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Corac Group - new agreement is a big vote of confidence in the technology
Posted 25/08/10
Having announced somewhat disappointing interim results earlier in August (Revenues £0.05m, net loss £2.41m with no major revenues received from JIP partners), the AIM quoted developer of energy efficient compressor technology has announced a new agreement with an independent exploration & production company with gas interests in the United States – Texas based?
The project is to develop, build, test and field trial the Group’s Downhole Gas Compressor (“DGC”) in a depleting well in North America with the aim of accelerating gas flow through artificial lift, thereby increasing production and extending the life of the well. The development phase is expected to take approximately twelve months followed by a six month field trial. The agreement has a maximum value of $1.5m, based on achieving milestones over a period of eighteen months, with an upfront payment of $750,000 which will help cashflow.
The project will allow Corac to build on the development work already underway with Eni SpA in Italy, as well as provide another means to test the DGC technology in an important geographical market.
Corac, which is based in the Brunel Science Park, West London, has supplied industrial ‘no-oil’ air compressors to industries such a PET plastic bottle manufacturers and other related markets. Working with Joint Industry Partners they have developed and now supply the DGC to the oil and gas market. Aggregate revenue for the past 5 financial years to 31st December 2009 is only £5.9m with accumulated losses £12.1m so this remains early stage!
The DGC is currently the Group’s key product and facilitates the removal of gas from wells which, under normal drilling compression conditions, would be considered uneconomic. As far as we understand it adds extra pressure to the well to force the gas up to the surface. Several so called ‘artificial lift’ systems are already in use around the world today already including Electrical Submersible Pumps (ESPs), Progressing Cavity Pumping (PCPs), Horizontal Pumping Systems and Gas Lift systems. None of these utilise the process of increasing the well’s internal pressure to force more gas to the surface. As to how they all work, the pumps are pretty self-explanatory; they utilise an electric pump in the well to push the products to the surface. The gas lift system utilises gas from the well, injected into the products to reduce its density and ease its flow to the surface.
What makes Corac’s DGC different is that it is an entirely new system of artificially increasing the pressure in a well to push gas to the surface. It uses a complex of proprietary motors and turbines to force gas (nitrogen or methane) into the well and increase its pressure, thereby increasing the ability of the products to reach the surface and enabling a well to continue production long after it otherwise would have been abandoned. Corac claim that using this technology could boost the return of a well by 30%-50%. The system is such that it can be introduced to a well at any stage to increase production.
It appears a big vote of confidence in the DGC that someone else has been attracted to using the technology before the ENI trial is concluded.
Corac has also confirmed that they are continuing to work closely with a potential Middle East partner where negotiations are nearing the final stage to secure a third field trial development project for an alternative application of Corac’s core compressor technology.
The Group recently reorganised into three main business streams to address existing and potential applications for their technologies:
- Gas in harsh environments: includes DGC, air cycle cryogenics and vapour cycle refrigeration
- Clean air supply: includes waste water treatment, pneumatic powder conveying and air drying;
- Efficient air power: facilitates lower cost, more efficient industrial air compression
There was cash in the bank of £3.7m at 30th June 2010 with a net £1.6m cash outflow during the 6 months. They raised a further £4.7m at 35p per share in Sept 2009.
Corac has promised much over the last few years and has attracted a keen following of private investors. Unfortunately commercialisation of the DGC is probably taking a lot longer than many anticipated
Back in June 2008 (Share price c90p) they announced the first order for DGC when Eni SpA, the Joint Industry Programme (JIP) partner, placed an order for the first field trial unit. The Group has been working with the JIP partners, Eni SpA, ConocoPhillips (UK) and Repsol YPF for the last five years in developing its patented technology.
With the industry giants in the US probably reluctant to adopt untried and comprehensively tested new technology in the aftermath of the Gulf spill it was anticipated that Corac was going to find things heavy going in the short term, making this new agreement all the more encouraging.
This entry was posted 1 year, 5 months ago and was filed under Corac.
