Valuations of Oilfield Services and Petroleum Tech Stocks on the Rise

April 29, 2022 -

USA News Group – In response to the global energy crisis, the Biden administration is selling a record amount of emergency oil from the USA’s national reserves to bring soaring fuel prices under control. Despite these efforts there’s a growing skepticism over whether unconstrained US gas production can last. However, because of ~$100 oil and large gaps in renewables, fossil fuels remain crucial to the western way of life. Demand continues to outpace production, causing the market to look for big oil and new technology developers to fill the gap. According to Baker Hughes Company (NASDAQ:BKR), the US rig count has been steadily rising, meaning the domestic market is quite active. Examples of heightening domestic action includes new developments from other oilfield services and technologies companies such as Petroteq Energy, Inc. (OTC:PQEFF), Enservco Corporation (NYSE:ENSV), Halliburton Company (NYSE:HAL), and Schlumberger Limited (NYSE:SLB).

Among the newer technologies being developed that could potentially make a huge impact on US production is the Clean Oil Recovery Technology (CORT) process, developed by Petroteq Energy, Inc. (OTC:PQEFF) and proven to produce oil from oil sands without the use of water, nor producing wastewater nor tailings ponds.

“Confirmation that heavy oil extracted from Utah oil sands using our CORT process is suitable for production of MSAR® and bioMSAR™ fuels could allow for the production of fuel and biofuel with significant environmental benefits, while creating a higher value product stream for Petroteq's future commercial production," said Vladimir Podlipsky, Petroteq's CEO and CTO.

Using this proprietary oil-extraction and remediation technology, Petroteq has updated and completed the design for a planned oil sands extraction plant, capable of handling 5,000 barrels per day with Valkor, LLC.

Back in July 2019, Valkor signed a Technology License Agreement with Petroteq and has been operating at the plant in Utah, under a Service Master Agreement signed in November 2018.

Following the update to the original front end engineering and design (FEED), Valkor conducted various additional design studies to prepare the final engineering plans.

A primary part of the process included a design study with M-I SWACO, which is a subsidiary of Schlumberger Limited (NYSE:SLB), for the backend processes for separating out and drying sands for resale.

The CORT system utilizes a conventional sand dryer modified for service with petrochemical solvents in a closed loop. A combined unit has been proposed as a turnkey system to handle as much as 8,000 tons of sand per day with a target of EPA Tier 1 quality for the resulting sand.

Back in February, Petroteq anncouned a third-party cash flow analysis from Broadlands, which showed a base case of a Net Present Value (NPV) of $1.285 billion, $602 million, and $341 million, based on a pre-income tax basis, at discount rates of 0.0, 7.5 and 15%, respectively.

This economic analysis of CORT focused on the markets available for the sale of the three categories of by-product sands. Broadlands noted that an extraction plant producing 5,000 bpd could (as estimated by Petroteq) be capable of yielding 6,000 tons of sand per day or 1,860,000 tons per year (based on 310 operating days per year and operating 24 hours per day), and that silica flour is postulated to be 15% of the saleable product, fracking quality sand 55%, and bulk sand 30%.

The economic prospects of the entire process has drawn the interest of ESG-focused equity firm Viston United Swiss AG, which is in the process of a takeover attempt.

Viston’s presented to Petroteq shareholders a premium price valuation of approximately 279% over the closing price of the Common Shares on the TSX Venture Exchange on August 6, 2021, and a 1,032% premium to the 52-week volume weighted average trading price on the TSX-V prior to the offer originally made in April 2021, before the Canadian shares were halted. The offer itself is valued at a considerable premium over the market price, with a 100% all-cash consideration of ‎C$0.74 ‎per common share.

Meanwhile, through its US shares on the OTC under the PQEFF symbol, shares of Petroteq are trading around US$0.395 (C$0.505) on April 11, 2022. At that price point, the C$0.74 (US$0.59) still represents a potential 49% premium over the more current trading price.

"Our advances in engineering work exemplify our intentions to continue to operate the Company toward future expansion and revenue growth, regardless of the on-going offer from Viston United Swiss AG,” added Podlipsky. “Management will continue to handle business as usual and make utmost efforts to enhance shareholder value."

So far, Viston’s offer has been favorably received by the entire Petroteq team, with unanimous intention to tender shares from the Board of Directors, the company’s Founder, Former Chairman and CEO Alex Blyumkin, and one of the company’s largest shareholders, Cantone Asset Management, LLC.

Since February 18, 2022, shares of Enservco Corporation (NYSE:ENSV) have shot up from $0.563 as high as 667% to $4.32 in March, before settling in around the $2 level by mid April.

Enservco is a diversified national provider of specialized well-site services to the domestic onshore conventional and unconventional oil and gas industries. Before the energy crisis truly took off, the company saw its revenue up 72% in Q3 2021, posting gains across all of its service offerings.

“Rig counts and wells drilled in the third quarter increased by double digits on both a year-over-year and sequential quarter basis, and these favorable tailwinds should help position us to sustain our revenue momentum during our fourth and first quarter heating season,” said Rich Murphy, Executive Chairman of Enservco.

Three of the world’s largest oilfield services companies, Baker Hughes Company (NASDAQ:BKR), Halliburton Company (NYSE:HAL), and Schlumberger Limited (NYSE:SLB) have all suspended operations in Russia.

"Safety and security are at the core of who we are as a company, and we urge a cessation of the conflict and a restoration of safety and security in the region," said Olivier Le Peuch, CEO of Schlumberger.

Since the move, analysts at Piper Sandler have upgraded their rating on Schlumberger, saying shares could rise 29%. The same company’s analysts also upgraded their price target of Halliburton, despite maintaining the same rating, as the company has received a consensus recommendation by analysts.

Overall, drilling activities in the USA are on the rise for the third week in a row according to Baker Hughes that reported US drillers added oil and gas rigs.

The oil and gas rig count, is typically seen as an early indicator of future output. Baker Hughes said it rose 16 to 689 in the week to April 8, its highest since March 2020, which puts the total rig count up 257 rigs, or 59%, over this time last year.

According to the Baker Hughes report, more than half of US oil rigs are in the Permian shale in West Texas and eastern New Mexico where total units this week jumped by nine to 332, the most since April 2020. This jump was officially the biggest weekly increase in the basin since January 2021.

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