Ridgeline Energy Services (RLE.V) -- yesterday they announced their first big order for water treatment units, 6 of them, with a firm that runs commecial SWD facilities. They also announced an equity raise @ .70. This is tremendous news on several fronts.
I like the fact that they have decided to work with the commercial SWD firms vs. only marketing to the large E&P firms. The problem with restricting yourself to the latter is that that entails extremely long sales cycles. Those large E&P firms are constrained by annual cap ex budgets and have multiple levels of management, each of whom believe that their primary job is to continually demonstrate how so smart they are and why their position in the company is so critical. Contrasted with this are the firms running the SWD facilities, which are typically privately held, smaller firms with flatter management structures, who are always interested in hearing how they could make another buck in their business.
This contract with Kerr is perfect for Ridgeline's current stage of development IMO. They will only add 1 new unit every 2-4 months, meaning it will take ~1.5 years to add all 6 units. This preserves plenty of slack in the system for Ridgeline to continue to service EOG whenever EOG finally gets their act together and is ready for more units. I really like the fact that Ridgeline is showing to EOG that EOG is no longer the only game in town for Ridgeline; this should help immensely with future negotiations between the 2 firms. Also, the additional cash in the treasury should also help with future negotiations since it should demonstrate that Ridgeline is making a serious commitment to play ball with the big boys yet doesn't need any of their money to do so.
Some may view the large equity raise as a negative and in the short term that will almost certainly prove correct (read: "buying op!"). But I'd much rather see something like this vs. just see the company continue to muddle along trying to grow from within, or even worse, take on some sort of convertible debt that would keep a lid on the stock price for years to come. Their addressable markets are so huge that making the pie 16M shares larger at this point is not going to have much impact on whether the stock turns out to be a good investment over the long term or not. In other words, due to the massive amount of running room that is being presented to Ridgeline in both the oil & gas and industrial water treatment markets, if the business succeeds they will make so goddam much money that whatever denominator is used in computing EPS it will not matter all that much in determining whether the stock turns out to be a good investment or not. |
