Divergent Energy Services (TSX:DVG.V) – COMPANY SNAPSHOT

DVG is now field testing a new linear electric downhole motor that replaces at surface pump jacks and rod systems. DVG could be turning the corner toward material commercial orders/production, representing an interesting investment opportunity.

Company Description  

  • Divergent is a Calgary based energy services company that has been operating for 9 years in Canada, USA and Mexico; company has three reporting segments (Artificial Lift, Flexible Pipe, and Project Financing)
  • Primary growth driver is DVG’s Linear Electric Submersible Pump technology (“LESP”, ie. Artificial Lift segment).The LESP replicates rod pump movement (replaces rod strings and surface lifting equipment, ie. pump jacks). All parts are contained within the downhole magnetically driven submersible pump housing, which hangs on the bottom-end of the production tubing thereby eliminating rod and tubing wear. The LESP is currently being pilot tested and the company is making final steps toward its first commercial production facility/order for units, both from the initial customer AND potentially other Alberta based E&P producers

Investment Highlights

  • Large potential market – the Company estimates ~60% of producing wells require some type of lift technology to produce recoverable oil. There are ~75k rod pumps in North America, which represents a $2.5B market place
  • Attractive economics – management estimates a 1.2 year payback and a 5-year savings of >$600k/pump
  • Production runway – the Company currently has annual production capacity for 1,000 units; at cost of $175k/unit, full capacity would translate into a $175M revenue run rate
  • Early/first mover in deploying this technology – while new entrants/competition are certain to emerge, DVG appears to be the first to commercialize this type of technology in N.America
  • Field trials ongoing and the company is likely to move forward with commercial version/sales – First two LESP pilot pumps were successful (after some technical glitches that were rectified), and those units are now running smoothly. Next step is to move forward with production of the ‘commercial version’, a very positive milestone. While clearly ‘mechanical/technology risk’ remains, indications are such that the technology works and client-orders are imminent

Conclusion

DVG has been making significant progress in terms of gaining confidence that the technology works, such that commercial unit sales are probably imminent. As well, additional customers are likely to commence field testing the technology. While admittedly, adoption will take time particularly as the technology undergoes refinement, and new entrants/competition are likely to emerge, the benefits of this technology are compelling. Given very large market potential and DVG’s early mover advantage, stay tuned.

Leave a Reply

Your email address will not be published. Required fields are marked *