Tuesday, May 19, 2015
Second Time Around for GreenHunter Resources
Last week GreenHunter Resources (GRH: NYSE) reported on its progress in becoming an oil field waste water management company. After failing to turn a profit at biofuel production, GreenHunter sold its biomass plants and hung out its shingle in the Appalachian shale oil field. The last of the biomass plants was sold in March 2015, for $2.0 million. Proceeds from the sale were used to pay off a bank note that had financed the purchase of GreenHunter’s first three waste water injection wells. It appears the transition is complete.
Unfortunately, getting out of the biofuel business and into handling waste water for the shale oil industry has not yet yielded profits. In the quarter ending March 2015, GreenHunter reported a total of $5.1 million in sales, of which water disposal accounted for $3.1 million and transportation by truck and barge another $1.7 million. The reported loss for shareholders was $2.7 million or $0.07 per share. GreenHunter earns a gross profit on its water services, but not enough to cover operating and interest expenses.
GreenHunter could not have entered the oil and gas patch at a worse time. With the price of oil in the low $50s, at least half of drilling rigs in the U.S. are off-line and hydraulic fracturing activity has been curtailed. As a consequence GreenHunter's sales in the first quarter 2014, were dramatically lower than the same period a year ago, when water handling services helped bring total sales to $8.5 million. However, GreenHunter reduced operating expenses by only $294,000 in the recently reported quarter compared to what was spent in the same quarter last year when sales were dramatically higher.
The near-term situation might not be as worrisome as the reported loss might suggest. By excluding non-cash charges for depreciation and stock compensation, GreenHunter achieved cash operating earnings or EBITDA of $62,130. This achievement is probably what helped get approval for a senior secured financing arrangement that will allow the company to borrow up to $16.0 million. Management wants more trucks and additional injection wells in order to expand its waste water services.
Chances are good GreenHunter can buy both trucks and wells at bargain basement prices as other oil field services companies go out of business because of weak demand. It is quite an irony that the buyer of GreenHunter’s biomass plant is probably thinking it got a bargain basement price, too.
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. GRH is included in the Recycling Group of Crystal Equity Research's Mothers of Invention Index for promising alternative energy companies.