on fire is an image that sticks with you, for sure.
So theargument is that although hydro fracking has given us a dramatic increase innatural gas reserves and helped to drive the price down over the last coupleyears, it is also facing some environmental pushback and it uses a lot of waterand folks everywhere are now asking about what kind of chemicals are in thefracking fluid being used to release the natural gas trapped a half milebeneath their towns. And this new petro-fracking technology is, apparently,better because the stuff that’s injected into the hole to fracture the shaleformation and release the gas, is also recovered when the gas is extracted.Now, the hydro-fracking complaints I’ve seen are mostly about shale gas,whereas this ad teases shale oil (like what’s being produced in the Bakken),but the technology is similar — and with prices so low, no one is writing awinning teaser about doubling gas reserves. Doubling oil reserves, however, isstill sexy enough to get the subscription dollars flowing — and they do go intothe gas part of the fracking business in the meat of the teaser video, oncethey’ve got our attention.
Petrofrack technology apparently covers a much larger area underground as well,which helps — and we’re told that the best part is that it holds open thefractured area for longer to drill more efficiently, and uses a petroleum-basedliquid that mixes with the gas or oil and is recovered.
Sofinally can we get at the name? Who is this company that’s at the center of a“new oil profit storm” and which he thinks will bring us 300% gains in theshort term, and up to 900% in the long term?
Sevenbucks a share, 11 major clients … Toss all that info into the mighty, mightyThinkolator, along with a couple tankers full of fracking fluid to dislodge thefrozen synapses, and we learn that this must be:
GasFracEnergy Services (GFS in Canada
This isan oil service company that has indeed invented and produced the equipment for“fracking” that uses a petroleum product as a base instead of water — they addchemicals to Liquefied Propane Gas (LPG) and inject that into the well, whichapparently covers a larger area, means no water is needed, does less geologicaldamage, and has smaller environmental impact because the LPG is naturallypresent in these formations anyway, and mixes with the oil, gas or natural gasliquids and is extracted when they’re pumped out of the well.
I had never heard of thecompany before, but from their investor relations presentations it seems like ano brainer (that being, of course, the point of an investor relationspresentation). The shares aren’t at $7 anymore, thanks in part, I’m sure, toMr. Hicks — but they’re not that far away, just under $9 at the moment — andthe market cap has climbed a bit due both to price improvement and another bigequity financing at the end of November (they raised almost $100 million morefor their capital program at $8.45/share), it’s now a bit over $400 million.The company went public on the Canadian Venture exchange at $5 in August, afterwhich it remained pretty ignored until their news flow and revenue growthstarted to get attention back in October. They also had a private placementthis summer in part to fund their capital investment program, which is bringingmore equipment on line so they can market their services in new oil and gasfields and to more clients, it sounds like they were pretty maxed out withexisting equipment even though this is an extremely new technology and smallcompany (the company is only five years old, and they commissioned their firstset of equipment just three years ago).
Things do look pretty goodfor GasFrac as far as I can tell, assuming that they are able to drive wideacceptance for their new technology (which may not be easy, even if itlogically sounds better — you can see their last quarterly report, which does match theteaser clues precisely, right here. I have no idea what thedifference in cost might be, change comes slow for many industries, and Iimagine there are also lots of other folks coming up with and developing newfracking technologies to compete with hydro-fracking and with this newerpetro-fracking). But that’s not to say their dramatic success is guaranteed —they are still largely reliant on the natural gas industry, and a big test witha US client for a natural gas field recently apparently went well, but withnatural gas prices so low the client decided not to go forward with it foreconomic reasons. They’re trying to build up the business in natural gasliquids (which are in higher demand than gas) and in oil production so that themix becomes roughly evenly divided between natural gas, natural gas liquids,and oil, but as of earlier this year they were still about half natural gas(which was an improvement over previous years).
I’ve only quickly checked out their (dated) investor presentation [pdf file]andtheir recent press releases to get a basicunderstanding, but it sounds like the keys for the company will probably be thecontinued level of deep and unconventional fracking demand in Canada, wherethey already have an established presence and some customer acceptance, and thedriving of acceptance by US operators next year, which I assume will start bytrying to target a couple specific fields so they can bring in equipment thatdoesn’t have to move around that much. They have been profitable in most of thepast several quarters, but not overwhelmingly so — they’re still building upeconomies of scale, and have significant need to spend money on capitalinvestment, geographic expansion, and client acquisition.
If you’re curious about theunderlying technology and idea, they also have a prettygood section of their website that explains it — and yes, alsomatches the images and data from the teaser quite perfectly.
So …color me curious, though I have no idea how quickly their actual per-shareprofitability will ramp up — the business is seasonal and changing fast withthe rapid growth from new equipment and a big jump from what were pretty weaknumbers in 2009, and there has also been a lot of dilution this year to fund capitalinvestment, so the per-share numbers might not look dramatic in terms of incomefor at least a little while, even as overall net income and EBITDA seem likelyto continue growing if you believe management’s optimistic prognosis for thefuture. You can’t really peg a useful current PE on these shares right now, wecan conclude that they’re profitable and in a capital-intensive growth phase,and not yet ready to be valued based on per-share earnings (the trailing PEwould be at least 150). Your bet on GasFrac is essentially a bet thatunconventional oil and gas drilling will continue to grow in the US and Canada(meaning, oil and gas prices don’t collapse), that GasFrac’s proprietarytechnology will continue to gain acceptance and drive higher revenue, and thatmanagement will steer this growth well over the next year or two — line that upwith heavy fixed and equipment costs, and one can probably see a path to higherprofit margins and meaningful per-share profitability in the future.
Doesthat sound likely? Sound like a technology you want to jump on, or do you thinkthere’s a problem that I (and GasFrac and Hicks) haven’t mentioned? If you geta chance to dig into GasFrac a bit on your own, let us know what you think witha comment below.
Oh, andif you’ve ever subscribed to the $20 Trillion Report, please click here to letus know what you thought — we’ve received only two reviews on this one, andboth are quite dated at this point. Thanks!
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