Wherever you sit in the energy/climate debate, the reality - particularly in light of recent events - is that fossil fuels are going to be with us for a considerable time yet. However, rather than view the debate in a context of complete contrasts, the two - it can be argued - are connected in the bigger picture and to a degree aligned, given that many companies operating in the space are now actively focused on both areas.
That is perhaps something of a long winded preamble regarding my intended subject, this being AIM listed Enteq Technologies which has exposure to both the oil, gas, geothermal and methane space.
As far as its operations go, Enteq (NTQ) is, in a nutshell, a provider of equipment and tooling across the oil and gas energy space where it is focused on measurement, logging and geo-steering technology products used in the well drilling process.
Geo-steering is effectively the process of being able to adjust a position within a borehole in order to successfully reach the intended geological targets, so is understandably an important and integral part of the overall drilling process.
The company’s measurement while drilling (MWD) product provides what is a complete solution, enabling directional drilling measurements that supports the wellbore’s complete path.
Aside the area of oil and gas though, NTQ’s offerings also support the developing area of geothermal, which is the practise of unlocking energy from deep within the earth.
Although it is said theoretically the earth’s geothermal resources are more than adequate to supply humanity’s energy needs, until more recently, cost in terms of profitable extraction has held back any notable progress.
That is however beginning to shift and NTQ’s products are well suited to what is a growing area that should, as we move forward gather pace and play its part in the ongoing energy transition.
But, back to the oil and gas which is very much in focus and receiving renewed in terest where NTQ’s fortunes or lack of it, are closely intertwined, dictated by the activity and spend of others involved in the extraction space.
A quick look at NTQ’s share price performance over the years though, doesn’t exactly fire the investment imagination and as a micro-cap where its market valuation stands at just £10m it is somewhat off of the investor radar.
At a current price of 14.5p per share though, now could be an ideal time to take a closer look, or elect for a dabble as I have chosen to do, not least as activity in its concentrated area had already begun to gather pace and that was before the most recent events transpired.
For one so small, the NTQ board is packed with industry expertise and also reassuringly, includes some well respected names on the shareholder list with Premier Miton topping with a 17% holding and which also sees Soros fund Management with a 7% stake.
Having been through some lean and barren years, more recent news at NTQ has been increasingly positive and whilst its core products look ripe for recovery and a return to growth, it could also benefit from a new release, set to be commercially launched this year.
This comes in the form of a novel and potentially seriously disrupting offering titled SABER which the company licensed from Shell following its proof of concept.
That was back in 2019 and since then, NTQ’s own team has re-engineered the concept resulting in an improved and almost ready to go product.
The tool has already undergone successful field trials where it uses specific differentials to existing offerings relating to the geo-steering process. It scores on a number of fronts including improved operational functionality, ease of use and cost efficiency, leading NTQ’s management to believe that a significant opportunity exists for SABER.
Looking back to last month, the company announced an update to the market that included both comments on the overall trading picture, along with further information on the progress of the soon to come product.
In relation to the latter, broker FinnCap commented that “the development programme and field testing of the SABER technology has made good progress, as anticipated. Recent downhole testing performed with an international customer and field test partner has confirmed the ability of the SABER control system to perform in a downhole environment. Additional surface testing with a third party has also proven that SABER can generate ample steering forces and valuable information to optimise the ongoing downhole tests. A trade-oriented webinar series will start in March to strengthen customer engagement. The SABER is targeting a range of uses in the energy sector, geothermal drilling, methane capture and oil & gas operations. The RSS global market is valued at over $2bn”.
In terms of the general trading picture since September of last year NTQ said that both sales and orders had continued to progress in-line, with the company witnessing an increase in active drilling rigs along with a tightening of surplus capacity in N. America where it has a significant presence.
As a global operator, the company has however seen a reduction in activity and recovery across China, which can largely be expected given Covid related issues.
But, with the US being a major market and increased activity along with higher oil and gas prices, NTQ appears to be in a good spot to reverse the trend of recent years.
The notable oil and gas spikes and the ongoing Ukraine situation has resulted in a sharp wake up call for western nations and with inflation rearing, then a serious rethink on energy is only just commencing.
This should prove to be good news for NTQ, not merely in the US but other regions too, including Europe where it already conducts business in the Netherlands.
Also worthy of note, was news released last November relating to the signing of two exclusive distribution agreements with third party technology providers to enhance NTQ’s existing product range. As part of that, this will see the company distributing products from Houston based Erdos Miller for regions outside of N. America.
Another more recent development for the company just a couple of weeks back which arguably suggests underlying confidence, was the announcement that the company had opened a new technology centre here in the UK at Cheltenham.
This comes about following the progress achieved with SABER and the housing of a team of engineers there will assist in further development ahead of the full launch this year.
The idea is to build up a full rental fleet of the product and maximise the opportunity going forward, which if successful could prove game changing for the company.
In terms of expectations and balance sheet strength, shares in NTQ really do look quite cheap, particularly as there remains a net cash position for a level of comfort.
That has been the case for sometime now and although the pile is diminishing due to the development of SABER, the company looks to be in a comfortable enough spot in order to bring it to market.
Broker FinnCap sees net cash coming out at £4m for full year 2022, falling to £3m next year, by which time one would hope SABER begins to contribute to sales and which could quickly make market in-roads.
If the launch goes even better than envisaged and requires further investment to ramp up on its intended rental fleet, then NTQ has in reserve a banking facility for up to £1m, although the company believes it will have sufficient headroom from its own existing cash resources in order to deliver.
In terms of revenue projection, the same broker is anticipating sales for full year 2022 of $6.2m rising to $10m next year with a £$0.8m loss moving to a $1.2m profit.
Prior to the Pandemic, the company was typically delivering revenue of $10m, so given the current industry backdrop, then next year’s projection looks achievable at the least.
And if NTQ proves to be on track for those numbers next year and the launch of SABER proves positive, then the shares should finally deliver for holders and could do so with some impressive returns from the present level.
As the market usually reflects tomorrow’s growth in today’s prices, the current 14.5p may prove a very good entry point, which is why I have elected to take an interest at this juncture.
The signs were already looking positive, but since the Russia situation and the cumulative effect that is having, activity should seriously increase and markedly, as the fall out from the sorry saga ushering in will continue to see a change in direction regarding supply and nations individual geographic interests.
The US is already the world’s largest oil producer and that is likely to remain so, given the results of the current situation and with numerous smaller players operating there or gearing up, this should play to NTQ’s strengths.
A key measure of how things just might play out for the company is the number of total active drilling rigs in play, particularly across the US.
Most recent news on this front came just last week with the revelation of a total rig count there of 633 an increase of 13 on the previous week.
Importantly, Baker Hughes reported in the same week, that total active rigs across the US including oil and gas is now 261 higher than this time last year. These numbers do include gas, but are predominantly related to oil of which the vast majority are on shore related.
With the US being a key region for NTQ the likelihood of increased activity across the space could now bode well for the company and it will be interesting to hear what is said at the next update, which should come early next month.
A positive tone in itself could well be enough to kickstart the shares which appear to have been held back by a seller, that may at last be close to being cleared.
Although there has been some heated debate over the issuing of permits in the US for drilling over the last year, with claims that these aren’t being approved quickly enough, the reality is that there is already approval to provide for a significant jump in activity.
Indeed, by all accounts it appears that the industry is currently sitting on more than 9k approvals across some 26 million acres of federal land, which suggests that increased interest could now be on the cards.
I am hoping to be able to set something up with management in due course in order to put a little more flesh on the bones on what could prove a decent turnaround situation.