A quick one for you today, as much to distract me from personal issues as to help sniff out an interesting investment idea for you.
The pitch is from Sean Brodrick for his Red-Hot Global Resources newsletter that’s published by Weiss, we’ve looked at some of his teaser picks before — most recently a bunch of mining-related picks — and this time around he’s talking about fracking, oil, and natural gas. Here’s an excerpt:
“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 industry works …
“Hydraulic fracturing — or “fracking” — is one of the new technologies I was talking about earlier and it allows miners to get at all the gas locked up in places like the Haynesville shale.
“But the process isn’t perfect.
“As you may already know, there’s been some backlash against fracking by environmental groups. And a good deal of this backlash is based on the massive amounts of water pollution that fracking currently creates.
“But this company has created a new kind of fracking technology — one that doesn’t result in a single drop of waste water!
“It’s a natural evolution to the process — and it’s something every miner, every well and every company need if they want to keep cashing in on the shale boom without drawing negative attention from the media.
“And this company has a lock on their new process. With ten patents issued and seven outstanding, this process can’t simply be copied or stolen away by a competitor.
“This isn’t some test-tube innovation, either — this company is already profitable in its first year of operation!
“They’re deploying their new fracking process in Canada and abroad.”
And Brodrick says that we’ve got a bit of a catalyst possible this year, too — always nice to see:
“And with Chevron already at the table, this company is planning to ink their first big deals in the United States this year … which is when I think their stock will start to soar.
“Heck, I figure an American fracking deal would more than double their potential revenues this year!
“So you can see why this company represents one of the greatest opportunities in natural gas today.
“I think its stock could rise 157% from current levels!”
So … who is it? Well, that’s not exactly an avalanche of clues but we take the number of patents, the water-free process, Chevron, new deals, throw that into the mighty, mighty, Thinkolator and find that this is … GasFrac (GFS in Toronto, GSFVF on the pink sheets)
GasFrac is not teensy, but it is certainly very small compared to the big oil services firms, with a market cap of just about $500 million. They are a fracking company, but with their own patents and their licensed patents for the basic process from Chevron they pretty much own the LPG fracking business (or fracing, or fraccing, or whatever you want to call it).
So what is LPG fracing? It’s basically using gelled propane (LPG) to fracture oil and gas formations instead of using water — the propane gets further into the reservoirs, fractures more of the formation, and reportedly gets much better production results than conventional hydrofracking, and without using any water.
So that’s the basic argument — it produces more energy, and it doesn’t use water or create wastewater. On the flip side, it means you’re trucking and using a lot of gelled propane, which is extremely flammable and has substantially higher up-front costs (they’ve had one bad fire accident that caused them to rethink their procedures and slowed down their development).
I’ve owned GasFrac in the past, but took taxable losses on my shares and don’t currently own the stock — this is one of those “story” stocks that has a great story, but is still new enough, even with more than 1,000 treatments under their belt, that lots of little things can derail them and it’s very hard to judge how their costs will change and how big orders or big accidents or regulatory changes (or other technological innovations) will impact their future business (to say nothing of low natural gas prices cutting into demand for projects that have high up-front costs — as far as I know GasFrac’s procedure makes sense mostly for natural gas production, in part because of their ability to recover the propane during gas production). They’ve had accidents and relatively small setbacks, they’ve had big orders (like the recent one from Husky Energy to do a lot of work in Alberta), but to me it’s still a company with a great logic behind their business but with plenty of challenges ahead.
There has been a lot of coverage of GasFrac in this space in the past, and there are a few folks who very actively follow them at SeekingAlpha, in addition to the several newsletters who’ve recommended the company in the past, so there’s plenty for you to read as you make your choices — I haven’t looked very closely at their recent deals or news, so if you’re a GasFrac shareholder or enthusiast and think they’re on the verge of a breakout, or think it’s a fad that will never get big, feel free to share your opinion with a comment below.