Energy Recovery 2Q21 schedule and more on hydrocarbons ?4

10:00 01-Jul-21

See the correction to the ERII fair value calculation, below, more in line with my historical commentary.

New Fortress has scheduled its second quarter report for the morning of August 5th with a half dozen analyst estimates averaging out to 16 cents of EPS from $340M of revenue, ramping through $438M this quarter.  Assuming Golar maintains a significant NFE position, I will certainly cover the report with more interest than Energy Recovery's.

In the meantime, I'll be watching for the terms that Shell can get in disposing of its remaining 260K Permian acreage.  Despite what I said yesterday, WTI is above $75 and less than a dollar behind Brent on word that OPEC+ will be stingy in raising output in the face of expected demand.  I doubt that Shell can get near $10b cash, rather than stock, for its land, but we'll see.  It is also looking to exit California production with Exxon and has won the rights to develop 1510 MW of wind offshore of NJ with EDF Renewables.  In short, Shell is transitioning as quickly as its debt situation allows, but a weak Permian sale could really freeze American fracking, further increasing oil prices, but decreasing supply, to the benefit of natural gas.

Regardless of how the future plays out, my current calculations on ERII fair value look like this:

$122M sales x 5 + $120M cash = $730M ÷ 57.5M shares = per $12.70 ERII share

On 6/29/21 11:39 PM, Esekla wrote:

Energy Recovery has scheduled its second quarter conference call for the evening of Thursday, August 5th.  The mid-point of two analyst estimates is a penny of EPS from $22.3M of revenue, declining to $20.3M for the third quarter.  Of course, we're also expecting details on a VorTeq commercialization strategy.  I still can't imagine anything they would have to say on that topic that would even tempt me to buy the stock at half the price.

Part of the reason is that the long-awaited ascendancy of natural gas seems imminent.  Although oil still gets most of the headlines, it has been in more of a holding pattern of late, waiting on OPEC+.  By contrast, the major gas indexes for America, Europe and East Asia have all risen sharply.  I'm certainly not ruling out an oil price surge and even sillier ERII pricing, but the medium to long term fundamentals still lead me to Golar and Xebec.  In my opinion, the likelihood of sustaining the strong multi-year domestic oil demand volume that VorTeq would need to be a real game changer died in the pandemic with Schlumberger's pivot from fracking toward digital management.