With both WTI and Brent crude hovering close to $85 per barrel, OPEC+ refusing to increase production and the American shale patch appeasing shareholders with extreme discipline, the world’s oil sands could start to become more attractive.
Except for two serious issues: They’re expensive to extract and far too dirty to consider as the pressure mounts to address climate change.
But one enterprising high-tech company has come up with a patented way to extract oil sands without leaving an environmental footprint for an average price of $25/barrel. They’ve already started doing it in Utah, and the success of the new technology has most recently led to a hostile takeover bid.
Petroteq Energy Inc (OTCMKTS: PQEFF), the company behind the new clean oil sands technology, has received an unsolicited takeover offer from Viston United Swiss AG for C$0.74 per share—a figure that represents a nearly 280% premium over share prices right before the takeover offer.
Since the $500-million takeover bid, Petroteq’s shares have experienced high volume trading, with share prices nearly doubling.
The hostile takeover bid is all about CORT, Petroteq’s proprietary “Clean Oil Recovery Technology” for turning locked oil sands into a viable source of high-quality crude oil while mitigating soil contamination.
How CORT Could Change Oil Sands Forever
Petroteq is first and foremost a remediation company, and CORT is groundbreaking technology.
Part of the attraction is CORT’s versatility. It can be applied to oil-wet deposits as easily as it can be applied to water-wet deposits. In both cases, it has proven to produce high-quality oil and clean sand. Presently, CORT is used for oil sands extraction, but it can also be used in remediation for other natural resources.
With climate change and clean energy the central focus points across industries right now, CORT is moving into the limelight rather quickly, as made clear by the hostile takeover bid.
Led by R.G. Bailey, a chemical engineer who served five years as President of Exxon in the Arabian Gulf region, CORT makes it possible to extract oil from oil sands without using water. That means no wastewater and no toxic trailing ponds, both of which have been severe environmental hurdles for oilsands. CORT operates as a closed-loop system, recovering over 95% of the solvents it uses in extraction and recycling them. The remaining 5% stays within the extracted oil.
Petroteq (OTCMKTS: PQEFF) is, first and foremost, an eco-friendly company with an underlying technology that fits today’s ESG investment climate.
Once the ore is washed of oil in with CORT technology, the sand has been remediated and it becomes environmentally clean soil. And the land itself is then viable for use rather than turned into a toxic trailing pond. The sand can remain or it can be moved and sold to generate additional revenue.
And CORT is not a speculative technology; it’s already proven and already up and running.
The COVID-19 pandemic did not keep Petroteq from advancing, despite difficulties through 2020 for the entire oil and gas industry.
During that time, Petroteq completed the construction of a 500/bpd oil extraction plant at Asphalt Ridge in Utah, a U.S. state with resources estimates of up to 32 billion barrels of oil-in-place comprised largely of “oil-wet” oil sands deposits.
This demonstration plant has 2500 acres under lease and an 87M bbl near-surface oil resource. By 2023, Petroteq plans to be producing 5,000 bpd, ramping up to 10,000 bpd in 2024.
The company has already received a FEED (Front End Engineering Design) study for a 5,000 bpd oil extraction plant, along with a third-party technical evaluation.
This isn’t just a unique growth opportunity straddling two sectors—E&P and technology—it’s also a highly attractive one in terms of numbers:
The facility’s CAPEX is estimated at $19,000-$2,000 per daily bbl, with production costs averaging $250$30 per barrel, depending on the scale of production. Netback margins come in between $23 and $28 per barrel.
Those netback margins, however, were compiled based on $70 WTI, rather than today’s much more attractive ~$84 WTI.
Beyond Extraction: Remediation Runs Deep
The narrative here isn’t just about clean oil sands extraction. Petroteq’s technology can be applied to other natural resources as well.
And this isn’t just about a plant in Utah, either. The patenting and licensing potential is what the hostile takeover is all about.
A U.S. patent and corresponding foreign patents in both Russia and Canada have been issued covering the key features of this system and process for extracting oil cleanly from oil sands.
Petroteq (OTCMKTS: PQEFF) has also sold its first commercial license for $2 million-plus a 5% continuing royalty to Greenfield Energy LLC.
There is a very attractive market opportunity here, especially with WTI trading near $85 per barrel.
Oil sands deposits around the world could benefit from Petroteq’s technology, and it is this opportunity that has led to the unsolicited takeover bid. The $2-million licensing deal with Greenfield Energy LLC is likely only just the beginning: Other groups with oilsands resources could seek to license the technology or engage in a JV deal to gain access to CORT.
The Calm Before the Takeover
The hostile takeover offer on Petroteq is a clear signal that this little-known company is on to something big.
Its patented technology, CORT, could unlock yet another American oil bonanza, but its applications are much further-reaching—and global.
And it’s all happening at a time of soaring oil prices and skyrocketing investor interest in clean solutions for the fossil fuels industry.
It’s not about Utah’s oil sands, though the attraction there is clear and the planned ramp-up of production should entice investors. This is a much bigger story about global licensing of a breakthrough technology that could transform oilsands from the dirtiest and most expensive form of crude oil … into a fossil fuel that suddenly becomes a much cleaner story in line with today’s climate change narrative.
Trillions of dollars in oil sands could benefit around the world, from Canada’s 100 billion boe to China, Venezuela, and even the American West.
Investors have until February to make their move on Petroteq (OTCMKTS: PQEFF) before the hostile takeover is concluded.
Other oil companies to watch as the sector continues to heat up:
Continental Resources (NYSE:CLR), the shale driller owned by one of the richest and most prominent shale wildcatters, Harold Hamm, has reported strong Q3 numbers that, nevertheless, failed to meet Wall Street's expectations.
Continental Resources has reported Q3 revenue of $1.34B, good for 93.5% Y/Y growth but $70M below the Wall Street consensus. Adjusted net income clocked in at $437.2 MM while GAAP EPS of $1.01 missed by $0.20.
With oil prices consolidating above $80 per barrel, the majority of shale producers are solidly profitable, and many are returning excess cash to shareholders in the form of hiked dividends. Continental Resources has followed suit by hiking its dividend 33% to $0.20, but has also gone off the beaten path–the company is finally taking a stake in North America's biggest oil field.
Continental has announced plans to acquire 92,000 net acres in the Permian Basin from Pioneer Natural Resources Co. for $3.25 billion. The company will pay cash for the assets in the Delaware Basin, a subregion of the massive Permian.
Devon Energy Devon Energy (NYSE:DVN) has returned its Q3 scorecard that easily beat on both top-and bottom-line expectations. The Oklahoma-based shale producer reported revenue of $3.47B (+224.3% Y/Y), $1.08B higher than the consensus, while net earnings of $838M represented a vast improvement from the $92M loss the company reported for last year's corresponding quarter. Meanwhile, the company reported Q3 GAAP EPS of $1.24 vs.($0.25), beating by $0.31.
Q3 production soared 87% Y/Y to 608K boe/day, with production expenses declining 1% to $9.91/unit driven by operational efficiency gains and the benefits of scalable production growth in the Delaware Basin.
The company expects Q4 output of 583K-601K boe/day and expects to maintain FY 2022 production of 570K-600K boe/day, with $1.9B-$2.2B in capital spending on its upstream operations.
Devon's free cash flow generation increased 8-fold from the fourth quarter of 2020 to $1.1B, while the balance sheet strengthened with cash balances increasing by $782 million to a total of $2.3 billion.
ConocoPhillips (NYSE:COP) was founded by two oil pioneers in 1917, and has since grown to be one of the largest energy companies in the world. They are committed to delivering a diverse range of products that meet society's needs for food, transportation, power generation, home heating oil and more.
ConocoPhillips is dedicated to working with others in industry and government to provide responsible development of resources while minimizing environmental impact. ConocoPhillips also strives to make sure their employees feel valued as they work towards success together.
A couple of months ago, Bank of America upgraded ConocoPhillips shares to Buy from Neutral with a $67 price target, calling the company a "cash machine" with the potential for accelerated returns.v According to BofA analyst Doug Leggate, ConocoPhillips looks "poised to accelerate cash returns at an earlier and more significant pace than any 'pure-play' E&P or oil major."
Leggate ConocoPhillips shares have pulled back to more attractive levels "but with a different macro outlook from when [Brent] oil peaked close to $70." Best of all, the BofA analyst believes COP is highly exposed to a longer-term oil recovery. But BofA is not the only Wall Street punter that's gushing about ConocoPhillips.
Diamondback Energy (NASDAQ:FANG) has posted Q3 revenue of $1.91B (+165.3% Y/Y) beating Wall Street's consensus by $430M while GAAP EPS of $3.56 beat by $0.73.
The company's Q3 2021 average production clocked in at 239.8 MBO/d (404.3 MBOE/d), with Q3 2021 Permian Basin production averaging 223.0 MBO/d (374.3 MBOE/d).
Q3 2021 cash flow from operating activities came in at $1,199 million; Operating Cash Flow was $1,131 million while Free Cash Flow was $740 million.
Diamondback has announced a commitment to return 50% of free cash flow to stockholders beginning in Q4 2021. To this end, the company raised its dividend 11% to $0.50 per share, marking the second consecutive quarterly increase after hiking by 12% in the second quarter. The company's board has also authorized a $2 billion share repurchase program as part of this commitment.
EOG Resources (NYSE:EOG) has reported Q3 revenue of $4.78B (+103.4% Y/Y), beating by $430M while net income of $1,095M represented a big jump from a $42M loss recorded in Q3 2020. Meanwhile, GAAP EPS of $1.88 narrowly missed by $0.01 but was a big improvement from last year's $0.07 loss.
EOG generated $1.4 billion of free cash flow and announced that capital expenditures came near the low end of guidance range driven by sustainable cost reductions.
EOG said total company crude oil production of 449,500 Bopd was above the high end of the guidance range due to better well productivity.
EOG Resources has declared a $0.75/share quarterly dividend, good for an 81.8% increase from prior dividend of $0.41. The company also declared a special dividend of $2.00 per share, payable on December 30; for stockholders of record on December 15.
Occidental Petroleum (NYSE:OXY) has become the latest shale patch producer to post an easy earnings beat on the strength of high oil and gas prices. The Texas company–which eschews wildcatting in favor of an oil recovery model–reported Q3 Non-GAAP EPS of $0.87 beats by $0.20 while GAAP EPS of $0.65 was in-line with expectations.
OXY reported that cash flow from continuing operations clocked in at $2.9 billion, capital spending was $656 million, while free cash flow excluding working capital came in at over $2.3 billion.
The company exceeded production guidance midpoint by 15 Mboed, despite the impact of Hurricane Ida, with production of 1,160 Mboed from continuing operations. Meanwhile, OxyChem generated record earnings and increased total year pre-tax guidance to $1.45 billion
Occidental also announced that it had completed its large-scale divestiture program with the sale of Ghana in October; repaid $4.3 billion of long-term debt and retired $750 million of interest rate swaps.
By Charles Kennedy
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