Friday, November 30, 2012

Fracking Inspires Clean-up Industry

Hydraulic fracturing technologies have done more than open up exploitation of hard-to-reach oil and gas deposits.  The toxic downside to ‘fracking’ has also inspired an entirely new industry  -  fracking clean-up.  The chemicals required to put movement into the hydraulic process are shockingly toxic.  It does not take a chemistry degree to grasp the dangers in methyl alcohol, potassium hydroxide, ethylene glycol, hydrogen chloride or petroleum distillate.  

Of course, the oil and gas industry has been working hard to burnish the reputation of fracking.  Natural gas distributor Chesapeake Energy (CHK:  NYSE) started its Green-Frac Program as part of its effort to reduce the amount of chemicals used in fracking.  Halliburton (HAL:  NYSE) has been particularly anxious to look environmentally responsible after its dismal performance in the deep sea oil spill disaster in the Gulf of Mexico in 2010.  Halliburton has developed a chemical scoring system to help oil and gas developers as well as the public to sort out the worst fracking chemicals.

These steps are simply not enough.  Until safer alternatives to conventional chemical fracturing are developed, contamination is a real and present danger.  It is not surprising that a clean-up industry has sprouted up in the oil and gas fields.  The problem for investors is that most these players are micro-caps with volatile stocks.

Ecosphere Technologies (ESPH:  OTC/BB) made headlines earlier this week with the receipt of its fifth patent from the U.S. Patent Office for process technologies to treat industrial waste water.  Ecosphere was among the first to see the opportunity in fracking and has done a good job inserting itself into the oil and gas market.  Ecosphere is still a small company, but revenue in the first three quarters of 2012 have already surpassed the previous year.  Ecosphere has been running at breakeven for the last four quarters and operations has generated $5.3 million in cash. 

The Environmental Protection Agency recently opened the door to the oil and gas industry for Verenium (VRNM:  Nasdaq) by approving the use of Verenium’s second-generation enzymes for non-food purposes.  Verenium intends to market its enzyme as a biocatalyst to break up guar-based gels used in fracking.  With a beta measure of 0.60 VRNM is an exception to our characterization of the fracking clean-up company stocks as volatile. That might be due in part to Verenium’s ability to produce profits.  The company earned $1.53 in earnings per share on $57.5 million in the twelve months ending September 2012.  

Even the algae are getting in on the oil and gas business.  Earlier this week OriginOil (OOIL:  OTC/BB) licensed its algae harvesting technology to LH Opportunity Group and its partner Ensteel Industries.  The partnership plans an “end to end” waste water treatment solution for oil and gas developers and owners of tailing ponds.  OriginOil started out with plans to produce renewable fuel, but has since turned its eye to food additives and animal feed.  Waste water clean-up does not seem to be such a stretch.  In July 2012, OriginOil shipped one of its algae harvesting systems to Ennesys in France for use in water purification.  The company also licensed the technology to Pearl H2O, a specialist in fracking water recovery and cleanup systems.  OriginOil has yet to record significant revenue from its technology, but the momentum appears favorable.  Thus the stock, which is now priced at less than a dollar per share, is more or less an option on the technology.   It is a risky bet given that OriginOil is burning approximately $3.8 million per year in cash and reported less than $100,000 in cash on its balance sheet at the end of September 2012.

These are only three companies pushing into the oil and gas market.  Expect more to crop up.  In May 2012, over four dozen major investment organizations and institutional investors with nearly $1 trillion in assets under management pledge to unite for the purpose of supporting "best practices" for fracking of shale gas.  If this group puts its money where its collective mouth is, it could have considerable influence over investments in the hydraulic fracturing space. 

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.

 

2 comments:

Queenie Regner said...

It’s true that fracking isn’t just opening job opportunities for companies that are directly involved in the industry, but also for other industries that are related to the fracking business. It’s one of the benefits of this practice that most have yet to see or recognize – that fracking is a business that stimulates job growth, which is critical to a suffering economy.

QUALITY STOCKS UNDER 5 DOLLARS said...

Companies in the Fracking Business have some serious questions to answer to assure those that believe groundwater supplies have been affected by all the fracking going on. Now thats a really great idea look for companies involved in cleaning up the mess that some of the oil and gas companies have created when exploring for natural gas.