I've been a proponent of Wavefront's (WEE.V) Powerwave process for some time. It's been a
wild ride for Wavefront shareholders but there was some major news released last week that points to why I've been such a supporter of this company (full disclosure, WEE.V is my largest personal shareholding and I purchased more shares last week).
While I'm a big believer in technical analysis, Wavefront has been a situation where technology
trumped the share price and I've been taking a longer term view. However, yesterday gave us the best of both worlds, additional verification of the Powerwave process and a nice hammer candlestick pattern*.
I’ve been researching EOR related opportunities for several months and the one thing that
strikes me is the defeatist attitude of some of the Canadian commentators and researchers
in the field. The litany of negatives usually boils down to the following:
1. An absence of incentives for the oil industry to capture and transport CO2 to eligible
reservoirs. Denbury Resources makes a good living transporting CO2 from a natural source reservoir to old fields in Mississippi and they are now tying up industrial CO2 sources.
2. The patchwork nature of land ownership and difficulties in forming units because a producer that injects something into a reservoir may create a benefit for adjacent producers. Powerwave can be deployed on a single 40 acre pattern for $3000/month.
Here is a great case study as to the value of Wavefront's technology:
• On June 26, 2007 Wavefront announced that Encana would be installing 3 Powerwave
tools in one of their Alberta oilfields that was under active waterflood.
• On October 7, 2007 Wavefront announced that the tools were installed.
• On January 15, 2008 Wavefront announced that Encana was seeing a direct pressure
response in the reservoir, often with increases in fluid production rates, increased
casing head pressures or fluid levels in wells, and in a number of cases increased oil cuts
and/or oil production rate.
• Yesterday, Wavefront announced that oil production from the three patterns increased
by 57 barrels of oil per day (bopd) (11 cubic metres per day) from 132 bopd
(21 cubic metres per day) to 189 bopd (31 cubic metres per day). The increased oil
recovery is apportioned to 15 producing wells in three production patterns where the
technology is actively deployed and further upside potential may be realized by increasing
gross fluid production.
In other words PRODUCTION INCREASED BY OVER 40%. In addition, the injection volumes weren't optimized. The potential exists to increase injection volumes and overall recovery.
Wavefront leases the Powerwave process for $3000/month per installed tool so Encana's
costs to produce an extra ~1700 barrels of oil per month is $9000. Would you spend $9000
to make an extra ~1700 barrels of oil per month?
Let's take this a step further, if you were a shareholder in a company with an active waterflood
project, would you not be demanding that they evaluate using the Powerwave process? Big picture thinkers will be looking at the impact implementing Powerwave will have on the reserve evaluation reports of old properties.
At Wavefront's last AGM they presented a "hypothetical opportunity"
An oilfield with 3000 injection sites at a 40% penetration rate = 1200 Powerwave systems
• Revenue potential of $3.6 million/month, or $43.2 million/annum
• Gross profit potential of $3.2 million/month, or $38.9 million/annum
• Payback on tool capitalization within 2 to 6 months
The pool that the Powerwave Dragonfly tools were deployed has 200 injectors. More importantly,
there are 167,000 water injection wells in the United States. If Wavefront can convert
their "hypothetical opportunity" which is backed by solid verifiable field data from a major oil company, they will soon be a billion dollar company.
*The Hammer is a bullish reversal pattern that forms after a decline . Checkout Stockcharts.com for more information.
We would also like to point out that Greentree Gas and Oil (GGO.V) has been applying
Powerwave to the Rodney South field in Southern Ontario and results from that installation
are pending (I am a shareholder and investor relations consultant to GGO.V).
I'm a shareholder of WEE.V.