Why Carbon Capture is the Next Big Thing (FLR, CLNE, NEE, EQNR, ENPH, BEP, BE, NRG, VKIN)
We recently unveiled our new emerging thematic investment idea for the next year: Carbon Capture. In our last piece, we talked about Canada's landmark mandate in this arena. However, we would be remiss to avoid mention of another dynamic here - Elon Musk's pledge from months ago to grant a $100 million prize to whoever is able to develop the best technology to capture carbon dioxide emissions.
According to a Reuters piece from January, Musk put out a tweet, noting: "Am donating $100M towards a prize for best carbon capture technology."
Naturally, this came just after Biden was sworn in as the new POTUS. In the intervening period, Biden has shown his interest in this theme, proposing this summer to increase funding for the Department of Energy's Office of Fossil Energy and Carbon Management Research and Development to $890mn from $750mn, and to shift the focus on the program to "climate-centric activities" such as carbon capture, utilization, and sequestration (CCUS) projects.
According to an Argusmedia.com piece, that would include increasing spending on carbon capture utilization and storage programs to $305mn from the $188mn enacted for fiscal 2021, and cutting spending on transformational coal pilot projects to zero from $10mn.
In other words, CCUS is finally becoming Big Business. And the leaderboard in this space, from a stock market speculator's standpoint, is still basically wide open.
At the end of the day, if you have the richest and most lionized man in the world on board with the president of the most powerful country in the history of the world about the critical importance of a specific theme, that theme is likely primed for enormous investment and value creation.
As such, we look at recent catalysts from a few of the names already positioned for potential leadership in this emerging multi-billion-dollar space.
Equinor ASA (NYSE:EQNR) engages in the exploration, production, transport, refining, and marketing of petroleum and petroleum-derived products. It operates through the following segments: Exploration and Production Norway, Exploration and Production International, Exploration and Production USA, Marketing, Midstream, and Processing, and Other.
The company's materials note its decades of "experience from CCS projects of various sizes and successfully maturing the technology from the R&D stage to operations, puts us in a leading position to contribute in making CCS reach commercial scale……We will increase our renewable energy capacity tenfold by 2026. Our aim is to be a global offshore wind major, while strengthening our industry-leading position on carbon efficient production."
Equinor ASA (NYSE:EQNR) recently announced that it is accelerating its transition and setting an ambition to reach a 40% reduction in net carbon intensity by 2035, on the way towards net zero by 2050. According to its release, that means stepping up investments in renewables and low carbon solutions to more than 50% of gross annual investments by 2030 and growing cash flow and returns, expecting a free cash flow of around USD 35 billion before capital distribution in 2021 - 2026, and around 12% return on average capital employed in 2021 - 2030.
"Our strategy is backed up by clear actions to accelerate our transition while growing cash flow and returns. We are optimising our oil and gas portfolio to deliver even stronger cash flow and returns with reduced emissions from production, and we expect significant profitable growth within renewables and low carbon solutions. This is a strategy to create value as a leader in the energy transition", says Anders Opedal, president and CEO of Equinor.
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 6% in that timeframe.
Equinor ASA (NYSE:EQNR) managed to rope in revenues totaling $149.3B in overall sales during the company's most recently reported quarterly financial data — a figure that represents a rate of top line growth of 89.4%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels exceeding current liabilities ($215.7B against $193.5B).
Viking Energy Group Inc (OTC US:VKIN) engages in the acquisition, exploration, development, and production of oil and natural gas properties. It owns and invests in oil and gas assets located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. But recent news shifts this story in the CCUS space. This also applies to its parent company, Camber Energy Inc (NYSEAMERICAN:CEI).
The company is another key player that has recently entered the Carbon Capture space through its deal with a leader on the IP side in CCUS. The market is starting to see this one more clearly, which could mean market participants have a pretty brief window for appraisal before they face steeper per-share pricing to establish interest.
Viking Energy Group Inc (OTC US:VKIN) recently announced that it has entered into an Exclusive Intellectual Property License Agreement with ESG Clean Energy regarding ESG's patent rights and know-how related to stationary electric power generation, including methods to utilize heat and capture carbon dioxide. This has the potential to catapult VKIN into a key position in the clean energy space.
According to the release, the ESG Clean Energy System is designed to generate clean electricity from internal combustion engines and utilize waste heat to capture ~ 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner to facilitate the production of precious commodities (e.g., distilled/ de-ionized water; UREA (NH4); ammonia (NH3); ethanol; and methanol) for sale.
James Doris, President and Chief Executive Officer of Viking, commented, "In my view this transaction positions us as an industry leader in terms of being able to assist with the power generation needs of commercial and industrial organizations while at the same time helping them reduce their carbon footprint to satisfy regulatory requirements or to simply follow best ESG-practices. We are excited to be able to use the platform of Simson-Maxwell Ltd., our recently acquired majority-owned subsidiary, to promote the ESG Clean Energy System."
Viking Energy Group Inc (OTC US:VKIN) shares are up over 80% in the past two weeks after making this deal. But the total addressable market in play for this theme suggests that could be just the tip of the iceberg for a stock coming from such cheap levels - one to keep an eye on for risk-tolerant speculators looking for something with multi-bagger possibilities.
Fluor Corp (NYSE:FLR) has proprietary technology that uses carbonate fuel cells to efficiently capture and concentrate carbon dioxide streams from large industrial sources. Combustion exhaust is directed to the fuel cell, which produces power while capturing and concentrating carbon dioxide for permanent storage.
Overall, the company focuses on capital-efficient projects to clients around the world to provide engineering, procurement and construction services and has been a key player for more than 100 years.
Fluor Corp (NYSE:FLR) most recently announced that it has commenced a cash tender offer to purchase notes for an aggregate purchase price, excluding accrued interest, of up to $400 million (as it may be increased or decreased, the "Total Maximum Amount"); provided that the Company will only accept 2024 Notes up to an aggregate purchase price of $100 million (the "2024 Notes Maximum Amount").
According to the release, the Offer is being made subject to the terms and conditions set forth in the Offer to Purchase dated August 31, 2021 (as it may be amended or supplemented from time to time, the "Offer to Purchase"). Capitalized terms used in this announcement but not defined have the meaning given to them in the Offer to Purchase.
Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -5%.
Fluor Corp (NYSE:FLR) managed to rope in revenues totaling $3.2B in overall sales during the company's most recently reported quarterly financial data — a figure that represents a rate of top line growth of -20.9%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($2.7B against $3.7B, respectively).
We would also point out other players with strong ties to this theme, including Clean Energy Fuels Corp (NASDAQ:CLNE), NextEra Energy Inc (NYSE:NEE), Enphase Energy Inc (NASDAQ:ENPH), Brookfield Renewable Partners LP (NYSE:BEP), Bloom Energy Corp (NYSE:BE), and NRG Energy Inc (NYSE:NRG).
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