Are the Russians coming to Texas riding the tailwinds of fracking? That depends on who you ask, as some believe Russian forces were behind the anti-fracking vote in Denton, while a $15 million investment in new Texas fracking technology by Roman Abramovich perhaps tells another story.
When the anti-fracking campaign started to heat up late last year in Denton, Texas—the heart of the shale revolution—conspiracy theories were spread from within the pro-fracking community that the Russians were behind the whole thing. The logic was that the American shale revolution threatened Russia's market share.
Yet just months after a successful vote to ban fracking in Denton, Russian billionaire Roman Abramovich has invested $15 million in Houston-based Propell Technologies Group, Inc. (NASDAQOTH: PROP) and its new fracking technology from wholly owned subsidiary Novas Energy. Significantly, this new enhanced oil recovery (EOR) technology enables 'clean' hydraulic micro/nano fracturing of oil reservoirs—that is, without water, without polluting chemicals and without earthquakes.
According to Propell, the Plasma Pulse patented downhole tool creates a controlled plasma arc within a vertical well, generating a tremendous amount of heat for a fraction of a second. The subsequent high-speed hydraulic impulse wave emitted is strong enough to remove any clogged sedimentation from the perforation zone without damaging steel. The series of impulse waves/vibrations also penetrate deep into the reservoir causing nano fractures in the matrix which increase reservoir permeability for up to a year per treatment.
In the die-hard conspiracy theorist community—particularly in the latest 'Cold War' atmosphere the media has latched onto once again—there will be continued rumors of Russian scheming here. Some might say that the Russians laid the foundation for a 'no' vote on fracking and then swooped in to invest in 'clean' fracking technology.
It may or may not be a coincidence that Propell's Plasma Pulse Technology is licensed from Novas Energy, a venture capital-backed Russian energy technology company.
There is also another Russian element to this: PPT has been very successfully employed in Russian injector wells. This is perhaps the most significant aspect to consider. Russia does not have draconian fracking regulations pressuring companies to use environmentally friendly technology. Instead, they are using PPT to improve enhanced oil recovery (EOR) and reduce production costs.
Conspiracy or not, Abramovich does nothing small or half-heartedly.
Abramovich is a metals magnate who also happens to own the Chelsea football club. He is the 143rd wealthiest person in the world and is worth about $9 billion, according to Forbes. He is the main owner of UK-registered Millhouse LLC, a private investment company whose assets have included major stakes in stakes in Sibneft, which is now Gazprom Neft. In 2005, Millhouse sold a 72% stake in Sibneft to Gazprom for more than $13 billion.
Abramovich has now invested in Propell's PPT. The investor is Cyprus-registered Ervington Investments Limited, whose ultimate beneficial owner is Abramovich.
"This will not merely be a $15 million investment," said one source close to the deal. "You have to read between the lines here. Abramovich doesn't do anything small. He'll get the infrastructure in place and then look to acquire a significant position in the US oil sector at today's fire sale prices. We'll probably be looking at hundreds of millions in investment at the end of the day."
An anonymous source with knowledge of the deal said that an initial $5 million of the $15 million investment would be working capital, while $10 million would be for acquisition of oilfields. The overall idea is to apply EOR technology and double the output with Plasma Pulse technology.
For Abramovich, this deal is not merely a whim: The billionaire is a strategic investor who has quite profitably invested in a number of energy technology companies. Abramovich—again through Ervington--is the largest shareholder in AIM-listed AFC Energy, which is working to commercialize clean fuel cell technology. He has also invested in Oxford Catalysts, which is close to commercializing the GreenSky London Project to supply renewable jet fuel made from London's household waste. The system is to be used by British Airways to create fuel for its planes. London-based Weedingtech—which makes herbicide-free weed killer—and AIM-listed Clean Air Power are also among Abramovich's strategic energy investments.
The Propell investment may be the most strategic—on two fronts.
On the first front, we have increasing controversy surrounding fracking in the US.
While Denton, for instance, is just a small town and the ban on fracking is only within the city limits, this small-town vote has much larger implications. This was where the shale revolution kicked off, and banning fracking here could snowball and empower other anti-fracking movements and efforts.
The state of California is also gearing up for stringent new regulations that are set to take effect in July.
Plasma Pulse Technology foregoes toxic chemicals and harnesses plasma pulses that would once have been reminiscent of science fiction weaponry. It may indeed be a weapon of sorts—one that could bring the industry and environmentalists together finally.
PPT is deemed to be an environmentally friendly way to clear clogging sedimentation from well drainage areas to allow the oil and gas to flow. The technology uses vibrations, or electrically generated plasma impulses to reduce viscosity, increase permeability and improve the flow of oil and gas to the surface for extraction.
And this is where we find the 'second front': The technology is not only designed to be environmentally friendly; it is also designed to increase production and reduce production costs.
After all, Abramovich isn't looking to spend an initial $15 million on an investment that is strictly friendly to the environment—there has to be more, and it would appear that there is.
This is all about enhanced oil recovery (EOR), and plasma pulse technology is one way to improve EOR processes to get even more oil and gas out of the ground.
The average increase in production for the initial 27 US wells treated with plasma pulse technology is 295%. The company is also reportedly working versions of its plasma pulse tool for horizontal shale wells and much shallower water wells as well.
Abramovich will be getting in very early in this game, which would allow him—for instance--to comply with California's new anti-fracking bill and its tight restrictions on acid washing for injector wells. The regulations will have a profound effect on key producers in the area, such as Chevron Corp., ExxonMobil and Occidental Petroleum, who will have to go through a long and costly permit process for each individual acid wash procedure. If they employ plasma pulse technology, however, they comply with the water-injector cleaning restrictions that kick in July 1. In California, major oil and gas companies are already paying $20,000 a pop for PPT pilot tests, according to our industry sources.
What Abramovich sees is brilliant math here. Plasma Pulse technology could easily turn into a $1 million/week business just in the state of California, and as anti-fracking gains momentum countrywide, these millions turn into billions. The Russian billionaire also sees a new technology that is not experimental, but already commercially viable.
When Abramovich makes a new investment, everyone pays attention. So many will be asking why a Russian is investing in this Houston-based technology. The answer is simple and all about the bottom line. This 'clean' fracking technology could storm the market. Abramovich thinks so, and he has been wildly successful.
It will be hard for the conspiracy theorists to digest, but for the investor looking for the next big thing, it goes down pretty smoothly, from Russia with ... a great deal of pragmatism.
By James Stafford of Oilprice.com. Oilprice has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.