Waterless hydraulic fracturing or “fracking” technology has all the makings to disrupt and redefine the $30bln North American pressure pumping market. In recent weeks, I’ve spoken about the use of laser and even CO2 technologies that can be used for enhanced oil recovery (EOR). I’m still very much intrigued by the advancement of energy without the use of water, a growing theme at Blue Phoenix Inc. To that end, this concept has me very enthusiastic about GASFRAC Energy Services (TSX: GFS; OTCBB: GSFVF), the only company in North America providing waterless liquefied petroleum gas (LPG) gel fracturing technology.
GASFRAC, a Canadian company, was awarded the Leading Technologies Award – Commercial Application at the Platts 2012 Global Energy Awards. The company has been issued patents for two key patents, Liquified Petroleum Gas (LPG) Fracturing System plus Gas Blanket and Proppant Addition System and Method. These patents are important for the future strategic development of GASFRAC since they involve the process of safely fracturing using LPG, a waterless method that really is propane based and typically gasifies during the process (the propane can be resold).
Considering injecting water into oil and gas wells to stimulate fossil fuel recovery has caused major concerns from environmentalists, including contaminated flowback water and increased seismic activity in regions where fracking is active, the idea of waterless fracking technology which doesn’t disturb the formation is gaining increased traction amongst policy makers and investors. This bodes well for GASFRAC as it looks to expand its presence in the U.S. Although, the company is primarily focused on Western Canadian Sedimentary Basin (WCSB), South Texas and Colorado, it could make strategic sense for new management to consider new areas, perhaps even New York, a state that could find waterless frac technology very appealing as it further evaluates whether or not to open its moratorium on fracking in its Marcellus Shale region. At some point, looking overseas for opportunities would seem to be a given for GASFRAC so finding a new CEO with global operations experience should be mandated.
GASFRAC’s LPG gel can be customized for different formations and even offered in a Hybrid LPG system. Ultimately my enthusiasm for LPG gel really comes down to the fact it increases initial production rates and it helps establish production much sooner than traditional fracturing methods. Therefore those patents can be very valuable since GASFRAC holds a dominant position in LPG fracturing and could even license its technology to a third parties. Throw in the fact that the company’s LPG gel reduces time on location, reduces net cost since customized fluids allow frac fluid recovery, LPG is better for the environment since water is not wasted (80% of water used in conventional fracking stays in the well). Also, GASFRAC’s LPG can also be reused so it reduces truck traffic and a project’s overall carbon footprint. GASFRAC signed a long-term deal with Husky Energy signed in 2011 thus further building credibility with a proven E&P player. This may be why other companies such as Shell, Apache and others have also become early adopter clients. All of this makes a GASFRAC an acquisition target in my view especially as cutting down water consumption in the advanced energy world becomes more mainstream. This idea would become even more popular I believe if propane can be transported more cheaply and if propane can be shown to be effective at deeper depths of formation.
“We’ve looked at [propane fracking], and I would say that absolutely our industry is open to all possibilities,” said Michael Dunkel, the director of sustainable development for Pioneer Natural Resources, in testimony last month before a joint hearing of the House Energy Resources and Natural Resources committees.
I’d like to point out GASFRAC’s Q412 earnings release which came out on March 13th indicated the company would be announcing a new CEO in 60 days. Today is day 64 so an announcement should be imminent, unless of course some larger entity is looking to swoop in and make a move for the company now while management is unsettled.
by John Licata – Blue Phoenix
