Thursday, February 18, 2021

enCore Energy Corp. (ENCUF)(EU:CA)
Price Objective Raised With Plans Progressing. Are Uranium Prices Strengthening?

enCore Energy Corp together with its subsidiary, is engaged in the acquisition and exploration of resource properties. The company holds the Marquez project in New Mexico as well as the dominant land position in Arizona with additional other properties in Utah and Wyoming. The firm also owns or has access to North American and global uranium data including the Union Carbide, US Smelting and Refining, UV Industries, and Rancher’s Exploration databases in addition to a collection of geophysical data for the high-grade Northern Arizona Breccia Pipe District.

Michael Heim, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

We are raising our price objective to $1.00 from $0.85. The increase comes after the announcement of a $15 million (upsized) common stock/warrant private placement offering of the EU.v shares on February 16th. New ENCUF shares are not being offered. Shares include a half share warrant to purchase EU.v shares at $1.30 for 36 months. Proceeds will be used to start refurbishment of the Rosita Plant, execute a drilling program to update reserves, complete minor reformation work at Rosita and Vasquez, and support M&A activity. The announcement is a clear indication that the plans laid out by management last year are moving forward.


There are initial signs that future uranium prices are starting to rise even as spot prices stagnate.  FactSet reported that September contract uranium prices rose 9.4% to a level of $32.65 per pound on Monday. The strength follows electric generation issues plaguing Texas and the Midwest due to cold weather. Many electric utilities have been holding off on uranium purchases for 2022 and 2023 due to …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

 

Houston Outages and the New Challenges for Texas Utilities

 

Winter storms and wind chills in the negative double digits across the Dallas-Fort Worth area are wreaking havoc on the ERCOT electric grid system, taking 45,000 megawatts of power offline and leaving millions without power and has caused at least ten deaths. Half the blades on wind generation units froze up and became inoperable. Solar power output is low due to storm conditions. Thermal power has been hampered by cold temperatures. Natural gas pipelines are freezing. Transformers are breaking. And the weather is about to get worse. ERCOT management cannot estimate when power will be restored but tells customers it may be days. The cold and loss of electric have already had a significant impact on the energy industry, with drilling slowing and refineries closing. Water systems and waste treatment plants have been shut-down in several parts of Texas, resulting in water-boil orders. The wide-spread disruption in electric service has the potential to disrupt the food supply chain as cold weather impacts livestock, feed, and agriculture.

What’s an ERCOT?

The Electric Reliability Council of Texas (ERCOT) manages the flow of electricity to more than 26 million customers or 90% of the residents in Texas. It schedules power on an electric grid that connects over 46,500 miles of transmission lines and 680 generation units. ERCOT is an Independent System Operator (ISO) as defined by the Federal Energy Regulatory Commission (FERC) Order 888 and operates separately from market participants. ERCOT oversees five major utility systems (AEP Texas Central, AEP Texas North, CenterPoint, Oncor, and Texas-New Mexico Power) but is composed of 160 members, including power generators, municipal utilities, and electric retailers. It is responsible for tariff administration and design, congestion management, market monitoring, and other functions. The Texas electric market deregulated in 1999, allowing customers the option to choose their energy supplier. Approximately 90% of customers have chosen to buy electricity from marketers that are not their local utility. This means that the bulk of power purchased from the grid is being done by marketers on behalf of customers. Suppliers bid to sell energy into the grid. Approximately half of the power sold in the grid comes from natural gas generation, with coal (28%), nuclear (11%), and wind (11%) proving the bulk of the remaining load.

 

 

What will be the reaction to the power outages?

Texas House Speaker Dade Phelan has called for a joint hearing to review the power outages. Undoubtedly, some will question the reliance on natural gas and wind for generation considering frozen blades and pipes. However, shifting back towards coal hardly seems an appropriate response in a more energy-conscience environment. Besides, coal and nuclear are baseload fuels that cannot be easily ramped up to meet periods of peak demand, as witnessed during extreme temperatures. Some may push for system upgrades that coordinate the transmission of power between ISOs. ERCOT is somewhat unique in being an ISO that operates solely within one state. Better connectivity with neighboring ISOs might increase the system’s flexibility to manage power.

 

Wholesale electric transmission/distribution hubs

 

Will energy users turn to distributed power?

Another answer to power outages may come in the form of distributed power. Onsite generators can serve as a backup to electric utility service during outages or as a supplement during peak demand. Generators can run on gasoline or diesel. Larger turbine generators can provide large loads between 10 kilowatts to 30 megawatts and run on a variety of fuels such as natural gas, diesel, biofuel, and even hydrogen. They are ideal products for hotels, apartments, nursing homes, and health clubs. Capstone Turbines (CPST) makes a series of products that provide both electricity and thermal heat. The movement towards distributed power has been growing in recent years with the rolling blackouts seen in California the last two years and will likely continue to grow considering the issues at ERCOT.

Summary: Is a death spiral coming?

Angry customers and voters will prompt action. Will it cause reregulation of the Texas market or an upgrade in the system’s transmission? Or will they walk with their feet and leave the system and move towards self-generation? The answer will most likely be a little bit of both. Some customers will add on-site generation as a backup or supplement to utility service. Other customers will remain utility customers but demand better service. Better service, of course, means new transmission and distribution lines, which mean higher rates. Higher rates lead to customers trying to leave the system and self-generate. As fewer customers remain to pay for the system upgrades, their rates go up even more. The onus is on electric utilities and ISOs to improve service or face a death spiral leading to the loss of its customer base.

 

Suggested Reading:

Energy Outlook 2021

Gevo, Inc. (GEVO) Fire Side Chat

Is the Price of Uranium Rising?

 

 

Sources:

https://www.wfaa.com/article/weather/live-updates-winter-weather-storms-north-texas-dallas-fort-worth-power-outages-boil-order-warning-wind-chill-closures/287-76d22978-f0a5-4257-8c30-30a6124f4b11?ref=exit-recirc

https://en.wikipedia.org/wiki/Regional_transmission_organization_(North_America)

http://www.ercot.com/mktrules

https://www.electricchoice.com/blog/texas-energy-power-grid-101/#:~:text=There%20is%20one%20major%20thing,own%20power%20to%20its%20consumers.

https://quickelectricity.com/what-is-ercot/

 

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Why Oil is Moving and Why It Could Go Higher

 

Brent Oil prices crossed $60 per barrel for the first time since January 2020. The surge began in early November when positive vaccine test results gave the market hope that oil demand would soon return to pre-pandemic levels. But instead of returning to last March’s oil price level in the mid-fifties, a funny thing happened. Oil prices shot through pre-pandemic levels and all the way to $60. What’s more, oil prices seem poised to rise above $60 and reach levels not seen since 2018.

Why are they Increasing?

So why do energy prices continue to rise? In a nutshell … there is a lack of supply response to higher prices. Producers across the world are not increasing drilling yet. Worldwide, active rigs have fallen to a level half that of a year ago. The chart below shows the correlation between rig count and oil prices. Note that oil price rose in the last two months of last year, rig count did not. This trend has continued in 2021 with oil prices rising to $60 per barrel, but the world rig count stuck at 1183 as of the end of January. The last time Brent oil prices were at $60 in January of 2020, there were 2265 active rigs.

 

 

In total, world active rigs are 43% below January 2020 levels. The declines have been the sharpest in the United States (down 53%) and Africa (down 55%). Other regions such as Asia (down 27%), Europe (down 29%), and Canada (down 33%) have seen smaller declines. The Middle East, once again establishing its position as a price setter, reports a 42% year-over-year decline in active rigs, very much in line with the world’s average.

 

 

OPEC’s Hand in the Situation

An analysis of rig declines by region seems to suggest that OPEC’s overall strategy is working. Recall that OPEC, led by Saudi Arabia, flooded the market with oil in the spring allowing oil prices to fall sharply. West Texas Intermediate oil prices even dropped below zero temporarily as traders were caught with excess oil and no room to put the oil in storage. OPEC’s intent was manyfold. First, it wanted to punish Russia for not going along with production cuts and remind them of the potential impact on nonconformance. Second, it wanted to counter the rise in U.S. production coming from increased shale production. Technological advances have made U.S. shale production profitable at prices in the forties leading to the U.S. becoming a net exporter of oil. When oil prices fell last year, U.S. producers responded by cutting back drilling, as evidenced by the chart above.

Will Trend Continue

So why aren’t U.S. oil producers responding to higher oil prices by increasing drilling? Most likely, producers have been snake bitten by last year and wary of raising production only to be forced to halt production or shut-in production if oil prices fall. A second explanation may be that producers are first focusing on well completions from last year before ramping up drilling. If that is the case, we would expect to see drilling begin to rise as the inventory of well completions dries up.

 

 

Take-Away

Whatever the reason for the current low rig count, the implication for oil prices is positive. There has not been a supply response to higher prices, and oil inventories are falling. The chart above shows that crude oil inventories rose sharply last March but have been falling in recent months. Inventories are now approaching pre-pandemic levels. Unless producers accelerate drilling, inventories may continue to fall as the global economy expands. The result could be that oil prices continue to rise even as we have crossed $60 per barrel.

 

 

Suggested Reading:

Will the US Continue to Subsidize Renewable Energy?

Industry Report – Energy Q4

What Should the Price Range be for Oil and Natural Gas

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Sources:

U.S. Energy Information Administration

Baker Hughes Energy

 

How Oil is Expected to Remain an Important Part of the Energy Mix

 

EIA Releases its Annual Energy Outlook

The U.S. Energy Information Administration (EIA) released its Annual Energy Outlook for 2021.  The Annual Outlook provides modeled projections of domestic energy markets through 2050, including scenario analysis using various assumptions. The EIA, is part of the U.S. Department of Energy, and is the nation’s most authoritative source of data, forecasts, and analysis of the U.S. energy market. The report outlines energy production expectations over the next thirty years.

Noble Capital markets recently held a panel titled Managing the Transition to a Greener Energy Environment which brought together executives representing different energy sources to discuss the future of their respective fuelsand will present a livestream of its presentation on February 3^rd at 2:00 pm ET (register at https://bipartisanpolicy.org/event/eias-annual-energy-outlook-2021-release).

 

Renewable and Natural Gas are projected Winners but Other Fuels Should see Declines Level Off

As one might expect, the EIA projects that natural gas and renewable fuels will grow in importance as the United States works to reduce carbon emissions. Coal production, which has fallen sharply in recent years, begins to level off by 2025 in response to falling prices. Oil production, which has expanded over the last decade due to production improvements and a growing economy, begins to stagnate and eventually decline with the proliferation of electric vehicles.

 

Source: United States Energy Information Administration (EIA): Annual Energy Outlook 2020

 

Generation to Grow in Importance with a Move to Electric Vehicles

Looking at consumption by sector; electric power remains the largest source of energy demand representing about one-third of consumption. The EIA sees generation demand reversing recent declines associated with efficiency gains and picking up demand from transportation starting around 2030. Industrial demand grows with an expanding economy and low energy prices.

 

Source: United States Energy Information Administration (EIA): Annual Energy Outlook 2020

 

Oil Prices Projected to Rise

EIA projections call for oil prices to rise steadily over the next thirty years as lost transportation and generation demand is replaced by increased industrial demand. The EIA’s base case has Brent oil prices rising above $100 in the next 25-30 years.

 

Source: United States Energy Information Administration (EIA): Annual Energy Outlook 2020

 

With Growing Tight Sand Production, the U.S. Will Remain A Net Exporter

Production from tight oil formations, led by production in the Permian Basin, has become the dominate source of U.S. production and the EIA believes that will continue. The United States will remain a net exporter of oil and energy for the foreseeable future.

 

Source: United States Energy Information Administration (EIA): Annual Energy Outlook 2020

 

Take-Away: Renewables Are Growing But Don’t Rule Fossil Fuels Out

The EIA’s conclusions match up with that of the NobleCon17 Energy Panel. Specifically:

• Renewables will continue to take market share as costs continue to decline.
• A portfolio of energy sources is needed to provide backup and react to changing prices.
• Fossil fuels may lose market share but will see overall demand and pricing increase.
• Efficiency gains will continue in all fuels.

 

Suggested Reading:

What Should the Price Range be for Oil and Gas?

Gevo, Inc. (GEVO) Fire Side Chat

Is the Price of Uranium Rising?

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Thursday, January 28, 2021

Gevo, Inc. (GEVO)
Update on Timing of FEED Engineering and Financial Close

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Corporate update summarized significant milestones achieved and highlighted potential milestones. Update clarified the timing of FEED engineering and project financing, while reinforcing information discussed in two recent presentations by CEO Pat Gruber at NobleCon 17 and on a fire side chat for Water Tower Research (WTR) earlier this week.


Major achievement is funding secured for equity investments in first two Net-Zero plants.  As stated in our recent research notes, significant capital raises increased pro forma cash to ~$535 million, which locks in the majority of the equity investments for the first two Net-Zero plants. Using a mix of 70% debt/30% equity, Gevo might fund all of the equity in Net Zero 1 (~$210—$240 million) and the …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Tuesday, January 26, 2021

Gevo, Inc. (GEVO)
Fire Side Chat Complements NobleCon 17 Presentation

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Water Tower Research (WTR) held a fire side chat yesterday that complemented Gevo’s presentation at our NobleCon 17 and highlighted the significant milestones achieved over the past quarter and discussed potential milestones. The rebroadcast is available on Channelchek: https://channelchek.vercel.app/news-channel/NobleCon17_Rebroadcast.


Significant capital raises might fund all of equity in Net-Zero 1 and majority of equity in Net-Zero 2.  As our research note stated yesterday, pro forma cash increased into the ~$534 million range. On the WTR fire side chat, CEO Gruber confirmed that the capital raises secure the majority of the equity funding for the first two Net-Zero plants. Using a debt/equity mix of 70/30, we estimate that …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Monday, January 25, 2021

Gevo, Inc. (GEVO)
Significant Capital Raises Boost Financing Visibility

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Massive equity offering priced and pro forma cash is $534 million. A $350 million equity offering of 43.75 million shares at $8.00/share should generate about $321.7 million after expenses and pro forma cash should be $533.6 million, up from $78.6 million on December 29th, an increase of $133.3 million. In addition to the offering, we estimate that the ATM program generated $135.8 million through the issuance of 24.4 million shares at an average price of $5.56/share and exercises of 1.9 million warrants generated $1.1 million which more than offset estimated cash outflows of ~$3.6 million in the same time frame.


Cash boost allows funding of majority equity interests in first two Net-Zero plants.  Additional cash is likely to fund majority of equity required for the first two Net-Zero plants and other projects, like the RNG projects in Iowa. Ability to fund equity investments should improve negotiating leverage and financial terms …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Standard Uranium (STTDF) CEO Jon Bey at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Michael Heim joins Jon to moderate a Q&A session. NobleCon 17 Complete Rebroadcast

Midwest Energy Emissons (MEEC) CEO Richard MacPherson at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Michael Heim joins Richard to moderate a Q&A session. NobleCon 17 Complete Rebroadcast

InPlay Oil (IPOOF) CEO Doug Bartole at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Michael Heim joins Doug to moderate a Q&A session. NobleCon 17 Complete Rebroadcast

Gevo (GEVO) CEO Patrick Gruber at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Poe Fratt joins Patrick to moderate a Q&A session. NobleCon 17 Complete Rebroadcast

Energy Fuels (UUUU) CEO Mark Chalmers at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Mark Reichman joins Mark to moderate a Q&A session. NobleCon 17 Complete Rebroadcast

enCore Energy (ENCUF) CEO Paul Goranson and Executive Chairman William Sheriff at NobleCon17 – Noble Capital Markets 17th Annual Small & Microcap Investor Conference – January 2021. Following the formal presentation, Noble Capital Markets Senior Research Analyst Michael Heim joins Paul to moderate a Q&A session. NobleCon 17 Complete Rebroadcast