Friday, January 08, 2016

Eco Stim Saving Power and Water at the Well

The evils of hydraulic fracturing have faded from the headlines in recent months.  Historic low prices for crude oil have stolen the thunder from the oil and gas well owners using this technology to tap gas held in shale oil deposits deep underground.  Who is worried about hydraulic fracturing when so many wells have been taken out of production?  Nonetheless claims of environmental damages following hydraulic fracturing have not gone away:  earth quakes or aftershocks, soil contamination, wasted and contaminated water. 

It is the water waste that has kept vigilant Eco Stim Energy Solutions, Inc. (ESES:  Nasdaq), a provider of oilfield services.  Based in Houston, Texas, Eco Stim provides well stimulation, coiled tubing and field management services.   The company uses a proprietary ‘sliding sleeve’ technology for well completion that is claimed to reduce horsepower requirement by 50% and water usage by 20%.  The company’s Geo-PredictSM solution uses fiber optic technologies to monitor the wellbore to prevent aquifer contamination as well as optimize production.

Eco Stim managed to record $11.5 million in total sales in the twelve months ending September 2015, the company’s first full year of operations.  That sales level is not sufficient to cover costs, resulting in a reported loss of $12.9 million or $1.63 per share.  The company had to use $18.6 million in cash resources to support operations.  While this might not seem impressive, the ramp in sales from inception in 2013 has been remarkable and a testament to the market acceptance of its environmentally friendly technologies in oil fields.

The company is not waiting for a rebound in fortunes in the U.S. oil shale patches.  Management has focused its marketing efforts on unconventional shale fields in Argentina called the Vaca Muerta Shale.  The company just added three new pumping units to its fleet in Argentina, bringing capacity to 22,500 horsepower in that market.  At least one of the units is designed to use alternative fuels to reduce emissions during well stimulation, the first of its kind in use in the Argentina market.

Management’s mantle of environmental responsibility has not been enough to protect its valuation.  The current stock price is less than a third of its 52-week high of $8.39.  Eco Stim appears to have enough cash on its balance sheet to support operations for another year, even if market conditions do not allow for an increase in revenue and profits.  Even that might not be enough of cushion for investors to take a stake in this micro-cap stock.  The market may require a signal that the oil and gas sector can be restored and that Eco Stim can deliver value to its shareholders through profits.

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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