Oil And Gas In The Land Of Milk And Money?

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Includes: BCKDY, OKE
by: James Hanshaw

Summary

There is no oil in Switzerland and the only gas is made from biodegradebles used domestically.

That produced by contented Alpine cows is not yet usable.

Can oil and gas world leaders exist in such a country?

YES - several - and here I highlight one of today's; Burckhardt Compression and one of tomorrow's; UniSieve.

In my recent article Switzerland - Land of Milk and Money I showed there is much hidden behind the stereotypes, spanning virtually every sector from farm machinery to pharmaceuticals.

Switzerland has no natural resources apart from its Alpine natural gas producers, scenic beauty and water. If you watch the following video, you can join those four legged producers as they contentedly add flavour to Switzerland’s famed pure mountain air

Oil and gas are otherwise non existent except for gas produced from recycled decomposable waste - biogas - in a country that is also very environmentally conscious. Yet despite that lack of physical resources Switzerland is home to some world leaders such as Trafigura and Vitol. Both are very large oil and gas traders and they also own enormous midstream assets around the world such as this LNG import project Trafigura is involved with in Pakistan.

Neither company is listed so we cannot invest in them in the traditional way.

In that earlier article on Switzerland I also mentioned:

Innovation. Switzerland is the world's number one innovator based on patent applications per head filed with the European Patent Office: 973 per million people compared with 133 per million for the US.

Start-up friendliness. IMF research puts Switzerland in the number one position due to the legally friendly framework. This is supported by the universities, with many entrepreneurs emerging from some of Europe’s top business schools. That list includes the University of St Gallen, IMD in Lausanne and the business incubator part of the renowned technical university, ETH in Zurich.

A new leader is emerging from among those being nurtured at that incubator:

Tomorrow's world leader: UniSieve

UniSieve is a company with patents applied for their platform technology focusing on separation applications. Globally, over 10% of the total energy consumed is used for separation processes. For the purification of natgas and petrochemicals fractionation plants are employed, like this one owned by one of my listed investments; ONEOK (NYSE:OKE) in the US

Mount Belvieu Plant Tour

UniSieve is aiming to supplement, extend or replace currently installed distillation infrastructure with membrane units that promise to save a major portion of the enormous operating costs and carbon dioxide emissions that are a concomitant of that current technology.

UniSieve's products have been developed with extensive input from potential users and the company is moving on to its next stages of development - into a waiting customer base worldwide. To take its platform technology to that next level UniSieve is currently raising capital and interested investors should contact UniSieve directly.

I do not think it is possible to overemphasise the importance of their work given its contribution to improving user profits, to the environmental benefits and to the special place natgas in particular has in providing our future energy requirements. I wrote more on that in Gas is the New Oil.

Almost daily, we learn of progress with natural gas with the latest being a certificate to the conditions under which it is produced. Gas sold with this certificate has to meet standards for well contamination, disposal of waste water and methane leakage which contributes to global warming. The first deal using the new standard is one between utility New Jersey Resources (NYSE:NJR) and gas producer Southwestern Energy (NYSE:SWN). UniSieve can help many more producers with that because the membrane set-ups can be mounted on skids and installed in modular form at the point of extraction to separate methane from light and heavy gases.

The oil and gas industry generally is getting in on the clean-up and most of the big oil companies have now signed up to the methane reduction targets of The Oil and Gas Climate Initiative That will open even more doors to Unisieve.

And...I shall be one of the first through the door to invest in Unisieve!

I would also like to introduce readers to another Swiss favourite of mine, this is a listed one that I am already invested in:

Today's world leader

Burckhardt Compression (BYKDY). Better to buy it on the home exchange in Zurich where the symbol is BCHN, because there you buy it in the world’s strongest currency, the Swiss franc. It is thinly traded on the New York exchange.

BCHN is the world leader in reciprocating compressor systems for the oil and gas industry and related sectors. The applications for its solutions are too numerous to detail in an article but many show in the company's website solution section. UniSieve’s technology will fit in with some of those related to propylene (monomer) recycling in the polypropylene producing industry, making BCHN another potential customer.

The petrochemicals sector is rapidly becoming the biggest driver of global oil consumption - ahead of trucks, planes and ships - and will account for more than one third of growth by 2030 according to the International Energy Agency. Chemical products derived from oil and gas are used to make goods we use in everyday life, from plastic packaging and detergents to mattress foams and coatings to television screens.

Readers will have their own sector favourites. Mine is LNG fuelled ships and BCHN has the best technology for those. Ships worldwide must comply with new regulations forcing them to use cleaner fuels and LNG will be a logical fuel to convert to especially for LNG carrying vessels. Ship&Bunker estimates that the 600 ships expected to use LNG would mean a demand of over 3 million M tonnes per year. The Carnival cruise line already has 9 LNG fuelled passenger ships with more on order. Reuters has more on LNG ships here. Bloomberg estimates that the average age of LNG carriers alone is 21 years meaning mass retirement by 2020. Many other ship owners are turning to scrubbers but that is not a long term solution, in my view.

I also like the fact that BCHN does service work on competitor's products. This not only adds to income that might otherwise go to those competitors but it also gives them insight into the strengths and weaknesses of those other products. Plus being an "insider" with that user makes them a first choice with those customers when replacement with new equipment becomes due - a bit like the cuckoo that kicks out the other eggs!

BCHN is in good shape financially with sound, profitable revenue growth over the past five years from Swiss francs 445 million (approx US$448 million) to SFR 595 million during a period that many companies in the oil and gas sector have struggled. And, unlike many in that sector, it has virtually no debt.

It got hammered in some respects by the same conditions that adversely affected others in that time and had to resort to short time working. That is the Swiss way of protecting valuable employees and their experience rather than the knee-jerk head lopping favoured by many US companies. Employer loyalty to employees gets repaid in many positive ways! US companies take note!!

The share price also got hammered by the herd following oil and gas prices down. In 2014 the price was around SFR470 and today, only SFR352 (approx $355). I see no reason why the price will not exceed that former high in the medium term given the enormous expansion of demand worldwide for gas that I expanded upon in Gas is the New Oil

BCHN is well established in the US - in Houston, Texas - one of its 80 locations around the world. As one example of its acceptance among other world leading companies BCHN recently entered a collaboration with Exxon Mobil (NYSE:XOM) on lubricants

I know of no direct competitor across the whole product line but Dresser Rand is in some areas. If readers know of others perhaps they could expand on those in the comments section. Dresser Rand got taken over by German conglomerate Siemens (OTCPK:SIEGY) and it is difficult to see how it fits in with the mish-mash of Siemen's companies the make things as disconnected as household appliances. Siemens paid high prices for it at the top of the market and has probably regretted that ever since. Like GE, Siemens does not know where it is going and to cut costs they recently announced the slashing of 20,000 administration jobs across the organisation. That kind of environment must create uncertainty and morale issues at all levels which provides even more opportunities for a focused, well managed company like Burckhardt and its well motivated, loyal employees.

As with natgas and oil it has long been unloved by the herd and now is the time to buy before getting crushed by that herd stampeding in after Burckhardt announce their latest half yearly results in Q4. Burckhardt is an investment for today and tomorrow.

In short

I am very long UniSieve and Burckhardt Compression and you should be too.

Disclosure: I am/we are long BCKDY. OKE. UNISIEVE.

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.