MCW Energy Produces Oil at $35 bbl From Widely Available Oil Sands
Although MCW Energy Group (TSXV:MCW – $0.84 & OTCQB:MCWEF – $0.75) is a Canadian Company, it conducts almost all of its business in the United States.
The Company’s wholly owned subsidiary MCW Fuels is engaged in the marketing and sale of unleaded and diesel land fuel products and related services in Southern California. MCW Fuels also holds a 51% interest in MCW Oil Sands Recovery, which is engaged in a tar sands mining and oil processing operation using a closed-loop solvent based extraction system that recovers bitumen from surface mining.
While the fuel distributing business has been the only source of revenues for MCW Energy so far – $431.9 million in fiscal year 2013 – we’re mostly attracted to this Company because of its revolutionary oil sands recovery business.
The timing of this recommendation is ideal as the oil sands extraction technology was successfully demonstrated for the first time just a couple of weeks ago.
MCW Fuels, in operation since 1938, purchases gasoline and diesel fuels from refineries and sells to gas stations in California. The Company retains regional branding rights to major premier brands, such as 76, Valero, Alliance and 7-Eleven chains. In addition, it markets its own brand of fuel under the name “MCW Fuels”. In total, MCW Fuels delivered approximately 93 million gallons of fuel in the nine months ended May 31, 2014. The actual fuel deliveries are outsourced.
The business currently serves approximately 160 gas stations within the state of California and is considering expansion into other regional U.S. markets, such as Nevada and Arizona. With higher volumes, MCW Fuels may be able to obtain improved pricing from its suppliers and better absorb its fixed costs resulting in improved margins.
MCW Fuels also offers several value-added services to its clients, including credit card processing, inventory control systems and price management services.
The Company’s major competitors in the fuel distribution industry are the big oil companies, such as ExxonMobil, Chevron, BP and Shell. These large companies are involved in all facets of the fuel generation chain, from exploration to refining to marketing fuel products in their specific, branded retail outlets. These economies of scale allow them the ultimate flexibility in pricing and delivery power that most smaller fuel distribution companies find difficult to compete with.
Despite its smaller size, MCW has developed a level playing field in the market, and has managed to slowly increase its market share with new branded and unbranded customers. The Company intends on continuing its market growth strategies as it transforms itself into a truly integrated, comprehensive oil company with a natural dove-tailing of products and services between MCW Fuels and its sister company, MCW Oil Sands Recovery.
MCW Oil Sands Recovery is a joint operating entity between MCW Fuels (51%) and Amerisands (49%). It owns a patented, environmentally-safe, continuous flow closed-loop technology, which extracts oil from a wide range of oil and other hydrocarbon sediment types. It can be effectively applied to both “water-wet” deposits, such as the oil sands projects in Alberta, Canada, and/or “oil-wet” deposits such as the resources typically found in Utah.
This unique technology utilizes no water during the process, which is a key advantage when applying it to the western desert states in the U.S., where water is widely unavailable. The process produces no greenhouse gas, requires no high temperatures or pressures and is capable of extracting 99% of all hydrocarbon content.
The process involves the use of harmless, benign solvents, which remain within the closed-loop system. After the extraction process is complete, the solvents are recycled and re-used. The purified sand is removed from the system and can then be either sold as clean sand or replaced back to its original location.
The process is conducive to the oil sands deposits in Utah, where most of it lies from surface to 600 feet deep. Utah has over 55% of America’s total oil sands deposits, concentrated in 8 major areas containing over 32 billion barrels of oil, according to the U.S. Department Of Energy. MCW has a cost-efficient, long term oil sands materials supply contract with nearby Temple Mountain Energy, which already has a large commercial mining permit.
MCW has filed patent applications for elements of the Extraction Technology with both the USPTO in the United States and CIPO in Canada and intends to file patent applications worldwide with respect to the same elements in the future.
Oil Extraction Facility In Operation
On October 1st, 2014, after many years of engineering and research, MCW brought its ground-breaking extraction technology in operation. The occasion was marked with a ribbon-cutting ceremony and a demonstration of MCW’s extraction plant on the lease site at Asphalt Ridge, near Vernal, Utah. Among the many Utah state dignitaries were several members of Utah’s Energy Development Department including its Director, Val Hale, as well as Senator Kevin van Tassell and Vernal Mayor Sonya Norton.
Dr. R.G. (Jerry) Bailey, CEO of MCW Energy Group stated, “The extraction of oil from Utah’s oil sands unlocks millions of barrels of oil that will further supplement the energy needs of America. This can be achieved without water and without harmful emissions… and with this technology development, MCW opens a new era in eco-friendly oil production. This will certainly have a huge impact on the local and state economies.”
The facility will be fully tested and optimized in the coming weeks so that actual production can commence later this year at 300 bbl per day.
There are plans to add several additional extraction units with larger capacities on the Company’s lease site in Asphalt Ridge in 2015. In addition, the Company is in preliminary discussions concerning modular unit construction at sites in Wyoming and China.
Three Months Ended
Nine Months Ended
|Amounts in $000’s|| |
(Loss) Per Share
Most important income statement data for the quarters and nine months ending May 31, 2014 and May 31, 2013. Source: Company Filing
Loss from fuel operations has increased during the nine months ended May 31, 2014 as compared to the nine months ended May 31, 2013, primarily because the Company’s gross margin has declined as it tries to gain market share by increasing its volumes. MCW believes it can leverage these costs into higher margins in future periods.
The Company’s balance sheet could be somewhat better with only $921,000 in cash at May 31, 2014. Fortunately, it can count on the financial support of Aleksandr Blyumkin, an officer and director of the Company. In April of this year he loaned $824,000 to the Company and in June he loaned another $2,000,000. The convertible debentures bear an interest at a rate of 10% per annum and can be converted into common shares of the Company at a deemed price of $0.90 per share and $1.00 per share respectively, which is above today’s stock price.
And in the past week, MCW Energy announced the issuance of two additional debentures for an aggregate principal amount of $1,100,000 to two private lenders. The Debentures will bear interest at a rate of 12% per annum.
The above loans show that the Company is able to finance its operations at reasonable terms. In addition, we believe that now the Company has shown that its extraction technology is valid, it will have more financing options at its disposal.
MCW’s management team is comprised of individuals who have extensive knowledge in both conventional and unconventional oil and gas projects and production, as well as refinery and fuel distribution experience.
Dr. R. Gerald Bailey, is the CEO of MCW and has served as the President of Exxon Corporation, Arabian Gulf, Assistant General Manager, Administration & Commercial, Abu Dhabi Onshore Oil Company, Operations Manager, Qatar General Petroleum Corp, Dukhan Operations and the Operations Manager, Qatar General Petroleum Corp., Umm Said Operations. He was also the Operations Superintendent Exxon Lago Oil, Aruba and has spent time in Libya as Operations Superintendent for Esso Standard Libya, Brega.
Alexsandr Blyumkin is the Chairman of the Board and has a wide range of experience in the oil development industry. He has been a key figure in the development of a variety of oil development properties in Eastern Europe (Ukraine), Central Asia (Azerbaijan) and most recently, in the United States, where he has focused his interests in oil sands lease development and environmentally-friendly oil sands extraction technologies as employed by MCW Energy Group.
MCW’s decision to diversify into other energy opportunities is an important benchmark in the Company’s strategic plans to become a fully integrated oil company. Its venture in participating in the oil sands extraction industry provides it with a dominant position in this emerging market sector, with much less competition and dramatically increased profit margins.
With a new source of oil supply from its own new division, the Company can lever its position with advantageous contractual agreements, pricing structures and added delivery options, which ultimately will provide greater flexibility for its core fuel distribution business.
The closed loop, continuous flow, scalable and environmentally safe extraction technology allows for the extraction of hydrocarbons from both water-wet and oil-wet oil sands deposits. The technology utilizes no water in the process, produces no greenhouse gas, requires no high temperature and/or pressure, extracts up to 99% of all hydrocarbon content and recycles up to 99% of the solvents.
MCW’s ramp-up program includes the design, fabrication and assembly of a 5,000 bbl/day extraction plant on Temple Mountain Energy’s nearby property, and the acquisition of further oil sands leases in the immediate area. MCW is currently soliciting funding for these expansion projects, with a combination of structured finance transactions for the extraction plant costs and a preferred convertible debt for lease purchases.
In order to augment its revenue stream possibilities, MCW is now prepared to provide licensing and joint venture opportunities to other global entities, with a focus on countries with considerable oil sands resources, as yet undeveloped. These revenue streams will take the shape of licensing fees and production-based royalties.
MCW has already gleaned attention from several major companies based in Alberta, Canada and Asia. In several cases, oil sands feedstock samples provided were successfully tested.
The Company’s initial extraction plant has been engineered for 300 barrels per day. Larger plant sizes are feasible and the all-in cost of processing Utah’s oil sands deposits utilizing MCW’s technology are extremely attractive, averaging $35 bbl.
MCW is an attractive Company with a revolutionary technology. It can produce oil at a fraction of the cost at which it can be sold. And it can use oils sands as feedstock which are widely available all over the world. Buy recommendation.
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