“How the Navy’s Annual $16.8 Billion ‘Bet’ Can Make You Rich”

Looking into the Fiber Optic Sensor company pitched by Rogue Captalists Trader

By Travis Johnson, Stock Gumshoe, January 23, 2014

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The spiel is convincing, as they all are — the folks at Rogue Capitalists Trader, which appears to be a pretty new service from the Contrarian Profits folks, are teasing us that they’ve got the inside scoop on a company that’s taking the lead in bringing high-tech fiber-optic sensors underground.

These sensors are apparently inspired by the many harsh-environment sensors used in US Navy submarines, and they allow for hydraulic fracturing to be done more precisely by sensing and listening to the fracking process — which, we’re told, will make us rich because it means drilling and fracking can become more efficient and produce more oil.

And, of course, it’s a “tiny company” that has the edge on this — it’s no fun teasing a giant like Schlumberger (SLB) or Halliburton (HAL), and apparently it makes people grumpy if they shell out $1,000 for a newsletter and learn about a company they’ve already heard of. So what is their tiny little company? Let’s look at the clues and figure it out for you.

OK, it’s not quite $1,000. This letter, edited by Alexander Wissel, comes from the publisher that used to be called Taipan, then changed their name to Insiders Strategy Group in 2012 and then to Contrarian Profits last year … they seem to be building up their stable again and this letter is one of their “upgrade” letters that has a “list price” of $1,750 but is being offered to you, dear reader, at the special low low price of $675. I’ve never heard of Wissel, but apparently he’s also a painter and a mixologist and blogged about investments at Seeking Alpha for a few years. Looks like he has worked at Agora for a while, perhaps this is his first “headliner” job there (Contrarian Profits, like a dozen other newsletter publishers, is part of the Agoraplex that includes Oxford Club, Stansberry, etc.).

So about those clues? Here they are:

“The same sensory technology the Navy’s submarines use to ‘see’ their enemies underwater is now being used by drillers to find oil and gas 20,000 feet underground!

“It’s a way of discovering huge deposits of oil and gas that was never before possible.

  • As the Associated Press writes, ‘New imaging technologies let drillers find oil and gas trapped miles underground and undersea.’
  • A paper by the International Society for Optical Engineering says that these ‘sensors have grown to a promising technology in the application of oil and gas prospecting.’
  • The U.S. Department of Energy says these sensors have the potential to be ‘the most significant technology advance for the energy industry in the last 50 years’ ….

“… how could one small company – trading now for a little over $3 per share – that possesses the key to this technology help you rack up an absolute fortune in the coming months?”

How, indeed?

Here’s Wissel’s summary of what these sensors do, without forcing you to sift through the whole “presentation”:

“In 2013, it’s estimated that drillers will spend a whopping $31 BILLION fracking wells that yield less than optimal results, according to PacWest Consulting Partners.

“Fact is that more than 70% of the capital spent on drilling a well is being wasted because of a lack of understanding of the subsurface.

“‘You’re spending millions of dollars pumping millions of gallons of fluid, and if you’re getting only a third of the rock, you’re getting a third of the production,’ says Glenn McColpin, a director for oil giant Halliburton.

“But that’s where this sensory technology – used by the U.S. Navy – is changing the game…

“It’s giving companies a better picture of the subsurface, which helps them find and extract more oil and save millions of dollars in the process.

“These unique sensors are created using optical fibers made of glass – the same fibers that power the Internet.

“Each fiber-optic sensor consists of a stainless steel cable that encases a long string of glass.

  • These fiber-optic lines can be used on land to prospect for oil and gas.
  • They can be used in oil wells to zero in on the sweet spots.
  • They can even be used in oil wells beneath the ocean for deep-water drilling.

“They run more than two miles underground, recording sound and temperature along their entire length.

“And just as a submarine uses sonar to record sounds underwater, these fiber-optic sensors record sounds made deep in the Earth to help companies frack MORE OIL.”

So … that sounds pretty compelling, right? New technologies that help produce more oil are always in big demand — though it seems to me that the oil biz can be both faddish and resistant to widespread change, depending in part on the costs and risks of new technologies that come along.

Which specific company is being talked about, though? A few more clues for you:

“The Best Way to Play the Fiber-Optic Sensor Boom

“This tiny company has a huge edge over its competitors when it comes to this groundbreaking technology.

“That’s because this company’s CEO actually graduated from the Naval Academy!

“He began his career as an engineering officer on the Navy’s nuclear submarines.

“Before becoming CEO, he was director for another company’s fiber-optic business unit.

“And he won a major contract to supply $450 million worth of fiber-optic sensor technology to the U.S. Navy.

“It’s the largest fiber-optic production contract ever landed.

“The company was bought out by Northrop Grumman, a maker of surveillance drones, for $5 billion.

“Now these sensors are used in ALL of the U.S. Navy’s newest nuclear submarines. And they’ve never failed at sea once.”

So … hoodat? We scraped those clues off the screen and tossed ’em into the gaping maw of the Mighty, Mighty Thinkolator and it wasn’t long before we got an answer — that’s a pitch for US Seismic Systems, which is run by a Navy guy who helped build the similar business at Litton, which was indeed bought out by Northrup Grumman for a little over $5 billion back in 2000 … but USSI isn’t public, they’re tiny and they’re a subsidiary of another tiny company that is public, Acorn Energy. So this is a teaser pitch for Acorn Energy (ACFN), which is indeed a little $80+ million company that’s trading a bit over $3 a share (actually, it’s exactly $4 a share as I type).

Acorn Energy, which used to be called Acorn Factor and looks to me like it built up most of its value by building Comverge Energy and Coalogix and selling them, owns a few small sensing companies, including some that do remote sensing of generators and power grids and a sonar company, but the pitch here is for USSI, their fiber optic sensor firm.

And yes, they do specialize in those fiber-optic sensors, which are designed to make down-hole seismic sensing more sensitive and therefore produce more valuable data. Acorn has seen falling revenue in recent years, probably largely because of the sale of CoaLogix in 2011, and their operating expenses are still considerably higher than their sales so they’re not on the verge of profitability as far as I can tell — and their sonar company has generated the lion’s share of revenue over the last year or two. Will these fiber optic sensors create a new wave of profits for Acorn? Well, that I can’t tell you — it’s an interesting speculation, but we’re still pretty early on and the technology has been through several field trials over the last couple years but is just beginning to move to commercial-scale rollout, with no guarantee that it will become widely adopted. People seem quite excited about it, and it does seem the USSI has developed a better sensor and has some good partners in the industry, but that doesn’t mean their sensors will be replacing geophone systems right and left this year.

For some perspective as you make up your mind, there’s a nice optimistic piece from a Forbes columnnist here, and a more technical piece from The American Oil & Gas Reporter here, and also the Bloomberg article that’s the source for many of the quotes in the teaser pitch here. Much of the adoption of these “Microseismic” technologies and sensors will be driven by the big service firms like Schlumberger and Halliburton, I assume, so it’s hard to say that a specific sensor maker will be the one winner but it looks possible — the only other firm that I consistently found mentioned in articles about this little subset of the sensor market is OptaSense, which is part of Qinetic group (a larger UK defense-focused company, all of these microsensors do come from the military).

And Acorn has a new investor presentation up on their website as well, they’re certainly focused on these microseismic sensors and that takes up most of the presentation.

So that’s about as far as I can take you — It looks interesting, they seem to be at a pretty critical stage for driving adoption, with a couple orders in and several field tests done, and their revenue is gradually catching up with their operating expenses. I very much doubt this one stock will make you wealthy in the next few months, but its quite plausible that they could grow into a market cap much more substantial than their current $80 million size, my guess is that a quick or dramatic return on these shares would depend on huge orders being placed or on a takeover from one of the big oil services and equipment firms, which in turn would depend on knowing how unique USSI’s sensor technology is and whether or not Halliburton or Schlumberger or Baker Hughes or CGG Veritas is likely to use their particular sensors — I can’t really tell from my quick look who’s making their microseismic sensors now, or whether these big companies are advancing their own fiber optic or other advanced technologies for these sensors or are testing incorporating equipment from USSI or someone else at the moment.

There have been order announcements and supplier announcements, like this one last Summer and another one in early October here, but the speed with which this new technology might be picked up is both pretty unpredictable as far as I can tell. That order with a major oil services firm (almost all these are “confidential” deals, with no company names given) helped to drive the shares up to close to $10 back in August, but then just a couple months later the company was filing to raise some more money and ended up selling $10 million worth of shares at $2.85, so there’s undoubtedly a bad taste in the mouth of any shareholders who held through that.

So go forth, researchify, and make your own call — want a piece of Acorn Energy, or think there’s a better microseismic player out there? Let us know with a comment below.


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7 Comments on "“How the Navy’s Annual $16.8 Billion ‘Bet’ Can Make You Rich”"

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Larry
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0
January 23, 2014 1:37 pm

thanks for the information also TEWI I have been pumped on this company for some time….

David B.
Guest
0
January 23, 2014 2:17 pm

Jim Skelton likes acorns–maybe we need his read on this one! Acorn is certainly a highly speculative play at this point but it does look rather promising. I’ll have to put it in my mighty thinkolator and see what comes out.

JayBee
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JayBee
January 23, 2014 2:27 pm

Maybe the Blind Squirrel should be writing about Acorn Energy.

frankw17
Irregular
649
January 23, 2014 7:19 pm

Travis, ACFN pays a $.14 dividend and yet is leaking money big time. Rationale?
I assume they are paying this from the secondary offering this past fall.
Frank

Bob
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Bob
January 23, 2014 7:41 pm
Reading this article from the newsroom on the ussensorsystems.com site – Frack Music Attracts Halliburton to Submarine Spy Tool – I come across this line: “One of the biggest challenges for acoustic fiber in the oilfield is making the business case to use it onshore, Robart said. Installing the technology can cost as much as several hundred thousand dollars a well, meaning it doesn’t pay off as easily on a $6 million land well as it would on a $50 million offshore well, he said.” US Land is the mother lode for fracking services. If this service is generally too… Read more »
TrevorC
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TrevorC
January 23, 2014 7:44 pm
Verne
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Verne
January 23, 2014 8:35 pm

While the seismic subsidiary is the chance for the biggest payout. The electrical sub monitoring the transformers has good potential as well. I asked an Electrical engineer I work with his opinion. He said if this works it could be a huge advance with smart grid things. I have owned this for a couple years. Not for the faint of heart, it is in my speculative portfolio.

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