New Directions from Ocean Power Buoy

Ocean Power Technologies (OPTT:  Nasdaq) has successfully installed one of its PowerBuoys off the coast of Chile near Las Cruces.  Designed to convert ocean wave energy to electrical power, the PowerBuoy was purchased by Enel Green Power, a subsidiary of electric and gas utility Enel SpA (ESOCF:  OTC).  Electricity from the unit will be used to power equipment used by Chile’s Marine Energy Research and Innovation Center in a project to study the potential of margin energy. 

Enel’s purchase order was first announced in late 2019.  While engineers for the two companies were able to work around travel restrictions, the installation date was delayed by a year.  Now properly installed in the ocean investors have a chance to observe yet another PowerBuoy in operation.

The PB3 model of the ocean wave energy system is designed to supply continuous power to equipment located on the seabed as well as onboard payloads.  As the ocean waves move the buoy back and forth a direct drive generator sends an electrical charge to an on-board battery pack.  A wireless communication unit delivers real time data for continuous monitoring of the PowerBuoy.  On site maintenance is not expected to be needed for as long as three years after deployment, helping to cut down on operating costs. 

Since wave action is different at each deployment site, the company can only estimate an average 8.4 kilowatts hours of power per day from a PB3 Powerbuoy.  The battery packs are expected to be sufficient to last through periods of exceptionally calm seas.

Ocean Power has been laboring along for several years with very few sales.  Some investors may have given up on what has seemed like an interminable developmental stage.  In the nine months ending January 31, 2021, the company has reported only $604,000 in total sales.  Sales to Enel Energy Group figures prominently the company’s top line. 

The business pipeline suggests there is building interest in the PowerBuoy.  To management’s credit, the company has several agreements in place to either evaluate the PB3 PowerBuoy for particular marine situations or to study attendant mooring systems or communications solutions.  Joint development and marketing agreements are also in place with potentially strong partners such as BAP Precision, Inc., Modus Seabed Intervention Ltd. and Saab Seaeye Ltd.

At the end of January 2021, Ocean Power Technologies reported $79.8 million in its bank account.  At the recent spending rate, the company has been using about $1 million of its cash each month to support operations.  Thus, it appears the company has about six years to get its sales pipeline fully primed to breakeven before it runs out of cash.

Of course, strategic moves such as acquisitions or new partnerships could put new demands on the company’s cash.  In February 2021, the company announced plans to acquire privately held 3dent Technology, an offshore energy engineering and design services provider.  The company used common stock to pay for the deal, but in the future cash may be needed to capture strategic interests. 

Indeed, investors may wonder if even the common stock issued to 3dent Technology shareholders was worth it.  Ocean Power Technology’s foray into the oil and gas industry has so far fallen short of expectations.  Premier Oil Plc had leased a PB3 Powerbuoy for a deployment at its offshore oil field in the North Sea, but the unit was returned after only a few months in operation.  A feasibility study with an oil and gas operator begun in 2019 and a partnership with an oil and gas field services company have yet to produce commercial deployments.

Buoys are used to give seagoing ships directions to steer clear of other ships or dangerous waters.  The PB2 PowerBuoy in this new commercial deployment for Enel Green Power may be providing directions for OPTT shareholders  -  the light is green but proceed with caution.  

 

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.