Jim Lane
Enters oil & gas drilling market with world’s first encapsulated lubricant. Solazyme: “Targeted delivery technology provides improved performance and sustainability.”
Enters oil & gas drilling market with world’s first encapsulated lubricant. Solazyme: “Targeted delivery technology provides improved performance and sustainability.”
In California, Solazyme (SZYM)
announced its entry into the oil and gas drilling fluids additive
market. Building upon its proprietary platform of high
performance, sustainable Tailored oils, Solazyme has introduced
Encapso, the world’s first encapsulated biodegradable lubricant
for drilling fluids designed to deliver high-grade lubricant
precisely at the point of friction where and when needed most.
At the same time, the company announced its intent to offer $100M
in aggregate principal notes due in 2019 and 5M shares of common
stock. SZYM will also grant the underwriters a 30-day option to
purchase up to $15M in notes and 750k shares of common stock.
“We expect the deal to be completed by the end of the week,” said
RW Baird analysts Ben Kallo and Tyler Frank. “Although initially
dilutive, it should provide sufficient capital to ramp production
at its facilities and fund further R&D.” The analysts put a
$18 price target in SZYM shares, which closed on March 25 at
$13.09.
The drilling fluids markets
The global market for drilling fluids was valued at $7.2 billion
in 2011 and is expected to reach $12.31 billion by 2018, according
to a
report released last summer by Transparency Market
Research.
The rise in unconventionals and the growth in deep-sea
exploration have driven up revenues for drilling fluids in recent
months. One factor that has limited the use of conventional
oilbased fluids (as opposed to water-based fluids) have been
environmental and sustainability concerns associated with
conventional oils.
According to Solazyme, Encapso’s efficacy has been demonstrated
both in the lab and in the field in over a dozen commercial wells
in a number of basins including the Williston Basin,
Denver-Julesburg, and the Permian Basin. Encapso increases
drilling speed and control, and protects valuable equipment.
The majority of work so far has been done in horizontal wells,
helping demonstrate Encapso’s strong performance capabilities when
it comes to “building the curve”—or the point where an
unconventional well transitions from vertical to horizontal. This
is often when drilling engineers find the most difficulty managing
drilling friction. Improving the speed and efficiency of drilling
translates directly to cost savings for well operators.
“The demand for energy continues to grow but new sources of
fossil fuels are more difficult than ever to recover. As long as
the oil and gas industry continues to extract fossil fuels, we at
Solazyme view it as an imperative that it is done in a more
sustainable way to protect the environment for generations to
come,” said Solazyme CEO Jonathan Wolfson. “The drilling industry
needs new high-performance and sustainable technologies to meet
rising energy demand and increased drilling. Encapso’s unique
targeted lubricant delivery system helps reduce the costs for the
oil and gas exploration and production industry and provides
improved drilling performance.”
Reaction from the customers
“After adding Encapso to the system we saw a rate of increase in
our rate of penetration from two feet per hour to 40 feet per
hour. Encapso is a game changer because you’re reducing your
torque, reducing your drag, and reducing your coefficients of
friction all at the same time,” said Philip Johnson, a senior
drilling engineer who worked with Encapso on behalf of a major
exploration and production company. “No other product on the
market does that.”
”Our observation of the product is that it has consistently added
value,” said David Cunningham, Regional Manager at Anchor Drilling
Fluids, USA. “The biggest impact has come when we’ve seen
increases in rate of penetration and reductions in torque.”
“When I learned that this lubricant was encapsulated and
therefore would deliver a drilling lubricant in a more targeted
way, I saw the tremendous potential benefits,” said Tony Rea,
President of Arc Fluids. “I introduced Encapso to a few customers
and worked with them on several wells that they were drilling. In
all cases, we witnessed marked improvements in directional
control.”
The Analysts on Encapso
“Entering into the oil and gas drilling fluids additive market
provides SZYM another end market for its products,” write Ben
Kallo and Tyler Frank at RW Baird. “This will be important as the
company ramps production at its Clinton and Moema facilities. We
believe SZYM should be able to secure offtake agreements for the
Encapso product line after successfully testing the product in the
Williston Basin, Denver-Julesburg, and the Permian Basin and
receiving positive feedback from Anchor Drilling Fluids and Arc
Fluids.”
The Bottom Line
Another market for Solazyme — and a large one — and one in which
high-performance and high-sustainability are known factors for
driving revenues. If the company gets real traction in this field,
its planned capacity will have to be revised northwards. Towards
which its pending cap raise will materially contribute.
Jim Lane is editor and
publisher of Biofuels Digest where this
article
was originally published.
Biofuels Digest is the most widely read Biofuels daily read
by 14,000+ organizations. Subscribe
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http://www.altenergystocks.com/archives/2014/03/solazyme_launches_biodegradable_encapsulated _lubricant_for_drilling_market.html
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