Tuesday, January 17, 2012

Algae Can't Have Too Many Friends

Questionable yields from algae have not held back OriginOil, Inc. (OOIL:  OTC/BB), one of the nascent developers of algae-based biofuel.  In December 2011, the company entered into a joint venture with the U.S. Department of Defense (DOD) to developer biorefineries to serve U.S. and NATO fuel requirements.  The joint venture  -  called Future Energy Solutions Unlimited, Inc. (FES)  -  will first carry out feasibility studies aimed at building biofuel refineries.  Ultimately the DOD wants to place these biofuel refining centers in strategic locations around the world. 

Funding for the project totaling $4.5 million is coming from the Energime Group of Companies to support the feasibility studies.  As an enterprise consulting firm Energime is an unusual partner in the project.  Energime provides operations consulting services to the food and energy industries and specializes in creating operating efficiencies and reducing environmental impact.  However, I am beguiled by the idea of a renewable energy company like OriginOil bringing a “cost-controller” into a development project.

It seems OriginOil can have too many friends.  OriginOil is also teaming up with the Department of Energy’s Idaho National Laboratory (INL) plans to co-develop an integrated system for the direct conversion of raw algae into a renewable crude oil.  The company already has a research agreement with INL to develop biomass processing technology, to which OriginOil expects to marry up with its proven single-step extraction process for algae harvesting.

It is not surprising that the DOD is a ready and willing partner in renewable fuel development.  The federal government accounts for about 2% of the nation’s energy use, and the DOD accounts for almost 80% of the government portion.  It is both important from an environmental standpoint as well as defense strategy to decrease dependence upon imported fossil fuels.  The Navy in particular has made development of biofuels a high priority. The Navy’s goal is to have a “green fleet” by 2016 and increase alternative fuels to 50% of Navy operations by 2020.  To achieve these goals the DOD must increase its funding for and participation in renewable fuels project.

OriginOil appears to be moving forward at a fairly fast pace, with keenly interested partners and a financing sponsor.  The long slide in the stock price appears to have stopped if not reversed by the recent partnering activity.  There is still significant business risk underlying OOIL shares, but for now the many friends of OriginOil make a good hedge.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. OriginOil, Inc. (OOIL:  OTC/BB) is included in Crystal Equity Research’s Beach Boys Index in the Biofiels Group.

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