Tuesday, June 09, 2015

Graphene in the Oil Patch

The last post “Europe’s Graphene Supplier” on June 5th mentioned that ‘wonder material’ graphene oxide could be used in the oil and gas patch.   Indeed, graphene has been found to be of benefit in water-based drilling fluid by limiting dispersion of drilling fluids into surrounding rocks.  Graphene NanoChem Plc. already sells a high performance drilling fluid branded as Plat Drill, which has been enhanced by graphene nanomaterials.

It is a modest start, but Graphene NanoChem’s entrance into the oil and gas drilling market could be a signal of bigger things to come.  The oil and gas industry is large and well disposed to technologies that lead to cost savings or efficiencies.  The company’s Plat Drill is also environmentally friendly, a characteristic that is certain to gain the attention of shale oil drillers that badly need to burnish their reputation for fouling waters with hydraulic fracturing.

Graphene NanoChem has licensed a process technology called Catalyx to produce graphene.  This is a chemical process that decomposes carbon-containing gases such as natural gas or bio-methane into elemental carbon using metal or organic catalysts.  Then single or multiple layers of graphene nanomaterials are then ‘grown’ from these small carbon molecules.  The company claims its production process is the lowest cost production on the market today.

In April 2014, Graphene NanoChem announced a joint venture with Scomi Oiltools Sdn Bhd for the production of Plat Drill and other chemicals using the company’s nanotechnology.  They are calling the joint venture Platinum Nanochem.  The two partners plan to build a chemical production plant in Port Klang, Malaysia with a 45,000 metric ton capacity composed of 30,000 metric tons of the Plat Drill material and 15,000 tons of specialty chemicals.  The preliminary cost estimate is GBP14.7 million (USD$22.5 million).  In September 2014, Scomi agreed to buy the entire production of Plat Drill for five years for a total of 135,000 tons.  A subsidiary of Malaysia’s Scomi Group, Scomi Oiltools is a global supplier of drilling flied services t the oil and gas industry. 

Importantly for investors Graphene NanoChem is a public company, trading under the symbol GRPH on the London Exchange.  It is also quoted on the Over the Market service under the symbol GRPEF.  Its Advanced Materials division focuses on the development of industrial applications for graphene nanomaterials and the Advanced Chemicals division produces oleochemicals for fuel additives and home care.  In 2013, the last year the company has disclosed financial results, Graphene NanoChem reported GBP31.6 million (USD$48.3 million) in total sales.  Its largest supply contracts with oil and gas customers are still in place so I expect 2014 sales reflected a similar or larger figure.  Unfortunately, the net loss in 2013, was significant  -  GBP13.4 million (USD$20.5 million) and operations required GBP10.7 million (USD$16.4 million) in cash for support during the year 2013.

An investment in Graphene NanoChem would require some patience for U.S. investors.  Financial statements are not filed with the same speed in the U.K.  However, the company has proven graphene product, a strong commercial partner and a management team has plenty of practical business experience.  This combination is compelling given that so many other pure plays on graphene are not much more than research and development shops.  

 

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.

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