This latest pitch from the Oxford Club has really caught the attention of Gumshoe readers — lots of questions about this “Jupiter Engine” that will “end global warming” and make all other power plants obsolete… mostly, of course, because it’s also supposed to give you “the retirement of your dreams” as revenue “surges by 4,130%” starting sometime around December 17.
So what’s the story? This is from one of the emails introducing the ad:
“A revolutionary tech that produces electricity up to 77% cheaper than existing solutions do…
“Has NO government subsidies or carbon taxes…
“Is the size of a desk, can generate electricity for 10,000 homes…
“And has ZERO EMISSIONS. No soot… no particles… no carbon dioxide.
“In fact, it’s one and only liquid byproduct is CLEAN, CLEAR WATER”
Sounds pretty much like science fiction, right? So what is a “Jupiter Engine?” Let’s check some more of the clues so we can unpack whatever it is they’re trying to sell…
“… the first of these revolutionary new power plants is about to go live on the Texas coast around December 17, 2017….
“After that, one little-known company will begin systematically replacing power plants across the country at a rapid pace.
“One by one, this technology could soon supplant each of the 3,288 U.S. electric plants…
“Bloomberg reported that the company is already in talks with the biggest power companies in the U.S…
“And as these power plants roll out, as you’ll see in a minute, the little-known company could see revenue quickly soar 1,002%…
“We expect this company’s value will launch higher and higher in the coming weeks as it makes a major announcement regarding new contracts.
“So the time to get this story is NOW…”
So what is this “Greatest Tech Disruption of the 21st Century” that will bring about the end of global warming and air pollution and make energy cheaper? The invention is a power plant that takes advantage of the new thermodynamic cycle that was apparently invented by Rodney Allam (they call it the Allam Cycle, naturally), and it effectively uses high compression liquid CO2 instead of steam to spin a turbine and generate electricity. The carbon dioxide is still produced, but it is produced in a ready-to-sequester form that can be piped out to oil producers for enhanced oil production or just pumped underground to keep it out of the atmosphere.
And the first power plant to use this technology is indeed currently under construction in Texas — it was originally supposed to be commissioned last year, but there must have been delays of some sort (as I suppose is typical of new projects), so now the likelihood is that it will come online in December.
As the ad cites, the idea of this kind of plant is compelling and has been lauded by lots of different commentators and futurists as one way out of our polluting power generation technologies — and it’s fairly flexible, at least in theory. This plant uses natural gas, but coal could be burned in similar plants (natural gas is cheaper and easier to work with, so I don’t know why you would burn coal at current prices… but who knows what the future holds). There’s a pretty detailed piece from Forbes here about Allam and the power plant based on his inventions.
This plant is being developed by a company called NET Power, whose website went down today (perhaps because of traffic generated by the push from this ad), but I assume it will quickly come back up (if not, the Google cache of the page that explains their technology is here).
But NET Power is not a publicly traded company, so it must be one of the collaborators or partners that the Oxford Club folks are pitching here. The turbine is made by Toshiba, the plant is being built by Chicago Bridge & Iron, and the utility partner is Exelon. NET Power itself is a partnership between 8 Rivers Capital, which is the venture firm that developed the technology (and isn’t publicly traded), Excelon, and CB&I.
So which of those players is being hinted at here? Or is it someone completely different?
One more bit of clues:
“The CEO just revealed in a small public meeting…
“That the company is already in active discussions…
“With 11 of the top 15 North American power producers…
“Plus, five major oil and gas companies…
“With an already combined demand for 50 plants….
“This group already aggressively repurchased $3.4 million of these equity shares this quarter…
“Insiders are positioning for max profits…
“With eight different directors acquiring 47,000 shares… some for the first time ever.”
And we’re told that… “right now, you can get 100 stakes in ownership for about $1,800…”
Which would mean, of course, that the price is around $18 a share.
So that must mean that the Oxford Club folks here are pitching Chicago Bridge & Iron (CBI), the energy-focused engineering and construction company.
How could that be, when CBI is at $10 a share today? Well, it was at about $18 three weeks ago, and these ads don’t just get conjured up and sent out in a day. For what it’s worth, there’s also a small print indication in the ad, where they show part of the existing portfolio, that shows they recommended CBI at about $27 back in May. So it could well be, if they use any kind of “stop loss” system, that this particular stock is not even in the Oxford Club’s portfolio anymore… it wouldn’t be the first time.
And yes, they did have eight directors acquire shares recently, many for the first time… but none of them bought shares, those shares were granted as their compensation for being directors. CBI has had almost no insider buying in recent years, despite having a stock price that has appeared to be more of a bargain each week than it was the last.
CBI does own a third of NET Power, and that technology is an exciting possibility, a natural gas power plant without a smokestack… but it’s not a slam dunk — that’s why it took a long time to raise the capital, it’s taking a long time to build the plant, and there will almost certainly be complications along the way as they try to determine whether the technology works effectively and efficiently enough for extended periods of time in real-world conditions.
And in terms of scalability, they should end up with “pipeline ready” CO2 that could help with the costs of operating the plant… but they have to have a pipeline and a market for that CO2, or a place to safety sequester it, and neither of those is particularly scalable right now (much more CO2 is produced than is demanded by enhanced oil recovery projects), which is why they’re likely to build these plants near oil fields (assuming that this first plant does well over the next couple years and proves the concept works).
There’s an interesting piece from Clean Technica here critiquing the technology and the viability of this “Allam Cycle” — I don’t know if it’s fair, but it’s a good reminder that there are probably more issues with the technology than have yet been identified (and certainly more issues than are mentioned in this Oxford Club ad, since they’re trying to sell the idea as the “holy grail” of cheap, clean and pollution-free energy).
And Chicago Bridge & Iron is quite committed to NET Power, though it’s not a major part of the financial picture for the company as of yet and is certainly not going to be a profit generator for the next year or two… CB&I is planning to sell most of their technology business this year, but they did mention in that press release that they intend to keep their interest in NET Power. And the former CEO, Philip Asherman, noted this about NET Power on the first quarter conference call earlier this year:
“But we get a lot of excitement generated around the industry in a lot of trade publications. As you know, Mike has been talking about this and we’ve talked to all the major owners out there, and not only just power owners but people on the oil and gas side which are very interested in seeing the outcome of this plant. So I think it’s going to be really important for us for the future.”
(Asherman retired just in May, though he had been under pressure from some institutional shareholders for a while.)
CB&I has had plenty of problems in recent years — they suffered when oil and gas investment fell off a cliff in 2014, since much of their business is building energy-related infrastructure (plants, pipelines, etc.), and they made some big acquisitions at bad times, particularly the overly-indebted Shaw Group, which they bought in 2013 for $3 billion.
That deal came with a nuclear division, which was partnered with Westinghouse to build nuclear power plants in the Southeast, and that partnership has turned into lawsuits and recriminations as the plants have seen massive cost overruns. Toshiba (which owns Westinghouse) essentially bought the nuclear division from CB&I a couple years ago and promised CB&I they’d face no liability for the projects, and that promise is what was recently in court (with the latest decision firmly in CB&I’s favor, as I see it, though I don’t know if that’s the end of the story).
With or without the nuclear lawsuit, CB&I has had trouble recently — revenues have been declining for years, and they still have a healthy dose of debt, though selling off divisions (including their Technology and Capital Services divisions) is likely to significantly improve the balance sheet.
The argument in favor of CBI is that they do have some projects that are proceeding as planned and are not horrifically over budget or delayed, and they are capable of doing much of the work that will be needed if we really do have major infrastructure projects in the US in the near future, either energy-related or not, so there’s that sliver of possibility that they might find revenue growth (though few folks are holding their breath for a massive infrastructure spend right now). There was clearly an election bump for these shares when everyone was excited about infrastructure spending late last year (which both candidates promised), but that fizzled along with the lack of actual progress in government.
And, of course, after falling from $80 to $10 in three years, the stock is cheap on a lot of metrics. They weren’t profitable last quarter and are not expected to post a profit for 2017, but if you go by analyst estimates they are trading at an absurdly low forward PE of 4 based on 2018 or 2019 estimates. And as they improve their balance sheet they can buy back more shares or could raise the dividend at some point if they fail to get the stock price to recover, though none of that is at all certain and the estimates could, of course, be wildly optimistic if they have further operational problems (the current dividend yield is about 2.5%, they’ve paid the same dividend since 2014).
A lot of folks look at that drop in share price, even after the Oxford attention and a strong market helped the stock pop back up today, and see panic — and it’s hard to buy into panic… we all want to believe that we’re contrarians and go against the herd to generate profits from the panic of others, but our primitive brains urge us to follow that herd with every instinct… and no one wants to be the sucker who buys it just before it drops another 30%, we all have a tendency to believe that whatever has been happening in the recent past will continue happening.
I’ve been tempted by CBI a couple times as it fell, mostly just because it was falling… but I haven’t yet been tempted enough to buy shares, and so far it has kept falling each time. A forward PE of 4 looks cheap, but that’s after a forward PE of 6 looked cheap, and before that the PE was 8 and it looked cheap, and 10. It probably will end sometime, either because those forward estimates get slashed or because the stock recovers, and there’s some logic to the fact that we’re pretty close to an inflection point here where either those analyst numbers are going to get slashed or the price is going to recover… but it won’t necessarily be a pleasant ride.
Oh, and NET Power will likely have almost nothing to do with that financial peformance for at least the next year or two. If there are new plants to be built, Exelon will be the one who buys most of them for the near future, since they have the right of first refusal as partners, but the first few plants aren’t likely to generate much in the way of profits for anyone… and no one is likely to spend a lot of money on the next Allam Cycle plant until this first plant has survived a year or two of commercial operation and provided some good data on which to base investment decisions. So even if you do believe NET Power’s technology will change the world, you might be able to be patient and wait it out and see the project de-risked a bit before you feel compelled to invest in CBI or one of the other partners.
That’s just your Gumshoe’s sometimes-too-skeptical take, though, what matters is what you think — will this NET Power plant in Texas herald a change in the way electricity is generated worldwide, or is it too early to place that wager? Is CBI too cheap to ignore now, or are you leery of trying to catch a falling knife? See other skeletons in their closet that we should consider before investing? Let us know with a comment below.
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