Ok time to start getting back to why we are all here and start being proactive.
Light Weight Proppants Brief Summary
Who is LWP?
Light Weight Proppants formally known as LWP,
changed name and symbol from LWP (LWP) to Light Weight Proppants (LWP)
LWP Ticker not taken on NASDAQ and potential of “Dual Listing” could be interpreted from quote
“look forward to helping establish a significant presence for the Company in the US investment market.”
What does LWP do?
LWP Manufactures
Patent Filed TechnologyFly Ash Ceramic Proppants, that are
more cost effective,
have a lower relative densityand
higher crush characteristics than traditional ceramic proppants
The cost savings of LWP proppant’s over it’s competitors are between
25-50% per well ($400,000 - $1.3m per well).
- There is also a cost saving tobauxite producers.
- LWP’s proppant take 5 mins @ 800 degrees in kiln
- Competitor's product takes 15-20 mins @ 1000 degrees
If LWP retrofits existing plants it offers reduced machine wear and tear, less electricity and increased production capacity.
The other important thing to note is LWP’s
smallest competitor in the US is worth $700 million. Comparing return on investment, LWP’s market cap is currently at $20m.
What are Proppants?
Proppants are a sand-like commodity and a major input and cost item in the hydraulic fracturing (fracking) of oil and gas wells. Proppants are pumped into an oil and gas well under pressure to ‘prop’ open the tiny fractures created in hydrocarbon bearing shale rocks during fracking, to allow oil and gas to flow from the ground fractures.
Traditional ceramic proppants are made from clay and/or bauxite. LWP’s ceramic proppant is majority manufactured from fly-ash, a bi-product of coal fired power stations. The Company is of the view that LWP’s unique proppant product has the potential to lead the industry due to the widespread availability of fly-ash, the manufactured proppants’ ultra-light weight and ability to withstand the very high pressures in deep wells.
LWP’s proppants have been certified to meet or exceed both the American Petroleum Institute standards and the ISO standards.
Types of Proppants
Sand
The cost of sand proppants is estimated at $90-150/delivered tonne. Proppant sand also
accounts for 85-90% of proppant usage.
There is a production trade off when using sand. As sand propped fractures are less permeable than the fractures propped open by high crush ceramics. Fly Ash Proppants will unlikely be able to compete with sand proppants on an upfront cost basis but once Fly Proppants are proven they may be able to take some of the sand market based on increased production profile over the life of the field.
Resin Coated Sand
Improves crush resistance and conductivity, improves proppant strength and productivity in the downhole environment. It also reduces flowback of proppant from the fracture into the wellbore, which can damage equipment. Resin coating effectively reduces costly cleanout issues in the wellbore by reducing effective stress on the proppant, providing encapsulation to maintain particle integrity and preventing fines from being released
Ceramic
Made of ceramic like sintered bauxite. It has higher fracturing strength which is mainly used for downhole support in order to provide an efficient conduit for production of fluid from reservoir to wellbore so that adding output in oil or gas industry.
Ceramic proppant is sintered from bauxite mixed with other additives, and the mineral composition of ceramic proppant is aluminum oxide, silicate and iron - titanium oxide.
Ceramic proppant is generally uniform in round shape and character, which makes it owns much higher strength than quartz sand and resin-coated sand so that it is suitable for the fracturing of deep oil and gas stratum with high closure pressure. For the middle and deep well, ceramic proppant can be used to enhance the conductivity as the trailing proppant.
Compared to other proppant materials, ceramic proppant has superiority of smoother surface, higher fracturing strength, acid proof & alkali proof, higher conductivity. Nowadays, especially in western oil producing countries such as America, Canada and Russia, ceramic proppant is widely used to replace other proppant materials such as natural quartz sand, glass balls and metal balls.
It has been proved that ceramic proppant can increase output of Oil/Gas by 30%-50% and extend the lifetime of Oil-field or Gas field.
Fly Ash
Whilst most traditional proppants are manufactured from clay and bauxite, LWP have developed a proppant made mostly from the generally unwanted bi-product of coal fired power stations known as “flyash” which is mixed with a small amount of Bauxite and other materials.
Fly Ash’s lower relative density allows the proppant to be able to be kept in suspension with less additives and will as a result be able to transport deeper into the fractures when compared with higher RD ceramics proppants.
The deeper the material will transport into the fracture the higher the flow surface area is which leads to increased production. The high crush characteristics mean that higher pressure can be applied when doing the initial frack and the fractures will be kept open for longer once the operation has been completed which extends the lifespan of the well or the time between rework.
LWP Ran independent tests for their Fly Ash Proppant Tech.
The aim of the tests was to determine whether the Company’s new mix design with significantly reduced bauxite, had a marked effect on compressive strength.
Testing at 14 000 PSI resulted in just 8% of the proppant being crushed compared to the ISO standard of 10% at 4,000 PSI. A crush ratio of less than 10% is the generally accepted market threshold which means the Ecopropp proppant could potentially test at even greater strengths than 14000 PSI.
In a secondary test designed to determine the “bulk density” of the LWP proppant, a reading of just 1.45 grams per cubic cm was returned.
This result is significantly below that of some of the major proppant market participants and should deliver cost savings to LWP customers because it will result in a higher volume of proppant being delivered for an equivalent weight.
“We’re delighted with these results, particularly as we reduced the Bauxite by about 50% in this batch which makes the proppant lighter and cheaper to manufacture, and at the same time we managed to markedly increase compressive strength.”
“A comparison against some of the big name proppants on the market in the US shows our proppant is be able to withstand significantly higher pressures with very low powderization rates which makes them very attractive for deep unconventional wells where the pressures are greatest”
LWP at the company presentation rate of 18c/lb comes in at $397/ton which should be exclusive of delivery.
Proppant Market
Worth $19,022.71 Million by 2019
The market size in terms of value of the proppant market (2013) was estimated to be about 45.12 million tons and is projected to reach 84.20 million tons by 2019, at a CAGR of 10.7% from 2014 to 2019. The high demand across the oil & gas industry is expected to increase the overall proppant consumption.
Proppant Demand
The North American market for land proppant that is used to hydraulically fracturing natural gas and oil wells should grow at a rate of 8% a year for the next two years.
Breakeven for Shale Production
Cost reductions from LWP's Fly Ash based proppants could reduce the breakeven cost for many Shale Projects bringing them into cost effective and viable projects.
Who is running the show at LWP?
Siegfried Konig (Executive Director)
Siegfried is an Entrepreneur and early stage investor with Global relationships in the capital markets & public company sector.
Over 30 years experience in business management, and in building companies from startup to IPO. Co-founded Telco Australia Limited in 1992 and listed on ASX in 1998,raised $55 million in the IPO of GPS Limited(later Industria Limited which was sold to GE for $750 million) and Technology Licensing Limited.
Siegfried co-founded Ecopropp Pty Ltd in 2010. Ecopropp is an R&D company focused on manufacture of ceramic proppants for the oil and gas services industry, utilizing fly ash as its primary feedstock.
Edward A Sugar (EAS)
Edward A Sugar, is a New York based investment advisory firm providing services primarily to natural resource and commodity sector companies. EAS’s business is built on knowledge, capital markets insight and access to a deep pool of both traditional and nontraditional sources of capital in North America. EAS was founded in 2008 and since inception has participated in transactions worth more than $2.5 billion.
EAS will work closely with LWP to help execute its business plan for the commercialisation and growth of its next generation, fly-ash based, proppant for use in hydraulic fracturing (fracking) of oil and gas wells globally.
Options Issue to EAS Advisors LLC
As part of EAS’s compensation, LWP has agreed to grant EAS, a maximum of 50,000,000 Options in two tranches, subject to the following terms:
First Tranche:
A total of 20,000,000 Options at an exercise price of $0.005 on or before an expiry date that is 18 months from the date of the EAS Advisory Agreement, subject to certain performance goals being achieved by EAS.
Second Tranche:
A total of 30,000,000 Options at an exercise of $0.01, on or before an expiry date that is 30 months.
Where does LWP stand
Share Purchase Plan
In conjunction with the funds raised under the Placement, the proceeds of the SPP will be used to:
Commission the Company’s Brisbane pilot plant;
Commence commercialisation of the proppant business;
To supplement the general working capital of the Company.
Successful Completion with oversubscription
Milestones
Ecoprop Milestones
Milestone 1 Ecopropp demonstrates its proppant product can be successfully scaled-up for production without material loss of key properties and obtains independent confirmation as to the cost of production in accordance with specified parameters. Payment : 295m LWP Shares
Milestone 2 Ecopropp completes a successful down-hole trial utilizing its proppants in accordance with specified parameters. Payment 1 : 220m LWP Shares plus Payment 2 : $2.2m worth of LWP Shares at the 5 day VWAP price at the time
Milestone 3 A third party commits to build and operate a commercial scale proppant manufacturing facility with secured finance and a final investment decision. Payment 1: 350m LWP Shares plus Payment 2: $3.25m worth of LWP Shares at the 5 day VWAP price at the time
EAS Milestones
As previously advised LWP issued the 295,000,000 Shares Milestone 1 Shares to the Ecopropp Vendors on 1 April 2015. Therefore, payment to EAS of their entitlement to some 7,375,000 Shares under the Agreement is contingent upon EAS achieving agreed milestones.
In the case of Milestones 2 and 3, the maximum number of both Milestone 2 Shares and Milestone 3 Shares respectively, that may be issued, is dependent upon the VWAP Price at the relevant time and the Company is presently unable to advise the maximum number of Shares that may be issued in the event of achievement of the relevant Milestone.
No assurance can be given that Milestones 2 and 3 will be met before the milestone completion dates that apply. As the Company is presently unable to precisely advise the maximum number of Shares that may be issued in the event of achievement of Milestones 2 and 3, it is also presently unable to advise the maximum number of Shares that may be issued to EAS under the payment provisions of the EAS Consulting Agreement.By way of example, on the assumption that Milestones 2 and 3 were achieved, EAS would be entitled to 26,636,364 Shares on the basis of a five day VWAP price of $0.011.
Pilot Plant
LWP developed a next generation, fly-ash based, proppant for use in hydraulic fracturing of oil and gas wells globally.Construction of the pilot plant at Clontarf, near Brisbane, commenced in December 2014 (ASX announcement, 3 December 2014). Construction of the plant’s Fine Grinding Mill is completed and commissioning of the Mill has also been completed.
Completion of the Pilot Plant based in Brisbane was on time and within budget.
LWP Revenue Model (Licenses and Royalty Payments)
LWP will derive revenue firstly from the sale of licenses and secondly from ongoing royalty payments for every pound of product produced. LWP may also elect to take equity in some plants in lieu of license fees. It is anticipated that the US market will initially be the major target market for the company.
If LWP managed to capture 1% market share of proppant used worldwide (or conservatively 10% or the ceramic proppant usage) by 2019 (0.648 Million tonnes based on reduced weight per volume) at a royalty of 3 cents per pound then we would be looking at a revenue of $42.8 million USD (55.6m AUD).
$45 million in revenue at a 15% margin gives $6.75 million in earnings. Apply a P/E ratio of 25 for a rapidly growing company (probably conservative) and we get market cap of $169 million.
In this scenario there is still plenty of room for share price growth, perhaps even a doubling. That is why my first up share price target is ~3c, possibly even that gap fill up to 3.3c.
Whats next
Multi billion dollar industry - major players scrambling to reduce operating costs
Hugely expanding proppant market
LWP provides "game changing" product
Eddie Sugar appointed, to help lead the charge into the US
Managing Director secures a blocking number of votes (10.28%)
Joint Venture speculation
LWP currently has many behind the scene discussions regarding potential deals/joint ventures.
One such JV speculation would be AluChem:
AluChem / Porocel
1996 - AluChem purchases Porocel - theworld's largest producer of Activated Bauxite.
Porocel acts as it's own entity (when you click on their location from the AluChem website, you get taken to the main Porocel website) - as a company which has been in operation since the 1930's, it's no wonder they decided to leave it as it is.
Effective December 1, 2013, Porocel announces a new office in Shanghai to support our business growth in China. The new office and staff expands Porocel’s global presence and supports our growth in the Chinese market for high quality adsorbents, catalysts and services.
http://www.porocel.com/12-news_and_...e=Porocel_opens_new_office_in_Shanghai__China
Porocel opens new office to enhance business coverage for Middle East & Africa
AluChem’s founder and MD bought 38m shares in LWP.
AluChem announced a long time ago that they were in discussions with a privately owned, leading producer of Bauxite, with the view to helping them enter the proppant market.
It’s plausible that AluChem/Porocel could be in talks. Likely a JV specifically with LWP and Porocel to convert their remaining bauxite activities over to fly ash proppant.
Please Thumbs Up this post to get this information as publicised as possible and to allow newcomers to quickly familiarise themselves with LWP
