Companies Mentioned: BioLargo Inc. (OTCBB: BLGO), Halliburton (NYSE: HAL), Pepsi-Cola international (NYSE: PEP)
The world’s appetite for fossil fuels is not abating anytime soon, and the alternatives fall short. Nuclear energy makes people uneasy, coal is perceived as not being that clean, hydroelectric requires massive capital outlays, solar is still improving and the wind just doesn’t always blow. For the foreseeable future, North Americans have embraced the idea that expanded production of oil sands & shale gas from friendly domestic sources are the best option that we have for any hope of energy self sufficiency in the western hemisphere. As one might imagine, both represent massive economic drivers, both are expected to grow exponentially, and for both Canada and the US, they might well be considered national treasures. With all this growth however, comes a challenge that is sure to garner lots of attention for decades to come- WATER
Oil sands are naturally occurring mixtures of sand or clay, water, fine silts, and bitumen. They typically contain between 6-16% bitumen, 80 to 87% mineral solids, and 1 to 7% water (Liu et al., 2005a). The Canadian province of Alberta contains reserves of 170.4 billion barrels, which currently produces @ 1.9 million barrels of oil a day. These numbers include production from both mineable and in situ areas. With the Canadian Oil Sands supplying about 20% of the US energy supply, a growing issue that many are not aware of is the volume of water necessary to extract the bitumen from the sands. Between 2 and 4.5 barrels of water are needed to produce a single barrel of synthetic crude oil, which extrapolates into more than 370 million cubic meters of freshwater being taken from the Athabasca River every year. A number that is estimated to reach one billion cubic meters of used water by 2025 with current growth projections.
Shale Gas, by comparison, has also stirred its own massive economic boom in the USA. Spurred on by advances in drilling techniques including both horizontal drilling and hydraulic fracturing (fracking) and a historically friendly stance by regulators, the shale gas boom propelled the USA to become the#1 natural gas producer in the world at approximately $100 billion annually and growing. Fracking. In simple terms, it is a process whereby a drilling company stimulates the production of natural gas in a gas well. The process involves using large amounts of water combined with small amounts of sand and chemical additives under a couple of thousand pounds of pressure to a reservoir several thousand feet below the earth. The pressurized water creates a network of tiny fissures in the impermeable rock and the sand flows into the tiny fissures to prop them open so that gas can easily flow out of the well. The number of gas wells as reported by the DOE (2009) tops 462,000 making USA the ‘most drilled nation’ in the world- promising energy self-sufficiency for North America. In a recent article by CNBCShale-Gas Boom Could Bring Bounty to Companies and Investors, “there will be few losers and many winners — from exploration and extraction companies to pipeline construction and services companies.” Interestingly, as far as media controversy, most of the attention seems to focus on what ‘goes down the hole’ during the typical hydraulic fracking procedure, with the primary concern centered around the potential of polluting the local water basin, which is still in debate across the industry. What is often missed by observers, is how much of the 3 to 6 million gallons of water that is put down the hole during the fracking procedure then comes back out of the hole afterwards, estimated at 1 to 1.5 million gallons, called flowback water. Which then begs the question, what did the flowback water bring back up to the surface from deep inside our earth? Certainly one would expect it to contain high levels of salinity that make it unsuitable for surface discharge. It is safe to say then, that the flowback water requires active management.
Tailing Ponds Treatment Method for Oil Sands Is Not Sustainable
The oil sands mining operations generate leftover material (tailings) after the bitumen is extracted that consist of a mixture of solvents (used to make the tar more viscous) and naturally occurring clay, sand, fine silt, water, residual bitumen, salts, metals, and organic compounds. While upward of 90% of the water used is in the extraction process is recycled, the real issue is the length of time it currently takes to complete the process.
The Alberta Energy Resource Conservation Board has issued directive 074, creating regulations that require the volume of fluid fine tailings to be reduced, and stating that the settling ponds must be ready for reclamation no more than 5 years after they cease to be in service. This is creating an arena where instead of using traditional ponds, the industry will be using “active treatment ponds”. At current production levels, the region produces more than 5 million barrels of contaminated water a day and it is expected to grow by 300% over the next twenty years.
Shale Gas Flowback Water Treatment Options Searching for Best of Class
The industry has historically relied on simply injecting the 1 to 1.5 million gallons of flowback water back down a disposal well. However this low cost method is meeting with some increasing pressure from regulators and industry observers who predict that it is only a matter of time until stricter disposal requirements will be imposed. On site and/or expensive hauling and hazardous waste treatment offsite appear to be the only long-term solutions. Already many areas of the country like the Marcellus are geologically unsuited to disposal well injections, so their disposal costs are that much higher. One might expect that portable on-site treatment systems for this sector will be a high growth opportunity for the system that can get the job done.
Innovative Solutions Through Research and Technology
With the oil sands industry expected to more than triple its production of oil over the next 20 years, it needs a practical solution to treat the existing settling ponds, but also ideally avoid the use of settling ponds in the first place.
With this in mind, the Canadian government has formed and backed with substantial grants, a Natural Sciences and Engineering Research Council of Canada (NSERC) research project focused on solving the tailings pond issue, which is being led by University of Alberta professor Dr. Mohamed Gamal-El Din, who’s expertise in the area of water and wastewater treatment places him amongst the top scientists in the world. An innovative solution that can reduce the water treatment time, and thus the overall footprint and environmental impact of the tailings ponds, is required for Canada to meet its production goals.
This is where companies such as BioLargo (OTC: BLGO) are finding an important role to help industry leaders bring forth scalable solutions that can tackle the massive volumes of contaminated water. BioLargo has been selected as a founding member of the NSERC “research chair” to work hand in hand with university researchers and key industry stakeholders, including a number of the top oil producers of Canada, to bring forth practical solutions.
Flowback Water is Just “Dirty Water”
Well, not quite. Certainly there are some unique attributes to managing Flowback water. It is highly turbid, potentially limiting efficacy of UV technologies for removal of bacteria. The speed at which the field crews operate require high throughputs and high-pressure systems, potentially limiting gravity fed systems for separation. The flowback water can have high levels of BTEX (hydrocarbons) making them volatile and potentially dangerous for workers. Yes, this is just “dirty water”, but it has some wide ranging variables that make remote field work a real challenge.
Does BioLargo have a solution for both industries? While the company is mum about any details about its water treatment technologies, preferring to maintain secrecy, it is obvious that they have maintained a steadfast march forward in this field and plan to touch both segments. In addition to its role in the Oil Sands Tailings Pond research, BioLargo has quietly advanced its technical claims under the leadership of its Chief Technology Officer Kenneth R. Code, who is also the ‘inventor’ entrusted with the Biolargo technology, who was also named to join the NSERC research chair late last December. BioLargo also has added water expert Harry DeLonge, who had a 40+ year career with Pepsi-Cola international (NYSE: PEP), and Dr. Vikram Rao who most recently served as senior VP and chief technical officer of Halliburton (NYSE: HAL), and is currently the Executive Director of the Research Triangle Energy Consortium, as well as Richard Bickerstaff, PhD, a 15+ year oil field chemist to help tailor solutions to this rapidly evolving market. If history is any indicator, it is a good bet that BioLargo will first get its patent portfolio in order and find a commercial foothold before it lets its secrets out.
The challenges currently facing the Alberta oil sands industry are myriad; air emissions, land disturbance/reclamation, and water use. As well, oil sands mining is a sensitive public issue not only in Canada, but also worldwide. With the advance of fracking in the U.S., and the associated economic boom it is creating in areas such as the Bakken oil fields, new technologies are urgently required to address these environmental issues. Solutions must be achieved in order to make oil sands production and fracking operations more sustainable, and with companies such as BioLargo leading the way, the solution could well be near at hand. Thinking conservatively, if BioLargo has even a tiny commercial role in these massive markets, the impact on the company’s valuation would be huge given its current modest valuation at less than $25 million in market cap.
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BioLargo Inc. (OTCBB: BLGO), a company focused on leveraging Nature’s Best Solution® – iodine – to solve a variety of common problems around the world and working in industries dominated by companies like Clorox Company (NYSE: CLX) and Colgate Palmolive (NYSE: CL), recently and quietly announced its entry in the multibillion dollar dairy industry.
The company’s CupriDyne® technology combines micro-nutrient salts with water from any source to deliver on-demand “free-iodine” that can disinfect in a safe, efficient, environmentally sensitive and cost-effective manner. And in an industry that’s increasingly subject to safety regulation, the technology is uniquely poised to capture significant market share in the dairy market.
The Large & Growing Dairy Industry
The dairy industry in the U.S. is estimated to be approximately $35.4 billion in size with some 71,510 farmers, according to CGGC based on USDA/NASS data. With a 13% market share of global raw milk production, the United States milk market is driven primarily by domestic sales. That data also concludes that forecasted demand will continue to grow at 1-2% annual rate for the foreseeable future.
Meanwhile, demand for U.S. food safety products is projected to reach $4.5 billion by 2016, according to ReportLinker. Increased public awareness, additional government regulations and industry initiatives are driving demand for companies to improve their food safety practices, including the use of safe and effective disinfectants.
BioLargo Enters the Dairy Industry
In late March, BioLargo announced that it contracted with a California-based dairy distributor, Green Alpha Solutions LLC, led by two regional dairy industry experts. The new distributor will distribute the company’s new and existing iodine products to consumers under the terms of the new agreement, according to the company’s blog post.
Meanwhile, the company plans on continuing separate discussions with licensing and manufacturing partner to advance new product designs to best serve this highly specialized market. Successful entry into this enormous and growing industry should pave the way for higher revenues and profits down the road.
Improving Dairy Quality & Output
BioLargo’s CupriDyne® based products can help not only improve the overall quality of the dairy products, but also increase output for the dairy industry. A key problem faced by dairy farmers is mastitis and other infections, which are reflected in a measure the industry refers to as a somatic cell count (SCC) in cows. These somatic cells, or white blood cells, are produced by a cow’s immune system to fight infection.
By reducing such infections among cows, dairy farmers may be able to increase their output of milk in addition to increasing the quality of the milk. Based on current milk prices available as reported by the California Depart of Food and Agriculture, milk prices have averaged about $18 cwt (per hundred pounds) over the last quarter. If a farmer can improve the quality of milk by 2 grades then he can realize a much higher price in the market. Class I milk can often demand up to $5.00 cwt above the prices paid for lower quality milk like Class IV B milk. In a farm that currently produces Class IV B milk, at an average production level of milk equal to 14,000 lbs per cow per year, then, realizing a $5.00 ctw price increase would translate to $700 per cow per year in increased value. If the farmer had 250 cows then this would generate an extra $175,000 in income per year. The calculation does not even attempt to address the potential savings in veterinarian bills or overall herd health.
The company believes that its unique iodine solution can help with these goals in a safe and cost-effective manner.
A Great Investment Opportunity
BioLargo Inc. (OTCBB: BLGO) may be a great investment opportunity at its current levels, if it can successfully commercialize its products in these key end markets. With a market capitalization of just $24.5 million, the company appears to be significantly undervalued given its long-term potential in not only the dairy industry, but also industries ranging from medical wound care to consumer goods.
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