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  • Small Companies Poised To Ride Canadian Natural Gas Wave

    It wasn't too long ago that Federal Reserve Chairman Alan Greenspan issued a warning about the shortage of natural gas in the United States. "Today's tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon," he said in 2003. Yet, only a few short years later, savvy drillers found ways to unlock a flood of shale gas. Now the U.S. is trying to figure out what to do with the abundance, and companies are racing to line up export permits to send LNG to Asia.

    That story is well known. What is less known, but equally momentous, is a similar shale gas revolution unfolding in Canada, albeit to a lesser degree. Several years ago Canada had plans for seven LNG import terminals in order to satisfy domestic demand. Shale gas production has upended that equation, and Canadian companies scrapped plans for all of those terminals. Now, Canada wants to build export terminals to sell its gas overseas.

    Of particular importance is the Montney Formation in Alberta and British Columbia. Not well known - particularly outside of Canada - the Montney Formation rivals the Marcellus Shale in the sheer size of its natural gas reserves. The Montney Formation may hold somewhere between 250 and 350 trillion cubic feet (tcf) of natural gas, compared to the Marcellus Shale, which according to estimates has between 225 and 520 tcf.

    And the Kitimat LNG project on British Columbia's west coast will provide an outlet for shale gas from the region. Originally intended to be an import facility, it will be turned around for export through a joint venture between Chevron Canada and Apache Canada. This will allow Alberta and B.C. shale producers to find new markets in energy hungry Asian countries like South Korea, China, and Japan.

    There are several ways to play this trend for investors, but I like finding the small companies with huge upsides. By that I mean low-cost operators, positioned in resource-rich areas, with strong markets nearby. To be sure, these small companies are risky, but they fly below the radar and precisely because of their small size, there is enormous room to grow.

    One high-risk high-reward company is Blackbird Energy Inc. (TSXV: BBI), which just announced its purchase of Pennant Energy. Blackbird is a nano-cap ($9.45 million market capitalization) stock that trades on TSX-Venture. It is a small oil and gas company in Alberta and Saskatchewan, which are the two largest oil and gas producers out of all of Canada's provinces, combining for 90% of the country's oil output.

    It has produced a small amount of oil from the few wells it has drilled, but it has snapped up acreage in the right areas. For its fiscal year 2013, Blackbird produced a mixture of natural gas, natural gas liquids, and crude oil for a total of around 160 barrels of oil equivalent per day. The company's management says that it hopes to drill successful wells, and replicate and scale them. This, they argue, will allow them to become the next "great junior producer."

    There are several reasons why I like this company:

    1. It just made a smart acquisition. Blackbird Energy announced on February 18, 2014 that it would acquire the remaining shares of Pennant Energy Inc., with the consolidated company retaining Blackbird's name. The acquisition of Pennant offers complementary assets to Blackbird's portfolio and allows the company to achieve some economies of scale. The combined Blackbird will merge the two companies' stakes in the Bigstone Montney Project, a natural gas and liquids rich play in northwest Alberta. Montney is Blackbird's bread and butter; its highest producing asset and a tract it thinks has huge potential (more on that below). The consolidated company of Blackbird and Pennant will now own 50% of the project, as opposed to the separate companies each operating their own 25% stake. The story is similar for its Mantario Oil Project, located in central Saskatchewan. Last November, Blackbird successfully struck some oil in the Mantario. It is now producing over 20 barrels of oil per day. Building on that initial success, BlackBird hopes to go bigger. It plans on drilling its first horizontal well in the Mantario project in the second quarter of 2014, at a cost of less than $1 million. Brining Pennant's holdings on board gives Blackbird a 100% stake in the project.

    2. It's holdings in the Montney Formation. It right now produces more than 60 barrels per day, with plenty of room to grow. The play's decline rates are flatter than other comparable shales, with high estimated recoveries. It is also rich in natural gas liquids, which is more lucrative than dry gas. The Montney Formation is going to be a big story for years to come, and Blackbird seems to be in a good position here. Management is optimistic that it can parlay its success from this project into further growth.

    3. Blackbird's neighbors have had great results. Blackbird has holdings in an area that has proven to be fertile. It owns seven parcels near Delphi Energy, a similar company operating in a similar environment. Delphi Energy has drilled several wells that are producing around 1,300 barrels of oil equivalent each. These wells have net present values of $25-$26 million. Based on the good numbers from Delphi Energy is producing nearby, there is no reason to think that Blackbird can't see similar results.

    4. Similar companies have exploded. Blackbird is not paving new ground here; it is following in the footsteps of other companies. Tiny drillers are risky, but when they blow up, they blow up big. As mentioned above, Delphi Energy (TSE: DEE) is a similar company to Blackbird. It operates in Alberta and its stock traded as low as $1 per share in early 2013. Now it's up to $2.50, a 250% increase. Kelt Exploration (TSE: KEL), which operates in B.C. and Alberta is another example. It traded below $6 per share in the spring of 2013, but is now around $11.50. Rock Energy (TSE: RE), a heavy oil driller in western Canada, trades at $4.40 per share, up from around $1.10 a year ago. Rock's discovery and successful production from the Mantario play is encouraging for holders of Blackbird stock. Blackbird has similar holdings in the Mantario, and Rock's success suggests Blackbird has a good chance of doing the same in its Mantario Oil Discovery.

    5. Management has a good strategy. The company's strategy for "growth through carefully targeted acquisitions," as it laid out in a press release, makes sense in the case of picking up Pennant. It gives the combined company more production per share and more cash per share than the individual companies had separately. The compatible and complementary holdings of the two companies made their marriage a no-brainer. It also is consistent with the company's strategy of pursuing internally-generated growth - that is, maintaining a high degree of ownership over operations, and developing projects for long-term value. Blackbird has showed a penchant for successfully drilling wells, producing a small amount of oil (dozens of barrels per day), bringing in some cash from that early production, and redeploying that capital to grow its production portfolio. That's how you gotta do it as a small player - slow but steady growth, smart acquisitions, efficiency gains, and an appetite for risk, but with some patience.

    Blackbird's future entirely depends, obviously, on its ability to avoid drilling wells that come up dry. As a small company, it has little room for error because the costs of drilling account for a much larger portion of the company's value than a large oil company. A few wrong decisions and it will be out of business. But based on the results from similar companies operating in the same formations, Blackbird has a better shot than most companies trying to get off the ground. Many of its prospects involve shallow wells with high certainty, and it operates in proven areas that are already producing oil, natural gas, and natural gas liquids. A big question mark hangs over whether or not B.C. will get in the way of the Kitimat LNG export terminal, which would limit the market for gas coming out of the Montney.

    The company is still posting negative earnings per share, but is heading in the right direction. Its assets have low decline rates compared to other plays. It operates a lean operation with low overhead. It has some cash flow from the few wells that it has producing. And its recent acquisition of Pennant allows it to achieve greater economies of scale. Small companies always are high-risk, but keep an eye on Blackbird and as it works to become the next "great junior producer."


    By. James Burgess of

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: DEE, RE, long-ideas
    Feb 21 2:27 PM | Link | Comment!
  • When Drilling Is Expensive, Piggyback: Interview With AOS

    Africa is becoming the top choice for North American oil companies looking to diversify, and the East African Rift is the hottest of the hot, with Kenya waiting on commercial viability, Angola and Ghana already on the road to rival Nigeria and two newcomers-Namibia and Zambia-where the doors have been thrown open for exploration. Getting in on Namibia and Zambia is an extremely expensive endeavour, but here's a way to de-risk this adventure, keep your shareholders calm and strategically position yourself to take advantage of the next big find without footing the massive drilling bill: Buy up a ton of acreage and sit back and let others do the expensive exploration and drilling on territory adjacent to yours. Then strike and watch offers come in.

    In an interview with, Alberta Oil Sands (AOS) CEO, Binh Vu … discusses:

    •How to get in elephant-sized plays in the East African Rift

    •How to save cash by piggy-backing on others' expensive exploration

    •Why Namibia could be a major oil monster

    •What makes Zambia such an attractive oil venue

    •Other African plays that are worth looking into

    •Why it's hard for juniors to compete in Africa

    •Why someone will always need Canadian oil sands

    •What heavy oil economics will look like over the coming years

    •Why Canada's Algar Lake is a major sleeper play

    •What qualities investors should look for when betting on juniors

    Interview by James Stafford of

    James Stafford: With the oil discoveries in Kenya and a lot of optimism over other rifts and lake systems including those present in Uganda, Zambia, Tanzania, etc. the East African Rift System has become an emerging oil hot spot. What we want to know is how to make money here without spending a ton of cash in exploration and drilling? What's the smart way to stake a claim on the East African Rift Basin?

    AOS: That is a great question. The truth is that this area has become quite expensive as it has been found to be increasingly prolific. Major signing bonuses, deposits, and commitments are required in spots like Kenya, Tanzania, and Uganda. There is very little opportunity for the junior explorers to compete.

    We believe that Zambia is a fabulous jurisdiction because it shares the geology and rock age in certain large areas that have hosted the Lake Albert Discovery and the Block 10BB Kenya discovery. However, it is totally underexplored for hydrocarbons and thus provides much cheaper access to very prospective areas. Our company has successfully tied up ~18 million acres or what we believe covers about 33% of the attractive rift areas in Zambia - which equates to oil and gas rights over about 8% of the country.

    James Stafford: How does an exploration company on a budget go about covering and "high-grading" targets over such a large area?

    AOS: Without a doubt that is a highly important question for any company engaged in the pursuit of elephant-sized targets in new frontiers. One of the things that we do is first is aim for concession agreements that don't tie us to expensive immediate seismic commitments. Second we eschew large and expensive 2-D seismic programs in favor of a process of high grading using satellites, other remote sensing techniques, and 'ground truthing'.

    We estimate that by using satellite data analysis over a number of criteria--gravity gradiometry, thermal emissivity analysis, geobotany analysis including vegetation anomalies and geo-microbial review over specific high-graded areas on our acreage--we can save millions of dollars and years of time. We then get to specific areas that are ready for smaller, focused electroseismic surveys / 3-D surveys, and that can then be attacked as drillable targets either to take on ourselves, or to farm down to majors who are looking for the next major rift discovery.

    James Stafford: What does the playing field look like right now in Zambia? Who's there, what are they doing, and how are you positioned to take advantage of all the money being spent there on exploration and drilling?

    AOS: There are a number of companies there and we have focused on two lakes as well as two dry rifts that show very promising gravity responses from the most up to date databases. Our number one focus is on Lake Tanganyika. This lake spans through Burundi, Tanzania, DRC, and Zambia.

    There are currently to our knowledge at least three major active seismic programs on Lake Tanganyika including one recently completed by Beach Energy, an Australian company with a $1.75 billion valuation. Beach is directly adjacent to AOS, on the Tanzania side of the Lake. It is likely that Lake Tanganyika will see at least 1 drill hole in 2014.

    We like Lake Tanganyika as the right spot for the next Lake Albert (3.5 billion barrels reserves) discovery because of the almost identical geological setting and rock age as well as the size of the Lake and the major indications of an existing petroleum system. Lake Tanganyika has multiple oil slicks and natural oil seeps including one that is believed to be the largest natural oil seep in the world. You can see it from Google Earth.

    James Stafford: You've also recently acquired acreage in Namibia, which just made its first-ever commercial oil discovery. What are the prospects here and what kind of timeframe are we looking at?

    AOS: I'm glad that you asked that. Namibia to us is a potentially direct analogue to all of the major offshore discoveries in Brazil (plate tectonics theory) and Angola to the north. Offshore Namibia has the identical age and rock type as the discoveries in offshore Angola. Combined, those two countries have nearly 30 billion barrels in reserves.

    Namibia itself, however, remains highly underexplored with only 16 wells drilled in 20 years--seven on Kudu Gas Field alone--and the majority of the rest were shallow shelf wells. People are starting to get the idea and now. BP, Petrobras, Repsol, Galp Energia, HRT, are all there.

    HRT has had success there on their first well of this three-well campaign where they discovered light oil for the first time. Their second well was dry. The third well on which they will begin drilling in August in their PEL-24 block which borders directly on to AOS' 2.5 million acre land package in the Orange Basin - blocks 2712A and 2812A. We are at ground zero.

    HRT rates their play chance there at 25% and to my knowledge it is their biggest target--a 30 billion barrel monster. If that one works, I would think that there will be companies knocking down our door. We will know likely in late September, maybe the beginning of October.

    Regardless, there should be at least five more wells drilled and $500 million to $1 billion being spent offshore Namibia over the next 12-18 months, so it really fits well with our strategy of being in highly active basins where majors and big independents are spending lots of money around us to prove up major discoveries.

    James Stafford: AOS' new Africa portfolio is an ambitious diversification of its original assets in Alberta oil sands. Why the need for diversification here?

    AOS: It is indeed; however, I think that what shareholders need to understand (and many of ours do not) is that AOS has been traded for the last 24 months strictly on its balance sheet. It basically always trades at its cash per share. Why is that? Very simply there is or has been in recent times, very little capital market appetite or excitement for small companies developing SAGD oilsands plays.

    Athabasca Oil was one bright spot, but that was a marvel of financial engineering that caught a window.

    AOS has 500+ million barrels of oil sands resources which are getting no value. Combine a terrible junior market with complete apathy for this asset class, and the result is a share price that declines almost in lockstep with the treasury, and a total lack of response or enthusiasm to basically just about any kind of positive news.

    We feel that while AOS is underpinned by its cash and by real assets on which the company has spent almost $65 million developing since 2007, it adds meaningfully to shareholder value by bringing into the fold, as cheaply as possible, blue sky scenarios with major lottery ticket potential and requiring little to no cost commitments over the next 12-18 months.

    Ultimately, as we gain approval at our flagship Clearwater project in Alberta, part of our plan as we examine our options to unlock value in two distinct plays could be to dividend out our African assets to shareholders into a new company on a 1 for 1 basis, such that shareholders retain 1 pure play share of Oilsands in Alberta (Clearwater, Grand Rapids, Algar Lake), and one pure play share of our 21 million acre and growing high-impact African exploration portfolio (Zambia, Namibia, DRC).

    James Stafford: Mainstream media reports generally put a price tag of $75 to produce a barrel of Canadian oil sands, but is this really reflective of the true price once you get past the start-up phase?

    AOS: Some of the junior oilsands development companies that have made the transition to SAGD have stumbled without a doubt. Connacher and Southern Pacific being two recent examples. I believe, however, that the economics are actually superlative once all problems are solved, and of course you can go on producing for a very, very long time. The margins of an operation in full-swing and after start-up/growing pains, are much better than the mainstream media is reporting.

    James Stafford: For how long will the US continue to need crude from Canada's oil sands given current levels of production from US shale plays? What is the production price comparison here? Will it cost more to sustain production from wells in the Bakken and Permian Basins?

    AOS: This is an interesting question. My personal view is that whether it be the US or someone else, there will be no shortage of demand for what the Canadian oil sands can produce. Further, there is a lot more certainty in terms of consistency and longevity of the oil sands assets and their production profile, once they get going.

    James Stafford: What are your predictions for North American heavy oil economics over the next 2-3 years? Plenty of investors think this is the place to be with a lot of refineries coming out of turnaround and getting heavier and heavier despite all the light shale oil. Will demand for heavy oil rise?

    AOS: I read analyst prognostications on this stuff every day. They can certainly have different complexions depending on who you are listening to. To me it's pretty simple: I don't believe that prices are going to go outside of a range (below, or above) where extremely healthy margins can be made by good operators, for their shareholders. We will be range-bound here at healthy levels is my overriding feeling on this.

    James Stafford: What can we expect from AOS in terms of Canadian oil sands development in the next 6-9 months; in the next 2-3 years? What drilling will occur across AOS' oilsands acreage?

    AOS: Alberta Oilsands has four main projects domestically, and two of them are sleepers.

    For our flagship Clearwater asset with 373 million barrels of resources we hope to receive ERCB permits for production in Q4 of this year at an initial rate of up to 5,000 bopd, with a phase II of up to 40,000 bopd. This will be a game changer for us, and is the one thing that probably will move our market much higher immediately.

    Our Grand Rapids project has resources of 119 million barrels and we have just completed an EUR study that demonstrates its ability to produce as much as 30,000 barrels a day, for 40 years. This is highly encouraging and is totally overlooked by the market.

    Our third asset is a sleeper asset, in my opinion. AOS has taken on a partner to drill its Algar Lake project. We chose this partner because of its history of great exploration success. The team has, from scratch, made two separate billion+ barrel discoveries in Alberta and Saskatchewan and sold each to the majors. They want to turn their focus to Algar Lake now because it has the potential for cold flow production. Cold flow CAPEX is ~25% of SAGD CAPEX. On the OPEX side and on the operational complications side, it is basically the same story as well. Those are fundamental and major benefits.

    If I can find a couple hundred million barrels of cold flow today, I think that the world is at my door. The 5 well program this winter will be enough to tell us if we have the next Pelican Lake - CNRL's most profitable operating division per barrel, full stop.

    James Stafford: It is no doubt a very difficult time right now for most junior oil and gas explorers and developers--whether with a domestic focus, or an international focus. What do you tell investors?

    AOS: I would say that I don't see that risk capital coming back for some time. It will be very opportunity specific and success driven. You want to look for companies that have the ability to survive for a while with the cash in the bank, are underpinned by real assets with a real value, and also can provide the excitement and possibility of a geometric return on investment.

    James Stafford: And does AOS qualify for those criteria?

    AOS: Not to toot our own horn here James, but my view of the world is: AOS is trading at just above cash value. Our combined PV10 between Clearwater and Grand Rapids is $823 million--or about 225X our market cap net of cash. We have a very small burn rate. We have multiple catalysts that can take us much higher in the next few months, including: Success in Namibia by HRT in September; approval at Clearwater for production in Q4; partners on our vast African acreage, or other discoveries near our rift acreage; demonstration of cold-flowing reservoirs at Algar Lake; and a strategic partner for Clearwater or Grand Rapids.

    If any of these things come to fruition I think that the market and our own shareholders will sit up and take notice again and realize that right now they get all of those potential outcomes for free while we sit trading at cash value, with 500 million barrels of oil booked, and 21 million acres of prime exploration ground with 100s of millions of dollars being spent right around it.

    James Stafford: Thanks very much for sharing your views with us on both the African landscape for exploration and discovery, as well as the outlook for heavy oil prices and oil sands development in Canada.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: AOS, commodities
    Jul 30 10:14 AM | Link | Comment!
  • Could A New Technology Developed For Space End The Pipeline Debate? Interview With Adrian Banica

    Pipelines used to be things that were just built without blinking. It is said that there are enough pipelines now in the US to encircle the Earth 25 times with enough left over to also tie a bow around it. Today, getting a pipeline built is not so easy - there are too many environmental concerns and the industry has become highly polarized. But here's one thing that could bring everyone together: pipeline safety technology. And it's something we all want, especially for those who live along the thousands of miles of aging pipeline routes that carry hazardous liquids.

    Spawned by research that started in space, remote-sensing technology designed to detect dangerous leaks in pipelines has the potential to provide the neutral ground for decisions to be made and consensus to be formed. The clincher: This technology is not only affordable -it saves money and could eventually save the industry.

    In an exclusive interview with, Adrian Banica, founder and CEO of Synodon (SYD) - the forerunner in leak detection systems - discusses:

    How a technology that started in space has the potential to quell intensifying protests

    Why Keystone XL will eventually be a reality - sooner rather than later

    How remote sensing technology can fingerprint pipeline leaks

    How remote sensing technology can find the little leaks before they become big leaks-at no extra cost

    Why North America's new pipelines aren't the problem and why the focus should be on aging pipelines that are going to experience a lot more leaks

    How this technology could bring the industry and environmentalists together

    How external leak detection can save lives in high-risk areas

    Interview with James Stafford of

    James Stafford: Now that pipelines are the hottest topic on the oil and gas scene and have found themselves on the frontline of conflict between environmentalists and the industry, high-tech leak detection systems such as Synodon's remote sensing technology seem to be offering a way out of the chaos. Can you put this into perspective for us?

    Adrian Banica: Yes. In North America alone, there are upwards of a million kilometers of transmission pipelines - and this does not even count the gathering and distribution pipelines. What we offer is attractive to both sides in this conflict: environmentalists want it and the industry can afford it.

    Methods for inspecting pipelines have existed for many decades. What we're providing is a better way of doing it. Synodon's technology offers an accurate and precise method of oil and gas leak detection. This technology detects small leaks before they become big leaks.

    James Stafford: In layman's terms, how does it work?

    Adrian Banica: It is relatively simple. Synodon has developed a remote sensing technology that can measure very small ground level concentrations of escaped gas from an aircraft flying overhead. This "realSens" technology is mounted on a helicopter and piloted by GPS over a pipeline.

    Think of this gas sensor as a big infrared camera that is particularly adept at detecting very, very small color changes in the infrared spectrum. The color changes that we detect are caused by various gasses that the instrument looks at. Every gas in nature absorbs and colors the infrared light that passes through it in a very specific way. From the shade of the color, we can also infer how much methane or ethane we can see with our instruments. In effect, it's like a color fingerprint of the gas.

    James Stafford: Can you give us a sense of how this technology has evolved into what it is today-essentially the potential tool for bringing environmentalists and industry leaders together over the pipeline issue?

    Adrian Banica: Yes. It started in space. Back in the 1990s, I was aware of technology being developed for various space programs, including Canada's and NASA's. I was looking for technologies that could solve oil and gas problems, but that were also novel, unique. That is how the whole idea started: It was matching a technology that the Canadian Space Agency funded to develop an instrument that measured carbon monoxide and methane from orbit.

    So the idea then was if one can detect methane from space, why couldn't we adapt that technology to detect methane by flying it on a plane? In 2000, I founded Synodon in order to monetize and commercialize this.

    James Stafford: How effective are automated leak detection systems?

    Adrian Banica: They are typically only able to detect high level leaks above 1% of the pipeline flow. They measure the volume of the product that passes a sensor (flow measurements) and the pressure in the pipeline--if there is a leak the pressure will be lower downstream from it, among other things. However, as a recent report from the Department of Transportation in the US points out, these systems only detect a leak at best about 40% of the time, irrespective of how big a leak is.

    It is also important to differentiate between catastrophic leaks and small leaks. For catastrophic leaks, most pipelines use these flow meters which operate 24/7. But smaller leaks can only be detected by performing an above-ground survey either by foot patrol, vehicle or aircraft. The predominant technologies used would be sampling gas sensors, thermal cameras, laser detection or our remote sensing system.

    James Stafford: So this remote sensing technology uses a sort of "fingerprinting" to detect leaks, but we understand that it has much more to offer the industry …

    Adrian Banica: Yes. The core offering is the technology we developed for natural gas and liquid hydrocarbon leak detection, but there is a basket of services designed to reduce the overall costs for our clients. During our leak detection surveys, we collect a lot of different types of data such as visual images, thermal images and very, very accurate GPS information. We've repackaged all those data sets into new value-added products. We can provide these extra services without incurring additional costs.

    For instance, we could offer some of those services for new construction, in which case it would speed up the process of getting all the information required for the necessary regulatory filings.

    The most important thing, as I mentioned earlier, is trying to find small leaks before they become large leaks. All our services and all the data we provide are geared towards preventative maintenance. We sought to add services beyond leak protection because all pipeline operators still need to get their other data sets from somewhere. We are consolidating everything they need in a very cost effective and efficient manner.

    James Stafford: A late-2012 studyAdrian Banica: Yes, the study makes the most valid point here, and that is that leak detection systems represent a bottom line savings, not an expense. For instance, Dr. Shaw has pointed out that pipeline companies would likely be justified in spending $10 million per year for every 400 miles of pipelines because they are already spending more than that on public property damage. on leak detection by the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) has brought this subject to the forefront. Dr. David Shaw, one of the report's authors, says that pipeline leaks, ruptures, and spill are "systematically causing more and more property damage…in bad years you have $5 billion in damages due to pipeline-related accidents". The logic of the study is that pipleline operators could be spending 10 times more on leak detection given what kind of damages they are being awarded now.

    We have demonstrated that we can detect a leak that is less than 1 liter/min or 380 gallons/day. If our technology was deployed every 30 days and the leak were to happen in the middle of this period (on average), the total spill would be 5,700 gallons (380x15 days), which is 50 times smaller than the standard technology daily leak rate. That's a huge difference.

    Another difference is that pipeline operators pay around $12 per hour to have personnel walk the pipeline, and they can only catch leaks that are close enough for them to see.

    James Stafford: Could leak detection systems also save lives?

    Adrian Banica: Yes. The PHMSA study points out that 44% of these old hazardous liquid pipelines are in High Consequence Areas (HCAs)-which means that peoples' lives are at risk if they blow up. We're talking about 44% of over 170,000 miles of these pipelines. On a public platform, this alone should lend a new urgency to the leak detection debate. The point is that remote-or external-sensors can head off a dangerous leak faster than an internal system.

    The challenge then is to convince pipeline operators to adopt external technologies that actually detect leaks rather than relying on the inconsistencies of visual detection, which sooner or later would see the pools of oil, but it might be a while.

    James Stafford: Is the market ready for this technology?

    Adrian Banica: The market is ready, but not necessarily because of leak detection-it's the overall basket we discussed earlier.

    There is a tremendous need in the industry for remote leak detection. But we had to account for budget constraints within our potential clients. We think we've developed a technology that's very capable of providing the information our customers are looking for and doing so at a competitive price they are willing to pay.

    We've been operating on the North American market for the last 2.5 years. It's a very large market that has lately been in the eye of the media and the environmentalists. We're talking about over 55 companies in Canada and almost 700 pipeline operators in the US, where some 100 companies operate or control roughly 80% of the pipeline infrastructure. It is also a regulated market, and regulators require operators to perform some level of leak detection surveys.

    James Stafford: Will Keystone XL-or the San Bruno pipeline explosion-have any notable impact on the regulatory environment or the market for remote sensing technology?

    Adrian Banica: Personally I don't think that either of these will impact the leak detection practices in the industry. Rather, the driver will be the aging pipelines which will continue to have incidents and spills which the public will not accept.

    James Stafford: And how is this playing out on the regulatory scene?

    Adrian Banica: Congress passed a new law a year ago on this topic. The US regulators have yet to act on new regulations based on this law, but the trend is indeed there. Pipeline companies are concerned about potential upcoming new regulations and are working with the regulators to try and come up with proactive solutions and preempt their moves. There are a lot of discussions going on in the US on this topic right now and the regulator has proposed a set of new rules which are out for comment and discussion in the industry. It is a slow and drawn out process.

    James Stafford: Everyone is waiting for the Obama administration to make a decision on Keystone, and while most analysts seem to think it will be given the final green light, the protest movement shows no sign of letting up. How do you see this playing out?

    Adrian Banica: With the governor of Nebraska now approving it, I think the administration has no choice and no excuses for not approving it.

    James Stafford: Would regulations governing pipeline safety actually boost support for Keystone XL?

    Adrian Banica: Personally, I don't think so. The most vocal opposition for Keystone comes from the side of the environmental movement that does not want to see the pipelines build in order to decrease our overall dependence on oil rather than their concern for spills. So it is a philosophical position based on decreasing CO2 emissions rather than one based on spills in the environment which will not be appeased by regulations.

    James Stafford: What about any potential regulatory protection leak detection systems could offer pipeline companies?

    Adrian Banica: The benefit to our customers is that they can demonstrate due diligence and that they have employed the best techniques available to ensure pipeline integrity. They will be covered if there is any court action or regulatory action. The value of our data in case something does happen could be quite substantial.

    There may be small differences in the regulations with the US being somewhat stricter and tighter than the Canadian regulations. So there are a few more incentives for US based customers to use our service.

    James Stafford: Protests continue over the Enbridge pipeline in Vancouver, for instance. How could this play out. Could big pipeline players like Enbridge be able to embrace something like your technology to quell some of those protests?

    Adrian Banica: This is a good case in point. Yes they absolutely could, and should. I'm very firm on that answer and I think they are looking at it. Enbridge is a customer of ours already in the United States and they're very aware of what we offer and do.

    James Stafford: So these are early days for commercial viability?

    Adrian Banica: These are very early days, and we have just turned the corner from a science concept into something that is commercially realizable. We spent 2011 and 2012 working very hard to penetrate the industry and to convince clients that this is not a science project anymore-this is a genuine commercially viable technology. We are now starting to see the adoption of our technology and services. So I believe we are at the tipping point and by no means do I think that shareholders have missed the boat.

    James Stafford: Adrian, thank you for your time. This has been a very interesting discussion and the topic is one we will be following closely over the coming months. Hopefully we will get a chance to talk later in the year to see if any of the developments discussed have come to pass.

    Adrian Banica: Absolutely, I'd be delighted to catch up later in the year.


    By James Stafford of

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: commodities
    Feb 12 11:39 AM | Link | Comment!
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