Smaller scale gas-to-liquids specialist Velocys (VELO:AIM) gains 14.9% to 83.3p as it produces the first product from its first plant in Oklahoma City.

The ENVIA Energy GTL Plant is a joint venture between Velocys, Waste Management (WM:NYSE)NRG Energy (NRG:NYSE) and Ventech Engineers.

BIG BREAKTHROUGH

GTL is the conversion of natural gas or other gas-based hydrocarbons into liquid synthetic fuels. GTL applications have, in one form or another, existed for the better part of a century but currently can only be commercially deployed at large plant sizes (30,000 barrels per day (bpd)) which can require upfront capital investment of $3 billion or more.

Velocys’ small scale GTL technology, based on the established Fischer-Tropsch (F-T) process, can operate efficiently at anywhere between 1,000 to 15,000 bpd. This can transform previously sub-commercial accumulations of gas into transportable and valuable liquid fuels.

SHARE PRICE SURGE

The company is backed by Chelsea FC chairman Roman Abramovich. House broker Canaccord Genuity has previously argued ENVIA might need to be up and running for as little as six months to demonstrate the process is commercial. The shares have reacted as the company makes progress towards commerciality and unveiled an update on its strategy. They are now up more than 170% since we highlighted their appeal here.

VELOCHART

Canaccord reiterates its ‘speculative buy’ recommendation and 110p price target, analyst Alex Brooks comments: ‘Whilst the plant is yet to be fully operational, we believe this step is the most significant de-risking yet reached. We now expect that the plant will have reached steady production and be comfortably free cash flow positive by the middle of 2017.

‘This is a major milestone event for both Velocys and the entire small-scale GTL industry and we expect it to trigger further positive share price performance today.’


Issue Date: 06 Feb 2017