As the U.S. and global oil industry continue to cannibalize itself just to stay alive, the market is totally clueless because investors are being misled by the fallacy that technology will solve our peak oil crisis. While technology has allowed more oil to make it to the market, it has done so at a very high cost. Unfortunately, a significant percentage of the increased cost to produce this high-tech oil was subsidized by debt from unsuspecting investors.
Hundreds of billions of Dollars were invested in the U.S. Shale Energy Industry by investors who were looking for a higher return on their money than they could receive from banks or other financial institutions. Sadly, most investors will not see the return of their funds as the U.S. Shale Energy Industry isn’t making the profits to pay back this debt.
However, many resource analysts aren’t able to understand the ramifications of the falling EROI – Energy Returned On Investment and Thermodynamics in the energy industry. Thus, they believe in the fantasy of unlimited oil production and economic growth on a finite planet. Analysts and the public believe this nonsense due in part to claims of new revolutionary energy extraction technology. Once such company is Petroteq Energy that claims that it can produce oil sands at a low-cost of $20 a barrel.
Over the past several months, I have received countless emails from followers who provided links to articles promoting these amazing new energy technologies:
Interestingly, all of these articles were promoting the same company… Petroteq Energy.
According to the company’s website:
Petroteq Energy is focused on value creation through the development and implementation of proprietary technologies for the environmentally safe extraction of heavy oils from oil sands, oil shale deposits, and shallow oil deposits.
Petroteq by way of its wholly owned subsidiary has a breakthrough, environmentally-friendly, proprietary oil sands extraction technology which is suitable for all hydrocarbon deposits. The closed-loop technology may also be applied for remedial project such as tailings ponds. After the launch of its first extraction plant in Utah, the Company now intends on scaling up its capacity with several additional, higher capacity extraction units within the state, which has over 30 billion barrels of undeveloped but recoverable oil.
In a nutshell, Petroteq supposedly has new cutting-edge, revolutionary technology that can process Utah oil shale-oil sands at a low price of $20 a barrel. And with the 30 billion barrels of undeveloped resources in the state, the company could open up a new plentiful source of oil for the United States for the next 100+ years.
Because I received so many emails about this energy company, I decided to take a closer look at it. At first, I was a bit skeptical about the company’s assertion that it could produce heavy oil at $20 a barrel. However, the more research I did on Petroteq and its competitors, the more I was convinced that the company’s claims were too good to be true due to old fashion EROI economics and several RED FLAGS.
How so? Well, let’s first start off with first Red Flag that takes place in many small-cap companies. And by that, I am referring to the oldest trick in the book… changing the name of the company. Petroteq Energy was previously called MCW Energy Group. On May 4th, 2017 the company announced the name change:
MCW Energy Group Announces Consolidation, Name Change, and Trading Symbol Change
TORONTO, ONTARIO — (Marketwired) — 05/04/17 —
MCW Energy Group Limited (“MCW” or the “Corporation”) (TSX VENTURE:MCW) (OTCQX:MCWEF), is pleased to report that the Corporation is proceeding with the initiatives that were approved by its shareholders at the Shareholder’s Meeting held on April 6, 2017. Accordingly, MCW will be filing Articles of Amendment to change the Corporation’s name to Petroteq Energy Inc., to change its TSXV trading symbol to “PQE”, and to consolidate each of its issued and outstanding common shares on the basis of thirty (30) common shares for each one (1) common share resulting in 7,961,574 issued and outstanding common shares.
Not only did the company change its name, but it also executed a 30 to 1 Reserve-Split. By doing a reverse split, Petroteq’s share price increased significantly. Again, this should be a RED FLAG for any investor. Now, if we also consider the miserable performance of Petroteq’s stock price, we can spot another RED FLAG:
As we can see, Petroteq’s share price fell from over $25 in 2014 to a low of $0.30 before the company began its promotional campaign at the end of 2017. However, problems for Petroteq started a year before the company’s share price crashed to a low in 2017.
Petroteq produced 10,000 barrels of oil from its supposedly revolutionary technology in 2015 and 2016. While the company brags that it can produce oil at a low cost of $20 a barrel, their financial results stated otherwise:
First, remember that Petroteq was still MCW Energy in 2016. Secondly, the company received revenues of $204,735, about $20 a barrel for their 10,000 barrels of oil. However, the cost to produce the oil was a staggering $1.4 million (highlighted in yellow). However, if we include the additional costs such as General and Administrative, Professional Fees, Salaries, etc, t.hen the losses really stack up.
So, how the hell is Petroteq going to produce oil at a low cost of $20, when we can clearly see that their Cost Of Goods alone was nearly seven times what they received from selling their oil. While it’s true that Petroteq was testing their new technology and planned to ramp up production to an ultimate 10,000 barrel per day operation, troubling signs began in the second half of 2016:
MCW Energy Group to Restart Its Utah Oil Sands Production in June 2016, and Generate Revenue at Sustainable Profit Levels
TORONTO, ON — (Marketwired) — 06/02/16 — MCW Energy Group Limited (“MCW”), (TSX VENTURE: MCW) (OTCQX: MCWEF), a Canadian holding company specializing in the development and commercial implementation of oil sands technologies, through MCW Oil Sands Recovery, LLC, (“MCW Oil Sands”) today announced its plans to resume revenue-generating oil production in June of 2016.
Prior to the decline of oil prices during the latter part of 2015 and the first quarter of 2016, the Company produced approximately 10,000 barrels of oil from its 250 bbl/day plant. The decision to immediately move forward into production mode was made recently, subsequent to the gradual rebound of oil prices to a level where MCW’s production is again economically viable. Production costs for MCW’s plant were confirmed at $31.00 bbl. (Chapman Petroleum Engineering Study, 2015)
The resumption of production will result in almost immediate revenue and will increase incrementally as the Company moves to a 500 bbl/day level and up to the 750 bbl/day with the assistance of Vivakor Inc. and the installation of its mobile 250 bbl/day extraction unit. (See Press Release, May 4th, 2016, “MCW In Discussion With Vivakor Inc. To Operate…”) (Vivakor) (OTC PINK: VIVK) MCW expects to resume production by the second week of June, 2016. The Company intends to obtain positive cash flow within the remaining three quarters of 2016.
According to the CEO of Petroteq, they planned to ramp up production to 750 barrels per day and to obtain positive cash flow by the end of 2016. However, there hasn’t been any production at Petroteq for the past six quarters:
As we can see, total revenues from operations have been “Nil” since their last production quarter of $51,303 on Feb 28th. So, why did operations at Petroteq not resume in the second half of 2016 as reported by the CEO of the company? Well, according to their recent financial statement, they stated the following:
PQE’s technology has been tested at full capacity as of August 31, 2015 and an independent production evaluation was completed, shortly thereafter. PQE initially hired and trained its own personnel to operate the plant but has since laid off all employees due to the price volatility in the international markets reducing viable production at limited volumes. The Company is able to produce oil/hydrocarbon products which can be sold locally in Asphalt Ridge to the oil and gas distributors or refineries.
In times of high volatility, the Company expects to restrict its oil and hydrocarbon production to prevent the Company from realizing losses on barrels of product produced.
Due to the volatility in oil markets and the limited production capacity at the plant, no production took place during fiscal 2017, resulting in no revenue generation. The cost of sales during fiscal 2017 consists of advance royalty payments which expire at the end of the calendar year two years after the payment has been made. These expired royalties have been expensed.
The company claims that production of their oil sands operations did not resume in 2016 or 2017 due to extreme volatility. This is quite interesting because the price of oil in the second half of 2016 was higher than the first half and the prices for 2017 were similar to 2015 and early 2016 when Petroteq produced their 10,000 barrels of oil.
So, what gives? The company has put out PAID SPONSORED articles on energy websites stating they can produce low-cost oil at $20 a barrel. With the price of oil above $45 for the second half of 2016 and averaging about $50 in 2017, why couldn’t they ramp up production of their low-cost $20 a barrel oil? The reason is simple… they can’t produce oil anywhere near $20 a barrel. Any buffoon who believes this needs to get their head examined.
As the company’s share price fell below a $1.00, they got desperate and published these hyped articles to bring in as many SUCKERS as they could to purchase their stock. However, the future does not look too bright for Petroteq. If investors fell for the Petroteq hype, I gather they would have also done so for U.S. Oil Sands Inc.
U.S. Oil Sands Inc Disintegrates & Goes Bankrupt In Flying Colors
Another company that tried turning GOLD into LEAD was U.S. Oil Sands Inc. The company first came to life on April 19th, 2011 and had spent the next seven years trying to make a commercial operation from the very low-quality Utah oil shale-oil sands. U.S. Oil Sands Inc states on its website that it is “Changing the way Bitumen is extracted.”
According to the company’s overview:
US Oil Sands is developing its properties by using a unique and environmentally friendly extraction process. This one-of-a-kind, patented approach to oil sands development allows the Company to achieve best-in-class environmental results along virtually any metric. This process utilizes a citrus based bio-solvent that naturally separates bitumen from oil sand. This approach completely eliminates the need for tailings ponds, is expected to require approximately 50% less energy input than traditional oil sands projects, recycles 95% of the water used and employs best practice mining methods to simultaneously mine and reclaim the targeted area. US Oil Sands is fully permitted by Utah’s Division of Oil, Gas, and Mining to construct the PR Spring Project on its Utah property and first-oil is expected in 2017.
Not only did U.S. Oil Sands Inc have the same sort of new revolutionary technology to produce oil shale-oil sands as did Petroteq, but it also planned to start its commercial operations in 2017. Unfortunately for U.S. Oil Sands, things didn’t turn out as they expected. Here were some of their last press releases:
June 28, 2017
US Oil Sands Inc. Announces Updates on Financing and Voluntary Delisting from the TSX Venture Exchange
September 13, 2017
US Oil Sands Inc. Announces Director Resignation
September 15, 2017
US Oil Sands Inc. Announces Appointment of Receiver
…. and finally,
CALGARY, ALBERTA February 23, 2018 – US Oil Sands Inc. (“US Oil Sands” or the “Company”), an innovator of oil extraction technologies, today announces that it has commenced a sale solicitation process (“SSP”) for the sale of the Company or its assets.
On November 16, 2017, the United States Bankruptcy Court for the District of Utah, Central Division, issued an Order under Chapter 15 of the U.S. Bankruptcy Code recognizing the Canadian proceedings as a foreign main proceeding.
As we can see, the “INNOVATOR OF OIL EXTRACTION TECHNOLOGIES” announced the sale of the company or its assets. How could this be? Isn’t technology supposed to solve all our problems?? Why did technology fail here? It’s simple. The one thing technology can’t change the COST to produce oil. Petroteq and U.S. Oil Sands cannot produce oil for $20 a barrel… complete nonsense.
If we look at the price action of U.S. Oil Sands Inc chart, it’s quite similar to Petroteq:
U.S. Oil Sands Inc. lost 99.9% of its value by falling from over $10 in 2012 to $0.0003 currently. While Petroteq’s sponsored articles have given a shot in the arm to its share price, I don’t believe it will last long. Petroteq’s share price is already down 94% ($1.55) from the $25 level it was trading in 2014.
So, investors that are thinking about getting into the “Revolutionary new energy technology” of Petroteq, you had better take some time and do your due diligence. From what I see, Petroteq’s little remaining future will resemble what happened to U.S. Oil Sands Inc.
Lastly, while oil production continues to reach new record highs in the United States, don’t get used to it. The U.S. Shale Oil Industry, which accounts for more than 50% of domestic oil production, is in serious trouble. I can honestly tell you we are likely going to see another ENRON type of event in the U.S. Shale Oil Industry within the next few years. When this occurs, watch for rapid disintegration of the U.S. Shale Oil Industry.
Americans have no clue just how bad a disintegrating domestic oil supply will impact the Suburban economy. As the U.S. economy implodes due falling domestic oil supply, those who hold most of their wealth in STOCKS, BONDS, and REAL ESTATE will wish they had diversified into precious metals.