NY Times on volatile gases in crude oil

Investment Analysis Clubs Saul’s Investing Discussions
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http://www.nytimes.com/2015/05/19/opinion/how-to-prevent-an-…

I know others disagree but the NYT is one if the last places I look to for fair reporting, but they can get a lot of attention directed to an issue

I Think ProFire would benefit if more attentiom is paid to these gases ( which I suspect burn off quickly still leaving lots of crude to burn). The stock is very depressed. I lost faith in the company when it’s CEO didn’t realize ( or wouldn’t admit) that declining oil prices would have a negative impact on sales.

I also have doubts if the economic value of the gases in the oil at such low pressures is very high, but don’t know the figures.

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I Think ProFire would benefit if more attentiom is paid to these gases

I was just thinking about PFIE today after reading this article in this week’s issue of The Economist:

http://www.economist.com/news/business/21651267-american-sha…

Here are a few excerpts (bolding mine):

The shale firms have proved a lot more resilient, and a lot more productive, than the Saudis and other members of OPEC, the producers’ cartel, had expected…

The big oil multinationals, such as BP, Chevron, ExxonMobil, Shell and Total, have responded to the weaker oil price by cost-cutting, and postponing and cancelling some of their exploration projects… However, the output of the shale firms has proved surprisingly robust, even though they have cut their number of rigs significantly since the peak last October.

One reason for this is canny hedging by some shale producers, which means they are in effect getting paid above the current market price. But many unhedged producers have also continued to pump oil, since the market price is still above the marginal cost of producing another barrel, even if it doesn’t cover the upfront costs of drilling the well. Most important of all, their productivity has continued to improve in leaps and bounds. Wells that used to take 35 days to complete now take 17, says Daniel Yergin of IHS, a research firm. The amount of oil produced per dollar invested will rise by 65% this year, he says. Better seismic data, improvements to the fracking liquids pumped into wells and more intensive deployment of rigs are all helping.

I’ve always thought that it makes a lot of sense for efficiency-minded operators to invest in PFIE gear, and that the company should theoretically be benefiting from this environment. It didn’t seem to work out that way in practice, though. I still wonder if that was just due to initial panic and overreaction, and we’ll begin seeing the company get some real traction as producers adjust to the environment and focus on profitably producing oil at lower prices.

Neil
(no position in PFIE)

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Since the crude is aggregated for loading onto the tanker cars, why not remove and use the volatile gases in gas turbines to generate electricity? Should not be much of an engineering problem.

KC

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I’ve always thought that it makes a lot of sense for efficiency-minded operators to invest in PFIE gear, and that the company should theoretically be benefiting from this environment. It didn’t seem to work out that way in practice, though. I still wonder if that was just due to initial panic and overreaction, and we’ll begin seeing the company get some real traction as producers adjust to the environment and focus on profitably producing oil at lower prices.- Neil (no position in PFIE)

Hi Neil, I thought about it the same way, but I thought they made an unlucky decision to vastly expand their sales force (and SG&A spending) just before the crash in oil prices - And then you had a bunch of newbie sales people making cold calls on shell-shocked drillers, trying to get them to buy new equipment. Although we know that the equipment would help them, they probably wouldn’t even sit still to listen to the sales pitch.

Saul

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I never paid any attention to this company, it was just a 4-letter stock symbol. But, this thread and my concern that I had posted something stupid, made me look them up and read a 10-k. I would not put a penny into this company.
Why? No moat, no technology, no story.
This is essentially a burner management system company with some sort of ignition device. I did not see any combustion (burner) technology claims. I have some familiarity with this equipment, 30 years with a combustion engineering/manufacturing company including an attempt to provide burners for heater-treaters in the oil patch… Roosevelt, Utah as I recall. Oil and alfalfa. Also provided burners for Arco on the North Slope and similar equipment in the tar sands of Alberta.
The kinds of equipment that PFIE supplies their systems on are small. Without a solid advantage of meeting emission requirements, flame shaping advantages, higher efficiency, or something solving a particular customer need, the oil patch purchases on cost, and simplicity (reliability).
Notice that their customers are also competitors. The PFIE systems can be assembled by oil field general equipment installers. PFIE has advantages where the USER specifies PFIE. This is exactly the situation as 30 years ago. There is some stability in having a user specify your equipment because that tends to continue as no one wants to be the one to do something different and have it cause a problem. This was even more true in the past where there was lifetime employment and a pension. No risk taking. But, even so, lots of production assets are sold from one company to another. We lost the North Slope business because Exxon took a majority stake in pushed ARCO aside. Exxon decided to reinvent the wheel, hired Bechtel which pulled some PE’s off the street and ended up going with a different heater manufacturer which in turn used a lower cost burner. It is just a cutthroat business area and you need a regulatory environment pushing new technology, the top engineering to meet the new requirements, and credibility. In the absence thereof, it is cost, cost, and cost.
I didn’t see anything in the 10-k that indicated any advantages.
Not to say that PFIE can’t make a nice little business with a sharp, savvy CEO with contacts in the business. But the problem is scaling in the absence of the factors mentioned above.
IMO

KC

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I have some familiarity with this equipment, 30 years with a combustion engineering/manufacturing company including an attempt to provide burners for heater-treaters in the oil patch… Roosevelt, Utah as I recall. Oil and alfalfa. Also provided burners for Arco on the North Slope and similar equipment in the tar sands of Alberta.

Wow KC! That’s the kind of informative post from someone with first hand experience that just bowls me over. We have such incredible participation on this board and so many bright people taking part. It’s just amazing.

thanks very much

Saul

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Well, now I’ve done it. O.k., I’m going to have to dig into that 10-k and the last q’s and get much more familiar with the details. That was my first impression but I owe it to the board to make sure I’m not 15 years out of date. Will report back later.

KC

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KC, there was an earlier thread or two on them on this board which might be useful to check out and vet. Might have been before your time here.