Syntroleum Corp: Tremendous Technology, Tremendous Risk

| About: Syntroleum Corporation (SYNM)

Syntroleum Corporation (NASDAQ:SYNM) utilizes cutting edge technology in the field of natural gas (Yes, natural gas, a recently upsetting word in the hedge fund world).

Syntroleum has patented a gas-to-liquids process [GTL] that takes natural or synthetic gas and converts it to synthetic liquid hydrocarbons. The GTL process can convert 1 trillion cubic feet of natural gas into 100 million barrels of high-quality diesel and other distillates. This is a portable process: mobile containers that convert the gas to liquid can be placed on skids, barges, and oceangoing vessels. SYNM plans to partner with major energy companies to roll out GTL plants.

Why is this a useful process? There are estimated to be 2,500 trillion cubic feet of "stranded" natural gas yet to be recovered. It is not feasible to ship the gas over long distances, but as a liquid, it is feasible. SYNM offers a way to tap a massive amount of untapped natural resources.

While Syntroleum has not yet built a gas-to-liquid plant yet, there are many positive signs about the progress of this company. In 2005, SYNM partnered with Marathon Oil and the U.S. Energy Department to build a test plant, and the plant ran successfully and efficiently. Plans are underway with Marathon to build a commercial GTL plant in Qatar. On the 21st of September, Syntroleum announced that it had successfully tested “ultra-clean” jet fuel, sending a US Airforce B-52 into air with a tank of traditional jet fuel blended with SYNM’s “Fisher Tropsche” fuel. It is also developing ways to apply its technology to convert coal to gas.

This is an entirely speculative pick -- the risks are many, and with no production facility yet built, who knows if SYNM will be able to pull off the operation. Even if the company does get off the ground, this is a volatile industry. That said, they have patented technology for a process that is tremendously useful right now. Syntroleum’s GTL technology has the ability to make recovery of a tremendous reserve of “stranded gas” feasible, particularly with the flexibility of its proposed mobile GTL units.

Type of stock: A small cap energy stock with terrific proprietary technology -- but who knows if they can pull it off when it comes to operations down the road.

Price target:
Currently trading at $ 4.79, I would NOT buy this pick if you don’t like risk. Much about the way this company operates is unproven, and it is going to take some time -- and lots of money -- before being fully operational. But I like to take real gambles now and then, and I personally like this one: Syntroleum’s gas-to-liquid technology is patented, it is developing coal-to-liquids, and if it can get plants off the ground smoothly, it should fly high. Further, this an acquisition target: a great option for a larger energy company looking to acquire this cutting edge technology, and if acquired, imagine the upside to the stock under those circumstances.

SYNM 1-yr Chart

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