Energy Recovery $ERII Scores Huge Contract…
Energy Recovery $ERII Just Hit The Jackpot…
Pressure energy technology provider, Energy Recovery $ERII, just landed a huge contract with oil field services giant Schlumberger $SLB.
In exchange for exclusive rights to $ERII’s VorTeq hydraulic pumping system for the next 15 years, $SLB is forking over $125 million in upfront payments to $ERII, plus annual royalties for the length of the contract.
Without question, it’s a game changing deal for $ERII.
Not surprisingly, investors sent shares of the small-cap company soaring last week…
As you can see, $ERII is up 194% on word of the huge contract win.
What is VorTeq?
According to ERII’s website, their technology replaces the traditional missile system currently used in hydraulic fracturing. While the traditional missile system is successful in sending water, proppants, and chemicals down the well at extremely high pressure (15,000 psi), it’s prone to breakdown due to intense wear on hydraulic fracturing pumps.
ERII’s VorTeq solves that problem…
The system processes clean water and transfers hydraulic energy to the fracking fluid going downhole. The game changing technology dramatically reduces drilling down time, which in turn increases efficiency.
Of course, efficiency is the name of the game in the oil industry right now.
With oil prices sinking to multi-year lows, the oil industry is being forced to cut costs wherever possible. The cheaper they can bring the commodity out of the ground the better.
Now, here’s the question…
Is there potential for additional share price gains in $ERII going forward?
It’s important to understand that ERII’s hydraulic fracturing technology is completely locked up by $SLB. The only VorTeq revenue gains beyond the $125 million in upfront payments will come from annual royalties, which were undisclosed.
But here’s the deal…
$ERII holds promising pressure energy technology in other industries. The company’s proprietary equipment can dramatically increase efficiency in oil pipelines, chemical plants, and desalinization projects.
Fact is, $ERII has a very promising product pipeline.
And now, thanks to the huge cash infusion from $SLB, the company has the wind at its back to aggressively pursue new contracts.
With that said, should you buy $ERII at current levels?
No.
Shares have simply run too far, too fast the past week. However, keep a close eye on $ERII in coming months. A new long position in the $5 area would provide investors a lower risk buy in point for long-term gains.
What’s the potential upside in the long run?
Here’s my take…
As long as ERII’s pumping technology performs as expected, there’s a distinct possibility $SLB purchases $ERII outright in coming years. After all, the oil field giant has used the partner first and acquire later strategy many times in the past.
Of course, it’s impossible to put a number on what such a deal would bring $ERII, but I doubt the company’s management team would give up control cheaply!
Until Next Time,
Justin Bennett
Commodity Trading Research
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Commodities
