WHITEFISH, MT / July 30th, 2014 / The Bakken formation may have as much as 3.0 to 4.3 billion barrels of undiscovered and technically recoverable oil, according to a 2008 U.S. Geological Survey assessment. Bentek Energy estimates that internal returns on drilling and carrying costs exceeds 50% in the region, which suggests that current oil prices make these operations both sustainable and profitable.
Despite producing more crude oil than any state except for Texas, North Dakota has only a single refinery processing about 60,000 barrels per day (bbl/d) and producing about 28,000 bbl/d of diesel. The rapid growth of the oil industry in the area has forced the region to import more than half of the diesel it requires, sending prices as high as $4.00 to $4.50 per gallon compared to $3.80 nationwide.
Quantum Energy Inc. (OTC: QEGY) plans to develop what it calls 21st Century Energy Centers, or micro refineries, near the Bakken formation in order to produce diesel fuel and reduce the area’s reliance on fuel imports. The facilities would also strip natural gas liquids for barrel value enhancement and propane production, and have a carbon recapture capability for downhole recovery enhancement.
If the video below does not display correctly, please click this link to view and interview with Russell Smith, EVP of Public Affairs for Quantum Energy, Inc., discussing the company's developments: https://vimeo.com/101748838
SECFILINGS.COM Executive Interview | Quantum Energy, Inc.. (OTC:QEGY) from TDM Financial on Vimeo.
Experienced Management
Quantum Energy has an experienced management team at the helm, including an M&A securities attorney and an experienced oil and gas executive. When investing in micro-cap securities, strong management teams are essential given the lack of fundamental strength and reliance on growth to drive valuation, and excellent management teams with a history of execution can generate significant returns. As Quantum pursues its plans to uplist, an examination of management’s background may be helpful in determining its likelihood of success.
CEO and Board Member Andrew J. Kacic is an experienced oil and gas executive who has helmed two NASDAQ-listed companies in the past. Mr. Kacic has been a licensed and bonded oil and gas operator in several states, and is currently based in the heart of the Bakken in Williston, North Dakota. He also has an extensive background as an investment banker who has specialized in primary and secondary finance strategies, capital management, and corporate structure. Mr. Kacic has been instrumental in the corporate development of companies ranging from startup to turnaround to mature. His experience should provide investors a level of confidence that Quantum can follow through on their plans. Having such a proven dealmaker on the ground, working directly with the communities that will benefit from the building of these refineries, is a definite boon to Quantum’s development.
Chairman and President Stanley F. Wilson is a corporate executive and M&A securities attorney whose legal and business career has included business combinations across a wide range of industries, including oil and gas, fuel trading and marketing, telecommunications, specialty finance, insurance, and retail automotive. He has also served as President and General Counsel to many publicly traded companies. With Quantum, he has been responsible for ensuring compliance in various regulatory and legal filings, a move that saves the company money as it lays the groundwork for the development of their micro refineries.
The company also retained Russell Smith as its EVP of Public Affairs to deal with issues of Bakken rail safety and matters pertaining to policy, public affairs and government relations. With 20 years of experience developing and managing major public and private sector projects, Mr. Smith founded the first dedicated Technology Practice Group in a major Washington D.C. government relations firm and has represented over 75 organizations generating over $4.5 billion in aggregate program value. He has been active in Washington D.C., in testimony and meetings with government officials regarding the safe transportation of Bakken crude and crude export issues, and his efforts have garnered Quantum Energy attention in the national press. This level of public involvement is fairly unusual for a development stage company and further reinforces the notion that Quantum Energy is far more than your run-of-the-mill micro-cap.
Unique Business Model
Quantum Energy plans to build a network of its 21st Century Energy Centers near rail transload facilities that would strip natural gas liquids, refine crude oil for locally produced diesel, and recapture carbon dioxide. Management anticipates that each facility could process 20,000 bbl/d of crude oil for the purpose of producing 6,000 to 7,000 bbl/d of diesel. Other refinery byproducts would be sent downstream to traditional refineries. In addition, each Quantum facility would strip 100,000 bbl/d of crude oil of liquid natural gases, creating the opportunity for supplying local and regional propane demand. The Quantum facilities would also employ a carbon recapture capability for the purpose of supplying the strong market for downhole recovery enhancement.
Management projects that each of its micro refineries will generate annual EBITDA in excess of $120 million and employ at least 100 full-time employees, upon permitting and completed construction. From permitting to build-out, the entire process could take as little as 24 months, according to management, along the same lines as MDU Resources Group Inc.’s (NYSE: MDU) Dakota Prairie Refinery that is nearing completion. That refinery is a joint project with Calumet Specialty Products Partners LP (NASDAQ: CLMT). In order to shorten the learning curve and ensure success, Quantum plans to engage the same engineers and construction firms responsible for building the Dakota Prairie project.
Denbury Resources, Inc. (NYSE: DNR) is another active company in the Bakken region that has proven part of Quantum’s business model. Denbury has invested heavily in the region, focusing on improving the performance of its oilfields by importing carbon dioxide via pipeline from operations in Wyoming. CO2 injection is proven to enhance oil production, and Quantum’s planned refineries would provide a local source to the plethora of oil operators in the Bakken fields.
The two barriers to executing these plans are land acquisition/zoning and project financing of approximately $500 million per energy center. With regards to acquisition and zoning, the Dakota Prairie project has already successfully tested the market and many communities and regulators in the region support the idea. The projected high return on investment and pre-existing case study should also simplify financing.
On June 19th, the company executed a Letter of Intent for the acquisition of 400 acres near the city of Baker in Fallon County, Montana for the development of a micro-refinery capable of producing 20,000 bbl/d. The facility would supply diesel and propane within a 100-mile radius, cutting back on the need for these products to be transported from out of state to meet local demand. The company is pursuing several other locations, both in Montana and North Dakota, with plans to develop as many as five refineries in the next few years.
Looking Ahead
Quantum Energy trades at a fraction of its potential valuation, if management is successful in executing its business plan. While micro-cap stocks entail greater risks than large-cap or mid-cap stocks, the company’s capable management team and solid business model pioneered by a competitor bode well for its success. The company’s many upcoming catalysts could also enhance its valuation near-term.
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Disclaimer:
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SOURCE: Emerging Growth LLC