“The Single Most Profitable Company in the Oil Patch Today” Revealed

Sniffing out the solution to Keith Schaefer's fracking water company teaser

By Travis Johnson, Stock Gumshoe, February 15, 2012

The latest teaser from Keith Schaefer for his Oil and Gas Investments Bulletin has spurred quite a bit of chatter among Gumshoe readers, including questions from Irregulars and some speculation about possible matches …

… so I thought it was high time to put the Thinkolator to work sniffing out this water-related oil services stock.

Schaefer says it’s the “single most profitable company” in the sector because they have massive margins, 85% profit margins or thereabouts (or as he puts it, they make $1,000 for every $150 they invest) — nothing to sneeze at, there (though something to be careful of: huge margins that don’t come with a natural or patent monopoly are catnip for competitors and usually don’t last long).

And perhaps more suprisingly, Schaefer says they pay a pretty remarkable dividend of 7%. Usually, companies that have 80%+ margins and pay large dividends are passive companies or firms with huge long-lived capital assets that are paid off, like royalty owners and the like, but that doesn’t appear to be the case here.

Here’s a taste from the ad to get you thinking:

“In 2010 alone, the EPA estimates water use for fracking nationwide DOUBLED in the U.S. – from 70 billion gallons to 140 billion.

“That’s why an entire new water services sector has emerged in the Oil Patch…

“A multi-billion dollar industry that is only going to get bigger. (Wall Street is just beginning to wrap itself around it.)

“One company knows the full profit potential of this industry perhaps better than any other.

“It has carved out – and now ‘owns’ – an entire market in the space.

“It has done this by expertly positioning itself to capitalize on the industry’s high demand and fast growth.”

Makes you jump up and down a little, no? Just wait ’til you read this bit:

“… its hyperbolic growth should continue for another 1-2 years… they’ve essentially cornered the market – with little threat of competition…. it’s my top trade of 2011-2012, with plenty of room to run, and … its already-strong dividend is likely to increase from here.”

OK, so there’s some sobriety there — that the “hyperbolic growth” might slow up soon — but still, yowza! Who is this little miracle company?

More from the tease, to get our clue hopper filled up to the brim:

“Huge – enormous – quantities of water are needed in fracking operations. All this water has to be sourced, transported, handled, treated, and finally hauled away and disposed of.

“Typically oil & gas producers set up temporary ‘farms’ or open pits to hold all the water that’s needed.

“The downsides here are many, and make for frequent headlines: pollution, waste, congestion, safety concerns – even flooding or seeping into local groundwater.

“The reality is – Nearly 50% of all oil wells in the U.S. use these open pits.

“So it’s no wonder a number of states in the U.S. are working to eliminate them… as are energy majors, the likes of Shell Oil and Chesapeake Energy.

“The upshot: This is only going to increase market share even more for my # 1 company here…

“What’s more – The company is even getting an ‘assist’ from regulators in the U.S.

“You see, regulators so badly want an environmentally friendly solution to these open pits and water farms…

“Some of them have actually handed out business cards to oil producers – on my # 1 company’s behalf!

“That’s correct – This company’s solution is so effective – and so necessary – state environmental agencies have strongly suggested producers contact my # 1 company for its win-win solution.

“After all, the process is clean. And it’s done in a way that quells local objections – such as:

  • Water usage: This company reduces it.
  • Groundwater contamination: This company reduces it.
  • Endless line of trucks on the road: This company reduces them.

“How big an impact am I talking about?

“What used to take 50 – 100 trucks per wellsite – this company does in just 2.

“And it does all this for less than it costs to do it the dirty, old-fashioned way – saving producers anywhere from 30% to 70% of their water costs.

In Short, this Single Company Gets Rid of One of Oil Producers’ Biggest Fracking Headaches… AND Saves them a Fortune at the Same Time

“The company is in fact growing so fast – more than doubling orders in the last 12 months – that it has become the dominant player in its corner of the market, in just one year.

“The company’s own guidance can’t even keep up with its hyper growth – with orders currently coming in four times faster than management originally expected.”

And apparently this company doesn’t just deal with the problem of storing dirty water or storing the water used for fracking, they also have some kind of solution to prevent the water from freezing (not that that’s been a huge problem in our neck of the woods during this tepid winter, but I can see how it’s an issue):

“It can be tough keeping liquid from freezing in the winter, in places like the Bakken, or Colorado, or all of Canada.

“And it’s expensive to handle once the water has been used to frack – and emerges dirty.

“That’s where this junior oil company comes in.

“They’ve figured out how to keep water heated – and in a liquid state – for 30% – 70% less cost than traditional methods…

“… there’s nothing in the market that measures up to it: A patented method that handles water more safely, cheaply, and easily than anything else available today.”

So … water handling and storage company, able to prevent icing up, uses fewer trucks, in huge demand, pays a big dividend. Who is it?

Toss all that into the Thinkolator, and out comes our answer lickety-split: This is Poseidon Concepts (PSN in Canada, POOSF on the pink sheets).

And they basically sell custom-built mega-size aboveground swimming pools that are used for onsite storage of fracking water. And they do pay a good dividend, which they started just in December, of nine cents per month (at the current price, that equals out to about 6.5%).

Other than their basic business model (replacing open pits and steel tanks for temporary water storage), I know very little about the company. The tank-replacement solution was developed by an E&P company called Open Range Energy for their own use, and when Poseidon showed huge growth potential they spun it off into a separate company back in November. They haven’t yet released a quarterly earnings report as a separate company, but they have dramatically increased their tank installations over the past year and the formerly combined company was generating most of its revenue from those tank rentals before the separation. You can see the basics in their recent press releases here.

The company has grown quickly to become quite large — they now have a market cap of closing in on $1.5 billion, have announced that they expect increased EBITDA of $170 million this year as they almost double their tank count by this Summer, and they just raised about $80 million in an offering a couple weeks ago that didn’t slow down the share price acceleration much at all. Investors are having a little love affair with this stock, it appears, combining momentum with big dividends tends to get folks awfully drooly.

To give you some of the bear vs. bull on this one, Keith Schaefer has talked about them publicly before, so you can see some of his argument in this interview, and you can see some of the “caution” argument in this Seeking Alpha article.

Hard to argue with the performance they’ve seen so far, or with that nice dividend, but before spending much time looking into the company, and before they’ve even filed a quarterly report as an independent company, I can see that they should have a lot of competition hurtling into their space that might cut into their margins … but, of course, “should” doesn’t mean “will” and it doesn’t mean “this year,” just something to be wary of.

The company seems to me to be aggressively “striking while the iron is hot” as they raise money and expand their fleet of gigantic heated swimming pools, but I haven’t researched enough to have a decent guess about how hot it will remain — Schaefer clearly seems to think that they’ll be growing rapidly for at least another year or two, and it sounds to me like he thinks the profitability should be sustainable even after that hyperbolic growth slows … but of course, he invests his money and you invest yours, so what do you think? Let us know with a comment below.

P.S. if you’ve ever tried out Schaefer’s Oil & Gas Investments Bulletin, please click here to review it for your fellow investors.


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29 Comments on "“The Single Most Profitable Company in the Oil Patch Today” Revealed"

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Shoeless
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0

If you need a fracking solvent that is environmentally safe then FTK is the solution and the “dirty water” part of the problem goes away. HAL is also working on some eco-friendly fluid.

Bernard Rick
Guest
0

When you wrote of a Canadian company, I thought you would name the only true new approach to fracking, ie LPN as patented and used by Gasfrack Inc, . The company has completed over 1000 wells and frozen water, hundreds of trucks, and contaminated water supply is not a problem. Check out their website.

1paglee
Irregular
216

Looking at the chart for Open Range Energy (ONRFF), it went straight down to around $2 in November, presumably when Poseidon Concepts was spun off, but it had a good run-up before the spinoff. The chart for Posiedon appears to be rising at about the same rate as Open Range pre-spinoff. Did the spinoff provide a new share for each each Open Range share?

bill jenks
Guest
0

Industry sources refer to fracking as fraccing. The press has buthcered this…The drilling industry has generally spelled the word without a “K,” using terms like “frac job” or “frac fluid.” Energy historian Daniel Yergin spells it “fraccing” in his book, “The Quest: Energy, Security and the Remaking of the Modern World.” The glossary maintained by the oilfield services company Schlumberger includes only “frac” and “hydraulic fracturing.”

LB says
Guest
0

Poseidon has done well but the party will be ending soon. I am selling my shares very soon. I got in at $11. Two new companies are on the horizon by the end of the year and one is a biggie. Their price share will soon drop and so will the dividend. Try some energy srvices companies such as Canyon Services(FRC) or Trican Well Services(TCW). Both have excellent growth prospects. A good small junior is Tuscany Int’l(TID) at $0.90.

stevestor
Guest
0

Seems a company like Purestream would have more potential. Actual treatment of the water onsite so it can be reinjected or “beneficially reused”. Theyre private, too bad.

degiles
Member
1

The president of Purestream is on the Poseidon Concepts board. PC has already stated they will be expanding into other areas of water handling and treatment. Maybe there is a possibility of acquisition or joint venture. At the least. he is a source of expert advice.

Donna Miller
Guest
0

Travis: Do you know anything about “Eagle Diesel”. Thanks.

Steve
Guest
0

Yes, if you follow that all the way through the article, it is talking about natural gas. WPRT and others are helping to convert big diesel engines to run on natural gas, with big cost savings as long as it is so cheap. And we seem to be getting much better at finding it and extracting it with fraccing, so once in infrastructure is there, you’ll be seeing more and more use of it on vehicles in the future.

steve
Guest
0

pretty sure CLNE was a part of that LNG story, too…

g
Guest
0

TID ?? Seems like they have no money

steve
Guest
0

pretty sure CLNE was one of the companies described in teasers, also…

Janus
Guest
0

Interesting companies for sure, but in my opinion there is another great company in this sector that will probably be even more revolutionizing, successfull and profitable…
Ecosphere Technologies – ESPH.OB
http://www.ecospheretech.com/
Happy hunting 😉

Shoeless
Guest
0

Along with CLNE and FSYS for “gassing up” you vehicle and perhaps the better investment is Westport Innovations – WPRT. I think T Boone Pickens is into
CLNE. Obama is finally onto the gas act which pumped these stocks up recently.
Perhaps the major US oil lobby, the Koch Bros. , lowered their contribution.

bobsach
Guest
0

GasFrac is the first one on Sean’s list. The others I do not know. You can look at seeking
alpha for info on this one.

smartbuck1
Member
0
here is Sean Brodericks latest pitch. Anyone know any of the three companies he is touting? The first one is a small co. with a solution to the dirty water problem. Is the company any of the ones mentioned above? here is his pitch. Red-Hot Revolutionary Small Cap #1 — The Google of Natural Gas, with a Game-Changing Innovation That Could Hand You a 157% Gain! This company is growing almost as fast as Google did in its early years, outpacing the leaders in an industry that’s growing like wildfire. And like Google, they are literally rewriting the way their… Read more »
whgo noze
Guest
0

another kid on the block making a reputation is heckman he has a pipeline bringing in water w// a fleet of 400 trucks all gas powered hes loking for some buy outs in the fracking fieldsk

Jim Ingham
Guest
0

Do you suppose the thinkolater could identify
“The Secret Retirement Legacy of George W. Bush”
as written by Dan Ferris editor of the 12% Letter.

Thanking you in advance

Jim Ingham

takeprofits
Guest
0

Have missed you.

al
Guest
0

How did you get the internet address to print (HTML?) Can you give a sample? I am trying and failing. thanks Al

Don Giles
Guest
0

Poseidon Concepts faltered a little bit in the market, possibly influenced by an insider sale(insider still has a very large holding) and a stock offering which diluted the outstanding shares by about 5%. It has picked up in the last week. Their financials will be released 3/23 and it will be interesting to see if their is any commentary regarding the current and projected tank fleet level. Interesting, but a little offputting, that they are not planning any conference call. Perhaps the numbers will speak for themselves.

Howard Palmer
Guest
0

What do you think of oreo nevadoa oil discovery?

Howard Palmer
Guest
0

What do you think of oreo nevad oil discovery?

John
Guest
0

No experience with stocks or analyzing companies but wondering if this Eagle Diesel is a real opportunity or not.

advantedges
Irregular
69

Eagle Diesel? What is all the chatter about? I did some quick research and it seems that it is a new Jean brand being marketed by Exxon! lol,,,,,,,,Seriously, if there is a stock that goes with this name, please let us know Travis! I have observed over 3 requests on your website.

Roy (Bud) Taylor
Guest
0

I have been in GasFrac for over a year and dismayed at the shakeup in management. Why did this happen? Seems like they wanted a new CEO, by why did they get rid of Rober Lestz? He was one of the original inventors of LPG fraccing. The opportunity is there, but the politics behind the scene are confusing. Anybody have more insight?

takeprofits
Guest
0
Seems time for an update, Gasfrac and Poseiden both turned into investment disasters. I got out before they totally collapsed but it was still close to a 50% loss, Poseiden is currently available under $2.00. I did buy a Canadian stock that has yet to do anything significant but it might bear watching if you are interested in the fraccing space. Stock symbol is WEE @.47, Wave Front Technology and another indirect way to play the fraccing sector is via fraccing sand which mostly comes from Wisconsin and South East Minn. via Union Pacific UNP or Warren Buffet’s Burlington Northern.… Read more »
cpwcpa
Irregular
0

Why am I not the least bit surprised by this?

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