Tuesday, April 10, 2012

Hmmm...Company that Turns Oil Into Natural Gas Coming Public

It's all in the timing.
I'm sure there has been, somewhere, sometime, a short gold/buy dung pair trade that worked out but off hand I can't think of it.
From Greentech:

Greentech IPO Spring: BrightSource, Enphase, Enerkem, Luca Debut
Luca Technologies of Golden, CO is looking to raise up to $125 million in an IPO on the Nasdaq. The firm uses naturally occurring microorganisms to generate natural gas. "Our proprietary technology stimulates native microorganisms that reside in subsurface hydrocarbon deposits, such as coal, oil and organic-rich shales, to accelerate the bioconversion of these resources into methane," according to the firm. Investors in the company include Kleiner Perkins Caufield & Byers and One Equity Partners.
In 2011, Luca reported a loss of $18 million and revenue of $1.0 million. In 2010, Luca reported a loss of $20 million with revenue of $2.4 million.
According to the S-1:

We leverage the ability of naturally occurring microorganisms to convert subsurface hydrocarbon deposits, such as coal, to methane gas. This complex process is susceptible to interruption by various chemical and biological conditions, including traditional coalbed methane development which involves removing water from the coal seam to reduce pressure and allow previously adsorbed natural gas to flow up a well. As a result, the natural and ongoing biogenic creation of methane gas slows or ceases, with a large mass of unutilized hydrocarbon deposit remaining in place underground.

To accelerate biogenic methane gas production rates, we use our proprietary Restoration Process to deliver customized nutrient formulations and water to restore coal reservoir habitats to conditions that may enable native microbial communities to be enhanced to create commercial volumes of natural gas on a real-time basis. We produce this newly created natural gas and deliver it to market using existing wells, pipelines and natural gas infrastructure.

Oil and natural gas resources developed and produced by the traditional E&P industry often exhibit production rates that peak early in the lives of wells, and then steeply decline as stored hydrocarbons are depleted and pressure is reduced. In contrast, wells producing newly created methane gas using our Restoration Process are more akin to “gas farms,”  producing natural gas at lower, but constant or slightly increasing rates for extended periods of time.

Our Restoration Process is designed to sustain the life processes of naturally occurring microbial communities. We do not introduce foreign microbes, nor do we rely upon genetically-engineered microorganisms. Microbes are already present in coalbed water and are responsible for biogenic methane gas creation. The first step in our Restoration Process involves the identification and assessment of underground environments where the native conditions are suitable for microbial life activation, and where the biogenic process has been active in the past. As a second step, we perform lab and field studies to assess microbial activation. In the lab, using water and hydrocarbon deposits from a prospective basin, we attempt to identify optimal nutrient formulations for methane creation. These nutrient formulations are then field-tested prior to initiation of commercial activity within an area or basin.

Single-digit millions revenue that has decreased from the previous year does not seem like an encouraging sign for what looks like a wildcatting business, albeit one with an interesting biotechnology angle. This type of business might have been interesting when natural gas was at $7 to $8/mmbtu. The business is a lot less interesting at today's $4/mmbtu price.
Ray Lane is currently the KPCB board member at Luca, having taken over after KP's Jonn Dennison and Ben Kortlang left that role -- which seems like a bit of churn at the board level.