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Quantum Energy Looks to Implement Micro-Refineries Strategy

Wednesday, 22 October 2014 10:00 AM

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Whitefish, MT / ACCESSWIRE / October 22, 2014 / The oil industry has been pressuring President Barack Obama to end the 40-year-old ban on most crude exports, but many large oil companies would just as soon avoid waiting for change on a federal level.

While raw crude oil cannot be exported overseas, products refined from oil can be sold abroad. The problem is that many U.S. refineries are operating near capacity, with operating capacity reaching 94.6% in July of 2014, according to data from the U.S. Energy Information Administration. The proposed Keystone XL Pipeline could further reduce capacity and make it difficult to refine more oil for export.

BP plc (NYSE: BP) has skirted these government regulations by utilizing mini-refineries developed by Kinder Morgan Energy Partners LP (NYSE: KMP), initially in the Houston area. These mini-refineries lightly process raw crude oil – removing natural gas liquids ("NGLs") that make transportation difficult – in order to enable exportation. For large oil producers, exposure to international markets could enhance profitability. 

Refiners like Valero Energy Corporation (NYSE: VLO) and pipeline operators like Magellan Midstream Partners LP (NYSE: MMP) appear ready to jump on the bandwagon with plans for a dozen such plants capable of processing more than 460,000 barrels of condensate a day, according to RBC Capital Markets. But, investors looking for a pure-play may want to look at a smaller firm in the space. 

Executing a Similar Strategy in the Bakken

Quantum Energy Inc. (OTC: QEGY) is an emerging micro-cap stock that aims to mimic Kinder Morgan's strategy in the Bakken formation. With plans to build five micro-refineries across North Dakota and Montana, the company hopes to create new markets for the region's raw crude oil, which is now transported to major refineries on the coast before being sold or exported.

In addition to the benefits to oil producers, the micro-refineries would provide lower diesel fuel costs for local agricultural producers and other businesses; capture CO2 for use in local oil and gas activities; and provide natural gas that should help lower the cost of local propane. Management's goal is for 100% of the diesel produced to be used within a 100-mile radius of its facility.

See Quantum Energy's corporate video discussing the Bakken plans here. If the video below does not display correctly, follow this link https://www.youtube.com/watch?v=xaVZCOSgX1c

 

Quantum Energy's micro-refineries would each produce 7,000 barrels of diesel per day, with an adjacent NGL stripping facility that not only will make Bakken crude eligible for export but will provide an important source of local propane and other NGL by-products production. For municipal governments, each $500 million project would generate 150 high paying jobs starting in the six-figure range. These dynamics have led to strong public support for the company's proposed micro-refineries.

So far, the company has secured two of the five micro-refinery sites, in Fairview, MT and Baker, MT. Management is in the process of securing two of the three remaining sites in Stanley and Berthold, ND with several sites under consideration for the fifth. The Baker, MT property is especially promising given that it has the pipeline of a major producer projected to cross through the site, which could enable the company to reach capacity sooner than later.

Management Moves Past Major Hurdles

Quantum Energy's market capitalization of just $3 million may turn some heads, particularly given that its projects involve a $500 million investment per site and management is projecting a rapid and significant payoff over the coming years. With small companies and limited track records, investors must look at the qualifications of the management team and evaluate their ability to execute.

Chairman and President Stanley Wilson is an experienced M&A securities attorney whose legal and business career has been emphasized by combining small publicly traded companies across multiple industries. As an active member of the Nebraska State Bar Association since 1974, Mr. Wilson has extensive experience in executing transactions, which provides credibility to Quantum's plans within the Bakken.

The company's CEO, Andrew Kacic, is an experienced oil and gas executive and investment banker. In the past, Mr. Kacic founded and led American Resources of Delaware Inc., which grew from $220,000 to $40 million in revenue in less than four years. He was also instrumental in a number of other transactions, including a $221 million Canadian IPO in March of 2004 that set a precedent for the industry.

In addition to securing its planned sites and dealing with municipal authorities in the process, the team successfully completed an internal audit of its 2013 and 2014 year-end results in order to seek fully reporting status. The fully reporting status will be instrumental in arranging financing for its micro-refineries, as well as putting investors' minds at ease regarding its future.

Furthermore, and of great significance, Quantum finalized a joint development agreement with Bilfinger Westcon Construction of Bismarck, ND, giving the firm a powerful joint development partner that is currently in the process of completing the only greenfield refinery to be built in the United States since 1976 just outside of Dickenson, ND. The bonding capability of Westcon provides extensive investment risk mitigation for Quantum's potential capital partners. 

Looking Ahead

Micro-refineries have become popular across the U.S., as oil and gas billionaires like Richard Kinder have partnered with mega-firms like BP plc. In addition to complying with the language of the 1975 U.S. regulations surrounding the export of raw crude oil, Quantum Energy's proposed micro-refineries would greatly benefit local economies in the Dakotas and the northern Mountain West through lower diesel, propane and other NGL by-product costs.

While the stock has a market capitalization of just $3 million, investors should take a closer look at management's experience in growing public companies, as well as their experience in executing M&A transactions. Combined with the strength of the company's relationship with Bilfinger Westcon, these dynamics lend an air of credibility to an ambitious plan to capitalize on the Bakken formation's tremendous oil and gas production that is poised to increase over time.

Legal Disclaimer:

Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Emerging Growth LLC may from time to time have a position in the securities mentioned herein and may increase or decrease such positions without notice. For making specific investment decisions, readers should seek their own advice. Emerging Growth LLC may be compensated for its services in the form of cash-based compensation or equity securities in the companies it writes about, or a combination of the two. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx

SOURCE: Emerging Growth LLC 

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