NEW YORK, NY / ACCESSWIRE / November 30, 2017 / SeeThruEquity, a leading independent equity research and corporate access firm focused on small-cap and micro-cap public companies, today announced it has initiated coverage on American Energy Partners, Inc. (OTC PINK: AEPT) with a 12-month price target of US $0.10.
The report is available here: AEPT Initiation Report.
We initiate coverage on American Energy Partners Inc. (OTC PINK: AEPT, $0.035) with a price target of $0.10. AEPT is a diversified energy company that provides various environmental services including water treatment, distribution of reclaimed water, waste stream treatment and plugging & abandonment. The company primarily serves industrial energy users, government markets and the oil & gas sector. With water shortages becoming a common occurrence, municipalities and government agencies often turn to alternate sources of water to supplement their traditional supply. In lieu of this, AEPT is looking to partner with government entities and is currently negotiating contracts worth millions of dollars for use of AEPT's water treatment technology at Mocanaqua tunnel, which holds ~500 billion gallons of mine water. The company plans to make complementary accretive acquisitions in the energy sector (buying royalties and producing wells) which in our view will help AEPT to expand its base by cross-selling its water treatment and related environmental offerings. According to estimates, a typical natural gas well requires 3.5 million gallons of water for fracking. With natural sources of water in short supply, the demand for reclaimed water and associated technology in the energy sector is gathering momentum. Even though the energy sector is a growth opportunity, government contracts will also be a significant driver of revenues for AEPT. The government contracts provide earnings visibility given their long-term duration and consistent need for reclaimed water and treatment technologies. We see AEPT as a speculative play on the growing need for reclaimed water and related technologies across industries and government agencies. The company is currently offering 200 million shares at $0.05 each, looking to raise ~$10 million, with the majority of proceeds intended to be used in acquiring energy assets that can make use of its water technologies.
Highlights from the report include:
Vertically integrated business model
In our view, targeting waste water treatment (via AES), oil & gas (via Gilbert), and hydration distribution (via HCPA) and integrating these services creates significant opportunities for positive revenue synergies. The presence in the Marcellus and Utica basin (via Gilbert Oil & Gas) will help AEPT cross-sell its services offerings such as reclaimed water distribution to diversified energy companies. AEPT also stated that it intends to acquire a 30% stake in a plugging and abandonment services player, which further augments its environment related service offerings. Through the integration of these services, management believes it can achieve higher operating profits than the industry average, which should lead to greater returns on invested capital.
Partnership with government agencies and municipalities to aid growth
With water shortages becoming a common occurrence, municipalities often turn to alternate sources of water to supplement their traditional supply. In lieu of this, AEPT is looking to partner with government entities on projects that facilitate water project design, ownership and sourcing on a regional basis. HCPA has received positive response from local agencies such as Pennsylvania Department of Environmental Protection (DEP), Susquehanna River Basin Commission (SRBC), and the Pennsylvania Department of Conservation and Natural Resources (DCNR). HCPA anticipates signing contracts with these organizations for access to mine water. HCPA has partnered with Eastern Pennsylvania Coalition for Abandoned Mine Reclamation (EPCAMR) and the SRBC to start the first three phases of due diligence at the Mocanaqua Tunnel. This property has ~500 billion gallons of mine water and appears to be an excellent candidate for AEPT's water treatment technologies. This opportunity may be worth ~$2.5 million for AEPT.
Oil & Gas market opportunity
The natural gas industry presents enormous opportunities for AEPT. Hydraulic fracturing (fracking), a necessary step in natural gas production, requires huge volumes of water to be pumped in the field. According to estimates, a typical natural gas well requires ~3.5 million gallons of water during fracking. The Marcellus acreage (Pennsylvania), area of interest for AEPT, holds ~50 trillion cubic feet of gas which remains untapped, suggesting high demand of reclaimed water. Further, taking into consideration the other environmental services required such as remediation of impoundments, treatment of flowback and produced water, tremendous opportunities exist in oil and gas for AEPT.
Initiate coverage with a target price of $0.10
The target price of $0.10 assumes successful completion of the $10 million offering and that the company will be successful in executing its inorganic strategy as expected. Key risk includes the inability to raise sufficient capital to fund its acquisitions.
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About American Energy Partners, Inc.
AEPT is a publicly traded company that provides environmental services to industrial, energy and government sectors. The services include water treatment, distribution of reclaimed water, waste stream treatment, plugging & abandonment. The company operates via three subsidiaries: 1) Hydration Company PA, which is involved in sourcing and distributing water; 2) American Energy Solutions, which provides water treatment technologies and 3) Gilbert Oil & Gas, which provide cash flow through investment in O&G royalties, producing wells and the development of mineral rights. For more information, visit www.americanenergy-inc.com.
About SeeThruEquity
Since its founding in 2011, SeeThruEquity has been committed to its core mission: providing impactful, high quality research on underfollowed smallcap and microcap equities. SeeThruEquity has pioneered an innovative business model for equity research that is not paid for and is unbiased. SeeThruEquity is the host of acclaimed investor conferences that are the ultimate event for publicly traded companies with market capitalizations less than $1 billion.
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SOURCE: SeeThruEquity