In case you didn’t catch the share price about at seven cents above… , I will tell you now that Integrated Environmental Technologies (IET) is a micro cap with a $25 million enterprise value.Invested capital to date is about $20 million.So you are buying into a VC type opportunity near cost, rather than the 10X or 20X mark up normally associated with no sales and a dream deals.
I think a multi bag return is possible if they are successful with a product that is now in commercial launch.In the near term, I think sales growth combined with other factors will generate some market interest in this company and the stock and provide a chance to take money off the table at a higher price, leaving a low cost or free option on things working longer term.So that’s my “value” angle with this idea.Buy into a public VC deal at cost with near term catalysts to create a low cost or free option in the long term.
IET is now in the early stages of commercializing Excelyte for application in the oil and gas market.The active ingredient in Excelyte is hypochlorous acid which is derived from naturally occurring salt minerals and water.IET has developed the equipment and process for producing the non-toxic and environmentally friendly chemical.The compound is a strong biocide killing aerobic and anaerobic bacteria.It also is an active eliminator of hydrogen sulfide (H2S).
The chemical addresses two large issues in oil and gas wells.Hydrogen Sulfide elimination and bacteria elimination.Hydrogen sulfide is a toxic and corrosive chemical that frequently appears in oil and gas production. It is highly corrosive so it damages well equipment. Excelyte acts as a biocide and as a hydrogen sulfide eliminator/scavenger that kills sulfate reducing bacteria, which are known to produce hydrogen sulfide.
Excelyte reduces sulfate-reducing bacteria, which is known to produce hydrogen sulfide, and other bacteria present in production wells. By reducing the amount of hydrogen sulfide chemical present in the oil and gas wells: (1) the work environment at the well site will be safer since the amount of hydrogen sulfide gas is significantly reduced; (2) the rate of corrosion on the well linings and other equipment used in the production well will be reduced, thereby reducing the maintenance required on a well; and (3) the quality of the oil and gas produced will be potentially improved.
Excelyte is used as a monthly treatment and poured down the well so to speak.The annual cost to treat a well is in range of $7,000. Based on reported customer data and experience annual maintenance savings related to the reduction in corrosion and longer equipment life is in range of $60,000 per well.This seems to be a compelling proposition, especially in a market of lower oil and gas prices.
H2S is mainly a problem in oil and gas basins in the Western U.S.There are estimated to be 176,000 sour oil and 183,000 sour gas wells actively producing in the U.S. IET initially focused on the Uinta basin in Wyoming in order to generate test results and demonstrate success of the product.The test confirmed that Excelyte reduced the level of H2S faster than competing products.One customer has now expanded the number of wells being treated with Excelyte to 11 and has a total of 440 total wells that it believes could benefit from treatment.
IET has now has two supply and manufacturing depot up and running.In the above mentioned Uinta basin and in the New Mexico portion of the Permian basin.IET estimates that there are approximately 5,000 oil wells in the Uinta Basin and approximately 25,000 oil wells in the New Mexico region of the Permian Basin that would benefit from the regular use of Excelyte as part of a well maintenance program.As the business grows, they expect to expand oil and gas operations further in the Permian Basin (Texas) and other areas such as the Eagle Ford Shale in the Western Gulf Basin (Texas), the Williston Basin (North Dakota) and the Piceance Basin (Colorado).
IET is now treating about 175 wells monthly with Excelyte and in recent months has adding in range of 40 wells per month to the total. There corporate goal is to get to revenue run rate to $1 million per month in the near term. This would take about 1,700 wells being treated.They should be solidly profitable and self sustaining at this level.According to the company breakeven would be somewhere around $6 million in sales.
Longer term, let’s say (for example) they get 5% of the market of existing wells with H2S problems which would be around 18,000 wells.This would put them at about $125 million in sales assuming present pricing.
While the company’s initial focus is now on the well maintenance market, two other large sub markets exist for Excelyte within oil and gas market.1) for use in drillings and completions as a biocide to significantly reduce the amount of bacteria present in water before the water is used in hydraulic fracturing; and 2) for use in water remediation as a hydrogen sulfide scavenger and as a biocide to treat water after it is used in hydraulic fracturing in order to remove bacteria so that the water can either be re-used in hydraulic fracturing or disposed.
The company believes that the three oil and gas market segments noted above potentially represent a $2.5 billion market opportunity in the United States.
The Chairman, President and Chief Executive Officer of the Company is David LaVance. He is also the Chairman of Hologic, Inc. (NASD:HOLX) at $10 billion market cap company which is leading supplier of women’s health medical devices.He has served as Chairman, President and Chief Executive Officer of Scivanta Medical Corporation (OTC Bulletin Board: SCVM), and is a founder and President of Century Capital Associates LLC.
The company also has an accomplished board, given the company’s size.Link to board profiles.
In talking with the company a couple other notable items were mentioned.They recognize a reverse split in range of 10-15 to one would be helpful in getting the stock to a price (something at or above $1.00) that is more than the current level of a rounding error.They also see the potential to grow this company into a $200 million value level in the medium term and think a reasonable exit strategy is to sell to one of the larger oil service companies.
The company currently has cash of approximately $1.5 million to support growth.Liabilities consist of approximately $500,000 of payables and accruals and $500,000 of convertible debt.In the past the company has burned about $2 million per year.It has supported itself by issuing stock on an as needed basis.In the recent past stock sales have occurred near the current tradingprice.With sales now ramping the stock sales should be coming to an end.
I like the risk reward because the current market cap is very small relative to the opportunity.Also I think the company will be showing very high revenue growth quarter to quarter.Others may notice this combination and get excited about the potential and drive the stock higher. In this case I have the option of reducing my initial capital exposed while retainingpotential multi bag upside should the company succeed in a larger way.
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise hold a material investment in the issuer's securities.