As energy needs increase throughout the world there has been a continual push to develop new ways to find and extract scarce resources, such as hydraulic fracturing, or fracking. Concurrently, engineers and companies the world over have looked to improve the methods to refine them once they are extracted. The biggest consumer of oil and gas in the world is the United States but China is rapidly gaining in this statistic. China falls in second and third for oil and gas consumption, respectively, in 2013 according to the CIA World Factbook and became the world’s largest net importer of oil in 2014 according to the U.S. Energy Information Administration (EIA). As demand from China’s population grows, the need to find more efficient means to produce and refine energy sources becomes even more critical.
According to export.gov, statistics from Chinese Customs indicate that China imported 7.59 million barrels of crude oil per day in 2016, an increase of 13.6 percent over the previous year. It is predicted that China’s consumption of crude oil by the year 2020 will be 12 million barrels a day, and by 2030, 80 percent of China’s crude oil supply will be imported.
Recon's (NASDAQ: RCON) primary customers are CNPC (SEHK: 0135) and Sinopec (NYSE: SNP), previously mentioned as the top two refinery companies in China. Recon supplies these companies with advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation products for increasing petroleum extraction levels, reducing impurities and lowering production costs. They currently own or having applied for over 50 patents registered with the State Intellectual Property Office. These patents cover Recon’s automated products and heating related equipment for the petroleum industry, and provided capitalization to continue to improve this part of the company.
Recon announced that it will provide its proprietary chemical compound agents and microbiological treatment agents (the "Products") and relevant services for oily sewage treatments to Qinghai Oilfield Company ("Qinghai Oilfield"), a PetroChina Co., Ltd. ("PetroChina") subsidiary (the "Project"). Recon's revenue of the Project is expected to be RMB 13.11 million (approximately USD $2 million) over the course of one year, subject to the quantity of the Products actually used by Qinghai Oilfield. Recon expects to begin recording revenue under the Project in the current quarter. The Project represents a significant increase in size and scope over the Company's previous wastewater treatment agreements.
Management Commentary: Continued Acceleration in Signing of Wastewater Agreements
"This is a major progression in our partnership with Qinghai Oilfield, and an indication of the upside potential of Recon in the oilfield environmental protection market," stated Mr. Yin Shenping, CEO of Recon, "Our oilfield waste water treatment business has continued to expand rapidly, as agreements have continued to grow in terms of size and number. In fiscal 2017, we grew our revenue in this business by over 371%."
Mr. Yin continued, "The market potential in wastewater represents a significant opportunity for Recon in the coming quarters, as many of the investments made by our Company during the downturn in oil prices have begun to materialize into increasing orders in the past six months. The principal driver of growth in this market is increased regulatory requirements amidst the need for greater environmental protection, which is creating a need for our large-oilfield clients to utilize our products and services to improve their waste services. We have leveraged experience, data analysis, and research to develop solutions for these large-scale oilfield companies in China, many of which we have had relationships with for over a decade. The increasing amounts of agreements represents more than simply what the amounts themselves represent, as the overall perception of Recon is changing from merely an oilfield service company to a hi-tech company in our marketplace ."
About Recon Technology, Ltd. RCON, +12.53%
Recon Technology, Ltd. is China's first listed non-state owned oil and gas field service company on NASDAQ. Recon supplies China's largest oil exploration companies, Sinopec SNP, +0.90% and CNPC, with advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation measure for increasing petroleum extraction levels, reducing impurities and lowering production costs. Through the years, RCON has taken leading positions on several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. For additional information please visit: www.recon.cn.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.