Investment opportunity

Bambamski · Posted: May 05, 2014 3:27 pm Post subject: Investment opportunity

I've sucked at picking individual stocks as of late so I'm feeling a bit gun shy. However i've been dealing with a new start up company the past two years and have thought what a great business model they have and i would love to get some money invested in them. They are privately held though.

They are raising 40 million for the first part of their expansion in the US and they have tripple the money they need from potential investors. I was put on the presidents list though and was told I could invest some dough if I would like.

The company isn't public and really has no plans to go public. Shares can trade in the grey market but nothing really has traded. The exit strategy is basically to get bought out.

With the lack of liquidity what do people think a reasonable rate of return is for this kind of risk. Current owners are about 5 times their money now. Nobody is selling current stock during this. The ownership capped themselves to being able to buy 15 million more in shares. Risk vs reward. Would another 5 times be reasonable? Or would you need a bigger return based on the lack of being able to possibly get out if something happens?

dbismyname · Posted: May 05, 2014 5:39 pm Post subject:

Too vague to really tell. But I'm more of a fundamental analyst than a technical. So I'd really want to know things like business sector, management's experience before they we're in this company, etc.

But if you really are feeling so sketchy about it that you're asking wb'er, I say stay out Laughing

eeven73 · Posted: May 05, 2014 6:55 pm Post subject:

^this

Plus, what is the money you are considering investing to you? Nest egg? Pocket change? That would make a huge difference in ROI expectation.

Bambamski · Posted: May 06, 2014 5:26 am Post subject:

pretty vague I know. Management is solid. CEO of Encana, one of the largest gas companies in Canada has a lot of money tied up in this venture. Not going nest egg but probably 10% of the egg.

Really I'm just wondering what others think of when they're considering investing in, I wouldn't call a risky venture but it's not like investing in a solid blue chip dividend paying stock either. What are some of your expected returns if you were to consider doing something like this? It could go to zero, if something happens and there really isn't a liquid trading point.

The business is trucking CNG. Compressed natural Gas. They're not going after the retail car market or anything like that. They're business model is supply the drilling industry natural gas to run their fracking, rigs, drilling units ect ect. Diesel fuel is 4 bucks a gallon or more. These huge engines can burn at least 50% natural gas without losing any power which is saving the drilling companies millions per year in fuel costs.

The company has signed contracts with a number of the big names here in Canada to supply a portion of their drilling rigs, and the expansion is just to service one large company stateside in the permian basin in Texas. So really just getting in on the ground floor i'm hoping.... They hold all the patents on the technology and have an exclusive right on the cylinders that are on the trucks.

Just don't know who's going to buy them.... or when.

eeven73 · Posted: May 06, 2014 6:53 am Post subject:

indefinite timeline- Check

no market for the asset- Check

no plans to go public- Check

I would hope 5X is a reality and that you are putting money in that you can afford to see go bye bye.(or be lock up a loooong time)

ohsix · Posted: May 06, 2014 7:44 am Post subject:

I run a permian basin e&p company and have heard nothing of this or seen them. It sounds like a decent idea, but I'm currently on a frac that will cost about $1 million over 2 days. The pressure pumping part of that bill is between $600-$700k. The fuel portion of the bill will probably be around $30,000. If you told me I could reduce my fuel bill by 1/2 by letting another truck on location and running cng lines to the 14 2500hhp pumps on this location, I'd say no thanks.

Frac'ing is the biggest fuel consumer in drilling and completions. Your next biggest would be drilling rigs, but again I think the possible savings on fuel are minimal in the overall cost, and cng is an added hazard.

My office today:

Nor*Cal · Ladies Man Joined: 12 Jan 2003 Posts: 9479 City: Sac

Are you talking CNG semi-trucks for goods movement or transporting CNG by truck for onsite use?

I'm guessing either only makes financial sense in an emission controlled environment like California or BC and Quebec. Even then if the diesel generators are portable and meet tier 2 I think they're ok.

Bambamski · Posted: May 06, 2014 9:28 am Post subject:

Certarus is the company. Natural gas converted to CNG and trucked to the sites.

The business model works because it doesn't take anything to set up the station where they take the gas and convert it to CNG. If drilling stops in the area they can pick everything up and move to where the drilling happens.

LNG costs 100's of millions to set up a sight. if the sight becomes too far from the drilling activity the LNG becomes obsolete. that doesn't happen with the CNG model these guys have. They haven't really started in on the mining aspect of the model as well. Companies like Syncrude for instance use about 600,000 gallons of deisel a day. Cost savings would be massive. Those trucks would have to be converted though which would be a significant cost though.

eeven73 · Posted: May 06, 2014 9:41 am Post subject:

Bambamski · Posted: May 06, 2014 1:32 pm Post subject:

which makes sense eeven73. Any new equipment would be converted and over time you'd phase the old stuff out.

we pay 1.10 per litre for Diesel and the conversion is roughly 60 cents. Not sure the exact liter to gallon conversion but it's around 4 litres per gallon. So call it 4.4 per gallon vs 2.4 for the CNG. Savings of 1.2 million per day....on 600,000 gallons per day. Pays for a couple of trucks I'm thinking....

chavez · RIP MHL 04/25/1958 - 01/11/2006

Man, I clicked in here hoping to hear about my new Nigerian prince friend and his wire transfers.

I am dissapoint.

ohsix · Posted: May 07, 2014 6:38 am Post subject:

Without this companies financials, it's hard to make any prediction on how it may grow.

As far as the business model side, I don't know how oil sand mining (Syncrude) works. You have said this company's main client is in the permian basin. I don't really see any big opportunity for cng to replace diesel in the permian basin except maybe for drilling and only in cases where there is good supply of natural gas available via pipeline. A natural gas pipeline near drilling activity is very common, but some type of conversion to the diesel engines will have to be done for them to use natural gas whether it's used to replace diesel, or simply used in conjunction with diesel.

Companies have been trying to get people to use CNG as a transportation fuel for years. The problem is the energy concentration in natural gas is so low compared to liquid fuels like diesel. You can run a truck on CNG, but it will need a large fuel cell, the gas will need to be compressed to several thousand PSI, and the truck still won't be able to travel as far as it would on a normal sized diesel tanks, and when the truck needs more fuel, it has to stop at a place that can fill the CNG fuel cell at several thousand PSI.

If you understand this business and feel like an investment in the company will yield a better return than your other investment opportunities, I think you should invest. It would bother me that a new company that's already a five-bagger has no float. I would think investors would be happy to take some chips off the table in that situation. Another thing that bothers me is you say the company set out to raise $40 million but raised triple that instead. I don't know how that business is run, but in my business, when I need $40 million, I raise $40 million. I don't want $120 million. If they don't have a plan to make a return on that extra $80 million, it's just going to sit and do nothing and either dilutes the stock if it's an equity position or raises their cost of capital if it's credit.