Water Water Everywhere

Oct 5th, 2009 – Comment

Hi Lou Can you take a look at PRP- TSX and see what you think. Thanks. Sami from Mississauga, Ontario Hi Sami, Thanks for the assignment. ProSep Inc. ( PRP TSX) is a Montreal based company that services the needs of the oil and gas industry. The company’s specialty is the separation of water from […]


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Hi Lou

Can you take a look at PRP- TSX and see what you think.

Thanks.

Sami from Mississauga, Ontario

Hi Sami,

Thanks for the assignment. ProSep Inc. ( PRP TSX) is a Montreal based company that services the needs of the oil and gas industry. The company’s specialty is the separation of water from the flow of oil and gas produced from a reservoir.

All oil and gas wells produce some amount of water. If what is called the water cut is too high a well may not be economical because of the cost of water handling. Over the course of their serviceable lives most wells see their water cut increase for a number of reasons.

The super giant fields in Saudi Arabia which have been producing for the better part of 50 years are experiencing water handling issues as Saudi Aramco injects produced water back into the fields in an effort to maintain pressure in the reservoir.

Natural gas can also contain water that has to be separated from the stream before pipeline companies and users will accept it for shipment and consumption.

PRP had a strong 2008 growing revenue to $52M from $6m in last 6 months of 2007 . The company reported a $15M sales backlog going into q3 09 . In Q2 09 they had $22.1M in debt in with $5.4M in cash in the quarter. From a market acceptance perspective things are progressing nicely. But they have yet to turn a profit.

prp

The three year chart shows a that the downtrend that started in 2007 has been broken suggesting that there is some opportunities for further appreciation. The last test of the lows indicated a level of capitulation that washed out the last shareholders who just had had enough.

prp2

The big push off the bottom last week came on news that the company was ranked the fastest growing technology company in Canada by The Deloitte Technology Fast Fifty. Volume on Friday was over 7M shares – the average daily volume for the last 3 months has been 295,357 which provided another indicator of investor conviction.

High water cut is a big problem in the oil and gas industry and with the market accepting the solutions offered by PRP and a chart that indicates that the the last sellers have been washed out it looks like a reasonable risk reward equation.

Happy Capitalism!

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