I hate to come across as "down-rampy", because I'm really not bearish on LWP (in fact the opposite), but in the nature of a balanced debate, I think many forget where LWP's product sits on the quality vs cost hierarchy.
LWP is competing with ceramic propants at the high end of the market, which even before this downturn in the POO was experiencing a reduction in market share.
Here's an except from a 2013 research report by PacWest in 2013 which I'm sure has been shared on here before:
"
The “premium” proppant (RCS, Ceramic) share of the market (by mass) is decreasing due to E&Ps switching to lower-cost options (sand) - The “premium” proppant share of the market peaked at 13% (by mass) in 2012, before falling to 11% in 2013; the “premium” share of the market is expected to decrease to 10% by 2015 - Although debate rages on within the technical community about the long-term cost/benefit trade-offs of higher crush-strength proppant, many E&Ps have switched away from RCS and ceramic proppant to frac sand, particularly in the Haynesville, Anadarko, and Eagle Ford".
To give you an idea how I've been looking at the situation, here's a table I made a few months back with some figures for comparison between the cost (and characterstics) of each propant type:
View attachment 90979
Note I couldn't find a lot of data regarding the compressive strength for non ceramic propants, and values for frac sand typically ranged from 5,000 to an upper range of 11,000 depending on the size fraction (which seemed overly high to me...?).
You can clearly see that basic frac sand is over 600% cheaper than its nearest rival (LWP's propants). No mater the performance increase, LWP is never going to be able to pilfer market share from sand based competitors if their product costs 1/6th of your product.
We are therefore going to be competing for the share of the premium end of the market, i.e. to those who require premium products for deep or complex drilling. On that front, we compete very, very favorably as we have a cheaper product (over 1/3rd cheaper than the next cheapest) with superior performance. It's this section of the market we should be basing our analysis of IMO.
This brings me to my next figure showing the distribution in consumption of the different types of propants in the US market:
View attachment 90986
I hope the above highlights that whilst we have a very decent shot at disrupting the RCS and ceramic markets based on cost and performance superiority, our market is actually a fraction of the overall propant market, and has been decreasing by way of market share since 2012. An accurate guess regarding the current market share is probably 10%.
Estimates regarding total market size vary, but a reasonably consistent figure of 65 to 70 billion pounds seems to be about right for a 2015 consumption figure. That equates to 6.5 to 7 billion pounds at the premium end of the market.
I've gone on to make a few basic calculations, projecting possible revenue for LWP based on the royalty revenue model alone (not considering licence revenue). See the table below:
View attachment 90990
I've used a royalty of $0.03/lb for no other reason than thats what I've seen others use on HC. I must admit that seemed rather high when considering it seems LWP's propants are going to retail for ~$0.18c/lb. If anyone has any better idea what the royalty fee is likely to be, please get in touch and I'll update the figures.
I think realistically in the next 2 years, we'd be very happy with 5% of the overall premium end of the propant market. Assuming no growth in consumption (probably likely if the POO stays depressed), that would equate to about $10million in annual revenue from royalty payments.
Now remember that's only revenue, not profit. There's not a lot of point in even trying to assume overall profitability at this stage. But just for sh*ts and giggles, lets assume that 25% of revenue ends up as earnings. LWP @ 5% of the premium market would provide earnigns of just over $2.5 million.
At a conservative P/E ratio of 30 for a rapidly growing company, that could give a MC of $75 million - a 300% rise from here, assuming we don't see any further dilution (which we almost certainly will).
FWIW, I actually think 2% is probably a more realistic figure in that time frame - I think people on here grossly underestimate how long it takes to make inroads into an entrenched market, even with a highly superior market.
BUT, with folks like Eddy Sugar on board, who knows - he definitely has the right connections.
I hope that gives a bit of context to my comments, and where I see things as likely to go in the next couple of years. I can't help but see a lot getting carried away with pie in the sky type thinking - I don't buy into that rhetoric.
But there is definitely scope for significant scope, and I believe there's a solid 1.5 to 2 bags in this over the next couple of years, possibly more if markets surprise to the upside.
