By Steven Ralston, CFA
READ THE FULL PQEFF RESEARCH REPORT
Petroteq Energy (PQEFF) (PQE.V) is an upstream exploration and production (E&P) company focused on advancing its proprietary Clean Oil Recovery Technology (CORT). Currently, the company is ramping up bitumen oil production at its newly commissioned 1,000 bpd facility at Asphalt Ridge in Utah with the oil sands feedstock is being mined from the company’s adjacent property. Along Asphalt Ridge, the company controls 2,542 acres of mineral leases, for which a NI 51-101-compliant Contingent Resources report establishes a Best Estimate (at the P-50 confidence level) of discovered bitumen initially-in-place (DBIIP) of 87,495,000 STB. The deposits were determined to average 6%-15% oil by weight and are estimated to be a multi-decade production asset.
Management’s primary goal is to become a significant bitumen oil producer in Utah by advancing its proprietary, patented, closed loop, environmentally-friendly Extraction Technology. In 2015, the company constructed and operated a 250 bpd pilot plant that produced almost 10,000 barrels of bitumen oil. Concurrently, the company acquired the lease on the resource providing the oil sands feedstock to the pilot plant. The components of the pilot plant were relocated, upgraded and expanded to a 1,000 bpd facility that began producing 200 bpd in September 2018. Management plans to scale up production to nameplate capacity over the next few months.
View Exhibit I
Management plans to continue upgrading the processing facilities at Temple Mountain Mine:
• Phase 1: the completion of a 1,000 bpd plant
• Phase 2: the expansion of production capacity to 4,000 bpd by the end of 2019
• Phase 3: increase capacity to 8,000 bpd by early 2022
Oil Sands Extraction Technology (aka Clean Oil Recovery Technology or CORT)
Petroteq’s extraction CORT is an Enhanced Oil Recovery (EOR) technology that enables the extraction of bitumen oil from a broad range of bituminous sands. Through the use of a proprietary solvent and a patented process, Petroteq’s process is capable of extracting over 99% of all hydrocarbons (heavy bitumen, heavy oil and other lighter hydrocarbons), and over 99% of the solvents can be recovered and recycled back into the closed loop system. The process produces only two materials: bituminous oil and dry, cleaned sand.
The extraction technology has very attractive attributes. The bitumen extraction process, itself, does NOT require the use of water, high temperatures, high pressure or tailings ponds. No water comes in contact with the tar sands/bitumen, though water is used for the steam boiler, dust control and employee sanitary purposes. Therefore, the process can be employed in areas where water is scarce or unavailable. Also, the technology does not emit excessive levels of carbon dioxide (CO2) and does not use corrosive chemicals (such as chlorine). Also, the use of a solvent instead of heat (used in steam/hot water processes) dramatically reduces energy costs and thereby significantly lowers operating costs. Applications for patents have been filed and granted in the U.S., Canada and Russia.
View Exhibit II
View Exhibit III
Located in the northeast flank of the Uinta Basin, Asphalt Ridge is a northwest-southeast trending escarpment (a steeply sloping ridge of land) which is quite prominent as it rises from 500 to 1,000 feet above Ashley Valley along its 20-mile strike. The Ridge exhibits a gentle slope on the southwest side and a steeper slope towards the northeast). Multiple mapping and drilling programs have been conducted, notably by Standard Oil of Ohio (Sohio), Sun Oil Company, Texaco, Phillips Petroleum and Shell Oil Company.
Asphalt Ridge hosts an important oil sands deposit in the Uinta Basin of northeastern Utah. The bitumen-saturated outcrops have been mined since at least the 1920s. The sandstone structures of Asphalt Ridge feature extensive surface deposits. Bitumen-saturated outcropping sandstones are exposed on the northeast-facing cliffs, all along the northwest strike of Asphalt Ridge, from an area in the southeast where the Green River flows to where the Ridge terminates in the northwest by a series of crosscutting high-angle faults.
View Exhibit IV
Pilot Plant (250 bpd)
Petroteq constructed a 250 bpd pilot extraction plant, which was located on the company’s lease site at the northwest end of Asphalt Ridge (approximately 10 miles west of Vernal Utah). On October 1, 2014, the pilot plant was opened, and between September 2015 and January 2016, nearly 10,000 barrels of oil were produced from native oil sands ore mined from the Temple Mountain mine in the Asphalt Ridge. The produced oil was sold into the local Utah market and generated $204,735 in revenues for Petroteq. The production stream was marketed to local oil & gas distributors and refineries. The production from the pilot plant demonstrated the feasibility of the company’s extraction process; however, during this time period, oil prices were extremely weak with WTI declining from the low-$40’s in November 2015 to the mid-$30’s in late December to a low of about $28 in February 2016. Given the environment of low oil prices at the time, production at the 250 bpd pilot plant was curtailed.
Management decided to relocate the pilot plant to a location closer to the plant’s feedstock source in order to improve logistical and production efficiencies. The source of the feedstock was the Temple Mountain mine, which is situated at southeast-end of Asphalt Ridge, approximately 10 miles from the location of the pilot plant. In addition, management focused on capturing economies of scale through the engineering, design and funding of a higher capacity commercial production plant. Furthermore, the increased production capacity would allow for more reasonable pricing for the plant’s oil/hydrocarbon production.
View Exhibit V
Petroteq Acquires Temple Mountain Project and Constructs 1,000 bpd Facility
Petroteq acquired the Temple Mountain mine and associated mineral leases on September 8, 2015. Between the second half of 2016 and mid-2018, Petroteq relocated the pilot plant to the Temple Mountain Mine site, secured financing for the capacity expansion project, was granted the necessary permits and scaled up the capacity to 1,000 bpd. In September 2018, commercial production of high quality heavy crude oil at a rate of roughly 200 bpd commenced. Management anticipates ramping up the production rate by increments of 100 bpd until nameplate capacity is reached. Production is held on site in storage tanks, which have a total capacity of 3,000 barrels, until transported off site by trucks, predominately to refineries in Salt Lake City. The company announced its first sale of product in mid-November. Once production at the Asphalt Ridge facility reaches nameplate capacity of 1,000 bpd and additional growth capital is obtained, management plans on scaling-up operations by fabricating additional extraction units until rated capacity reaches 4,000 bpd.
View Exhibit VI
At a Special Meeting held on November 23, 2018, shareholder approved a reverse-split of up to 1-for-10 shares in order to aid in meeting the listing requirements for uplisting to NASDAQ.
Based on comparative valuation analysis of Price-to-Sales (P/S) ratios with comparable oil recovery companies and a discounted cash flow (DCF) model of the Asphalt Ridge Project, our blended valuation process indicates a share price target of $1.45.
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By Steven Ralston, CFA