Oxford Catalysts Sees Growth Opportunity

Secular-growth opportunities from the exploitation of North American shale gas reserves is attracting capital from industry and the financial community across the value chain. Through its small-scale gas-to-liquid (GTL) technology, Oxford Catalysts (OCG) has a proposition that sits at the heart of this trend. Third-party assessments show the technology to be best in class. A broad patent portfolio makes the potential returns protected and attractive. With record levels of interest, OCG is now starting to move from development to technology commercialisation. Success in execution would create a valuable first-mover advantage, derisk the proposition to future customers and allow OCG to capture a greater share of the value chain. The current EV fails to fairly reflect the risk-reward balance. Despite strong technical endorsement, the market is effectively pricing in a 0.4% chance that OCG can capture a 10% share of the market opportunity being presented to it.

A Play On The U.S. Shale Gas Trend
The exploitation of U.S. shale gas through fracking has led to a price arbitrage between oil and gas. This change in U.S. energy costs has been highlighted as a reason U.S. manufacturing may see a resurgence and is already being picked up as a key secular growth theme by money managers. OCG’s technology converts low-price gas into higher-value liquid fuels or lower-cost feedstock. The small scale of plants allows industry to capture this arbitrage without committing multi-billion dollar capital spend. This is resulting in entrepreneurial mid-sized U.S. companies, such as Calumet, beginning to adopt the technology in their plants.

Extremely Well Placed Competitively
A number of third-party evaluations and awards suggest OCG is optimally positioned relative to competition to commercialise small-scale GTL plants. This gives the group a potentially valuable first mover advantage that might derisk projects for future customers, make debt funding available to finance projects and allow the group to drive down cost and capture more of the value chain.

Valuation: NPV Of £18.8m Per 2,500bopd Plant
Based on current economics suggested by management, a single 2,500bopd plant generates an NPV of £18.8m. With each 2,500bopd plant capturing 0.01% of the potential addressable market, the current EV is implying a 0.4% chance of securing 10% of the addressable market. Given the positioning this seems low relative to other industries (oils, biotech) where probabilistic evaluation is used.