Cary Bounds, CEO and Director at VAALCO Energy
Cary Bounds is Chief Executive Officer and Director at VAALCO Energy, Inc. Earlier, he was Chief Operating Officer at VAALCO.
Previously, Mr. Bounds held a variety of technical and management positions of increasing responsibility with major energy companies as well as independent E&P companies. Earlier at Noble Energy Equatorial Guinea Limited, Mr. Bounds was a Vice President.
He was also North Sea Country Manager from April 2010 until May 2013. Prior to Noble, Mr. Bounds was the Engineering and Planning Manager, Worldwide for Terralliance Technologies, Inc. and was their Country Manager in Mozambique from 2007 to 2010. Mr. Bounds was with SM Energy from 2004 to 2007 and was Engineering Manager for their Gulf Coast and Permian regions.
Mr. Bounds spent five years with Dominion E&P serving in corporate development, planning and reservoir engineering positions.
Mr. Bounds began his career with ConocoPhillips in 1991 where he held a variety of reservoir and production engineering positions in U.S. onshore regions. Mr. Bounds received a B.S. degree in petroleum engineering from Texas A&M University.
In this 3,189 word interview, exclusively in the Wall Street Transcript, Mr. Bounds explains how his company plans to dramatically increase the return on investment.
“In late 2016 I was named CEO and we set VAALCO on a new strategic path centered on eliminating debt, extending our license at Etame and profitably growing production and reserves.
By 2019 we had accomplished all of these goals. We strengthened the balance sheet tremendously, have had no debt on our balance sheet since 2018 and we are examining the best uses of our free cash flow.
At the close of the third quarter, we had $42 million in cash on our balance sheet, no significant liabilities, so the company is positioned very well.
Most recently, in November, we announced a transformational acquisition of one of our Etame partners’ working interest in the Etame licenses. The acquisition has effectively doubled our reserves and production with a very minimal increase in G&A — general and administrative expenses.
And so we are seeing accretive growth and putting our free cash flow to good use.”
Mr. Bounds is actively seeking a merger of equals in Africa.
“We’re looking for companies that are approximately our size. And there may be synergies with the assets as well. For example, if we merged with a company that was operating in Gabon, we wouldn’t need two division offices in Gabon.
We would certainly save in G&A. We certainly look for those synergies; size matters.
And so we’re approximately a $140 million market cap company today. If we combined with somebody about our same size, we become a $280 million market cap company and we would get more attention, I’m certain of that. It’s scale and size, plus synergy that we’re trying to accomplish in a merger.
On the acquisition side, again, we’re looking for producing properties with development potential in Africa because we understand how to operate in Africa.
We are actually seeing some deals come through, a pipeline of opportunities, and it’s mainly large, major E&P companies that are rationalizing their portfolio and divesting of non-core assets. And so we do spend a lot of time trying to find new properties to acquire as well as mergers.”
There are distinct implications for entrepreneurs in Africa:
“…It requires unique skills to operate in Africa, and I think that’s where we have an advantage as VAALCO.
We know how to operate in Africa. I’ll start with infrastructure. There’s less infrastructure in Africa than, say, in the U.S. And so if you’re operating in the U.S. offshore in the Gulf of Mexico and you need a piece of equipment, it’s probably readily available someplace onshore. It’s a boat ride away.
Well, in Africa, that’s not the case. When we need parts and equipment, we’ve got to order it from Europe or the U.S. And so that’s part of the business — learning how to manage where there’s limited infrastructure. I think we’ve done that very well.
And then also, relationships with governments are important. We’ve learned how to operate and build relationships with governments, and, of course, comply with FCPA — Foreign Corrupt Practices Act — regulations. So that’s a unique skill.
We have a 20-year track record operating in Gabon and in West Africa.
There’s never been any allegation of corruption. It takes a lot of training for employees to know when to walk away and say no. And to know how to build relationships with government officials.
Also, health and safety and reinvesting in the communities is very important in West Africa, too.
Of course, many of the countries that I’ve worked in are developing countries. Building relationships with the communities, giving back to the communities, are also very, very important for us and something on which we focus.”
The environmental concerns of operating in Africa are also considered by Mr. Bounds:
“There’s much more focus on decommissioning. What happens to the platforms that are offshore, for example, when fields are decommissioned.
Since I started working, I’ve noticed there’s a whole lot of focus on making sure that there’s funding in place to decommission fields properly. VAALCO sets aside money annually for the decommissioning of our fields and so when we are finished operating there won’t be a large liability at the end.
I’ve seen the focus, of course, on carbon emissions and reducing emissions.
And so we’re starting to see governments and regulators come to us and press us to make sure that we’re operating in a sustainable manner, which, of course, we are, and that’s always been a focus of VAALCO.
Since we started operating in Gabon almost 20 years ago, we’ve never had a significant environmental incident. So we are a trusted operator, both working with the community and working with the environment.”
The company has significant upside in Africa:
“Within a five-year timeframe, the management team and the board have targeted to grow by five times. That’s five times in value.
We’re looking to grow value five times within five years and again that’s primarily through acquisitions or possibly a merger and through lower-risk drilling in Etame and potentially Equatorial Guinea.
We’re focused on profitable and accretive growth.
Geographically, we’re going to look for targets that are in Africa where we already operate, where we have expertise.”
Get the complete detail on this oil exploration and production in Africa by reading the entire 3,189 word interview with Cary Bounds, CEO of VAALCO.
Sreedhar Reddy Kona, Senior Analyst, Moody’s Investor Service
Sreedhar Reddy Kona is a Vice President and Senior Analyst at Moody’s Investors Service, Inc.
He is an energy finance professional with end-to-end transaction experience on sell-side and buy-side.
He has led deal teams structuring transactions, conducting due diligence, negotiating contracts and credit documents, closing transactions, and performing post-close asset management. Previously, he worked at Barclays Investment Bank and GE.
He graduated from Columbia University’s business school with an MBA. He also received a degree from the Indian Institute of Technology.
In this 2,611 word interview, exclusively in the Wall Street Transcript, the Senior Analyst at Moody’s Investors Service Mr. Kona sees significant changes in the oil and gas sector and details the implications for investors.
“Then, there are companies that are in the middle.
I mean, the midstream companies, which transport molecules from one place to another either through pipelines, trucks, other means. Those companies usually do not take the commodity price risk for the most part.
They operate mostly on a fee basis — we will transport your natural gas from this point to this point, and we get paid a fee for that. We will transport your crude oil from this point to this point, and will get paid a fee for that.
So those companies are considered relatively stable in terms of cash flow because they’re not at the mercy of the commodity price.
However, the commodity price has an indirect effect on them, like in 2020 when companies curtailed their production, they didn’t want to produce into a $10 oil price or $20 oil price. The volumes went down.
And depending on which company it is, and what the nature of the transport is — is it a long-haul transport or is it more like gathering — they may not have contracts that what we typically call “take or pay.” That is, whether the volumes flow or not, they get paid a fee — a certain threshold amount of fee.
If you don’t have those kinds of arrangements, the fact that the volumes went down caused some credit stress for the companies that operate on a fee basis; they would get paid a fee if the volumes were flowing through the pipes.
The fact that the volumes are not flowing through the pipes, they did not get paid a fee. So they had some effect on their cash flow, which again it slowly did come back through third quarter and fourth quarter as producers started feeling more confident about producing from their existing wells and started to flow volumes as they used to before.
But generally, there were growth projections that are baked into certain companies’ profiles. That growth is now hard to come by as the production growth is going to remain muted.”
Moody’s Investors Service declares that this has some real economic effects:
“Whatever little activity there is, both domestically in North America and internationally, that’s going to help some of the larger-sized oilfield services companies.
And also, in North America, in addition to the drilling rigs becoming active, we’re going to start seeing some of the wells that were drilled but not completed — the ones we call DUCs, drilled uncompleted wells — there’s going to be some activity completing those wells, which means the frac fleets will witness higher utilization.
So they will generate some cash flow that were otherwise idle during 2020.
And again, even that benefit for the most part will be derived by the larger companies who have stayed on, who have had the staying power and are able to bid for the jobs at a discount and manage to keep their fleet engaged.
The ones what we call single B or B-rated or below-B-rated companies, they are either geographically concentrated to one basin or just one service of either providing drilling rigs or frac fleets or completion services, they’re going to have a hard time.
It’s just going to be harder and harder for them to generate sufficient cash flow to keep their credit profile stronger and the balance sheet strong.
And on the E&P side of business, the upstream business, you can exit the market, because the market starts consolidating. The bigger companies acquire the smaller companies. So there’s what we call mergers and acquisitions or M&A activity that helps in the E&P space a little bit.
In the services space, there is no appetite for M&A. You know, there’s clearly too much equipment floating around chasing too little cash flow.
None of the bigger companies are incentivized to go even on the cheap to acquire a smaller company and add to their already existing excess equipment. Because there is no M&A activity; there is no M&A appetite in the market for oilfield services.
Capital markets are not being cooperative to the smaller oilfield services companies. Their options are limited: file for bankruptcy.”
The consolidation phase is coming according to the Moody’s Investors Service Senior Analyst:
“We subscribe to the view that the oil demand is going to peak at some point.
In the mid, maybe 2030 to 2040, more like 2035, timeframe. As far as COVID, we feel like it has had some effect to accelerate the peak oil scenario, which means oil demand is going to grow until then and then it’s going to either flatten out or decline after that…
Offshore drillers could come together.
There are all these companies like Transocean (NYSE:RIG), Diamond Offshore (OTCMKTS:DOFSQ), Valaris (OTCMKTS:VALPQ) and Noble (OTCMKTS:NEBLQ), they’ve all engaged in some sort of balance sheet restructuring. And they’re suffering from low utilization.
There is a need for offshore to continue to contribute to the global production of oil. Which means some amount of offshore drilling equipment is necessary.
Now, is there room for all of these companies to exist? Maybe not. Some consolidation is possible that can actually reduce the number of rigs that are floating around. So there is less equipment competing with each other.
There is a possibility it can happen over there in a sphere like offshore drillers. But you can’t expect the same thing with land drillers, because there are just too many land drillers floating around that anyone wanting to consolidate them is not going to gain much.”
Get the complete details on these and many other oil and gas sector issues from the Senior Analyst at Moody’s Investors Service Sreedhar Reddy Kona by reading the entire 2,611 word interview, exclusively in the Wall Street Transcript.
David Heikkinen CEO Heikkinen Energy Advisors
David Heikkinen is Chief Executive Officer of both Heikkinen Energy Advisors and its wholly owned broker/dealer, Heikkinen Energy Securities LLC. Prior to founding the firm in December 2012, he was Global Head of E&P Research at Tudor, Pickering, Holt & Co., and led the E&P Research team at Capital One Southcoast.
He gained industry experience at Shell where he worked in various operations and engineering roles focused in the Gulf of Mexico. He received a B.S. degree in mechanical engineering from the Missouri University of Science and Technology (formerly University of Missouri – Rolla) and an MBA from Tulane University.
In this 2,754 word interview, exclusively with the Wall Street Transcript, Mr. Heikkinen details the sector outlook and picks the top investment opportunities for investors and the implications of the COVID 19 recovery period.
“What happened was dramatic demand destruction, and with that demand destruction, 1.4 billion barrels of incremental inventory.
And so the reality was you have a sector that has underperformed or been one of the bottom-performing sectors, since 2012, seven of the nine years. So, the worst or the second-worst performing sector.
And in that space, you effectively had a dramatic demand destruction event and oil inventories built considerably.
Then what ended up having to happen is — there is a set in of supply until there is a recovery in global economies and throughout 2021, we’re going to be continuing trying to get back to a normal oil level.
And so some of the headwinds of the past are turning really into tailwinds as supply is down and we see demand recovery.
…Some of the best-performing years in the energy space were the Obama years coming out of the recession. Energy, traditionally, dramatically outperforms coming out of recessions.
And we look back to times like the 1980s — you basically had the Asian flu and the monetary crisis. Then you had Chinese demand growth.
And then in 2008 with the global financial crisis, energy dramatically outperformed coming out of that recession for a couple of years. And so, given 2020 was clearly a deep recession, we think the stage is set where energy can outperform regardless of who is in the White House.
And I also think that globally, you can avoid North America and you can avoid federal lands — where the problems are going to be.
You don’t have to buy into companies that have exposure to North American oil and natural gas.
You can buy a Schlumberger (NYSE:SLB) or an FMC (NYSE:FTI), or you can buy a Pioneer (NYSE:PXD) that has pure Midland basin exposure and whatever the federal government does, doesn’t really matter to their operations.
And every action, from a regulatory standpoint, that slows down supply is actually supportive of the macro environment of less supply and an improving demand — can support oil price.”
Mr. Heikkinen believes that supply will remain constrained:
“I don’t think the industry is moving fast enough on things like actual measurement of methane emissions and CO2 emissions, as opposed to using essentially estimates of how much each valve, how much each compressor, how much each actuator emits.
The reality is that with drones, with direct measurement tools, you can get a pretty good idea of emissions. And now even the satellite technology of what methane, what CO2 emissions, the field has.
Then getting into flare mitigation and really, efficiency of flaring. And so the industry is moving, but I think it can move considerably faster.
Being very proactive around the cost of doing your business, I think has gone up.
But the expectation is, the industry can do those things and be better. You know the technology of horizontal drilling and stimulation had totally revolutionized the sector, but I think there’s a global expectation that shale oil will flex up and spending will flex up to meet demand.
And I just don’t think that the industry — given how many people have been fired, you can burn Rome down in a day, but rebuilding it, it’s just very difficult.
And people have moved onto other sectors and have moved away from working in the oil field. As the economy improves, they won’t have to come back. And that just limits the ultimate capacity.”
There are pockets of exploration and production to watch carefully:
“Some of the hottest plays, from an exploratory and an exposure standpoint, are Suriname and Guyana, currently given Exxon’s (NYSE:XOM) and Hess’s (NYSE:HES) success in Guyana and Apache (NASDAQ:APA)/Total (NYSE:TOT) success in Suriname, or apparent success.
I do you think that’s probably the one area of supply and exploration that is definitely keenly worth watching.
Brazil’s offshore continues to be meaningful as well. I don’t think that the U.S. Gulf of Mexico, given some of the federal leasing questions, is going to be as interesting.
So yes, from a global standpoint, I do think that it’s more offshore from an investable public company’s standpoint of what people can consider as oil prices improve — towards, I think, $60 Brent.”
Mr. Heikinnen points out that this has significant implications for investors.
“…The benefit is that energy is paying twice the dividends of things like real estate — so real estate was impacted by COVID as the oil and gas space was, but straight dividend yield across the S&P 1500 for energy are great.
And I think you can reprice the 5% plus yield down to 3%. And still be at a multiple of the market and see significant share price appreciation.
And you don’t have to be betting on that $60 oil price to get there. The current yields are based upon a $50 oil environment. There are several ways to win and you’re not really pricing in that commodity recovery…I think that the other thing that is critically important — and I hit it at the beginning — is electrification.
The other commodities, you think about natural gas, think about copper, some of the metals — I do think that the whole natural resource sector is in a pretty positive position as the world presses towards more renewable fuels. There are going to be massive construction projects and massive calls on capital.”
Read the entire 2,754 word interview with Mr. Heikkinen for all the details and more top stock picks, exclusively in the Wall Street Transcript,
Senior Vice President equity research for Wunderlich Securities
Neal Dingmann is a Managing Director at Truist Securities covering companies in the E&P and oilfield services sectors. Mr. Dingmann was recognized by The Wall Street Journal as “Best on the Street” and has been recognized as a “Home Run Hitter” by Institutional Investor magazine.
He has over a dozen years of equity research experience.
Prior, he held similar positions at Wunderlich Securities, Dahlman Rose, RBC Capital and Bank of America Securities. He received an MBA from the University of Minnesota and a B.A. degree in business from the University of Arkansas.
In his 3,358 word interview, exclusively in the Wall Street Transcript, Mr. Dingmann delivers his sector viewpoint for investors as well as his top picks.
“2020 was an interesting year for the broader market and energy sector that experienced global inventories rising by 1.2 billion barrels. The E&P group, along with much of the entire energy sector, was one of the worst performers for the better part of last year. However, the sector started to turn the corner in November for a number of reasons with the upside continuing year-to-date.
Much of the recent energy equity appreciation has been macro-led as oil prices hit a mid-cycle bottom of mid $30s in November with prices increasing 44% since. A number of supply and demand drivers for oil and other commodities began to change during this period and they continue to look mostly positive today.
The Energy Information Administration — EIA — recently suggested global oil consumption and production will rise during 2021 and 2022 with net global oil inventories declining during this period.
We now believe the oil backdrop is positive, led by stimulus-driven demand in the U.S. continuing to be fueled by the new administration, as well as worldwide upside as other economies recover from COVID-driven weakness. Global demand is expected to grow by 5.6 million barrels per day in 2021 to 97.77 million barrels per day including U.S. petroleum and other liquid fuel consumption that is expected to rise 1.45 million barrels per day to 19.51 million barrels per day in 2021.
The supply side of the equation appears equally as bullish with the EIA forecasting U.S. crude oil production to fall by 190,000 barrels per day to 11.1 million barrels per day. Much of the domestic production decline will be a result of my companies continuing to run very disciplined strategies, known as maintenance capital programs, that result in just a fraction of the number of rigs and completion activity today versus prior years.
International supply appears equally as positive, fueled by continued voluntary OPEC-plus production cuts of approximately 7 million barrels per day.
Prior expectations suggested that starting in January of this year and going forward thereafter, OPEC-plus would begin bringing more and more supply back online. When the group met in January, they not only decided to hold off on any supply additions, but they also stated they were going to reexamine the situation every month.
More recently, Saudi Arabia made the surprise decision to step in and cut their production another 1 million barrels per day.
So given the U.S. and international curtailments, we believe there is limited domestic production upside until domestic D&C — drilling and completions — ramps and there is equally as limited international upside until the voluntary OPEC-plus shut-ins return.
Bottom line, the macroeconomic backdrop looks quite positive with what appears to be a new floor on worldwide consumption and a ceiling on worldwide supply. While it’s difficult to determine if these forces will remain for all of 2022, they certainly — in my opinion — appear positive through this year.”
The new administration provides an E&P recommendation from Mr. Dingmann:
“I recently released a report titled the “Democratic Darlings.” And what I meant by this was E&Ps that generate the best free cash flow and should have no geopolitical issues.
We identified five companies that fit this bill with Apache (NASDAQ:APA) being one of them. We forecast Apache could generate nearly a 20% FCF — free cash flow — yield assuming mid-$50s oil and this FCF yield gives very little credit to Suriname, the company’s mega project that will come online in a few years.
What I like about Apache is not only do you have great free cash flow yield at today’s oil price, but you have little value baked in for a play that could potentially stack up against the likes of Exxon’s (NYSE: XOM) offshore Guyana.”
Another E&P recommendation from Mr. Dingmann also has high cash flow potential.
“Devon (NYSE:DVN) is very interesting. They recently closed their attractive merger with WPX Energy and by merging those two companies, it notably boosted the amount of tier-1 acreage in what I would deem some of the best parts of the U.S., which are parts of the Permian Basin.
Not only do they have the Permian Basin, but they have some exciting things in the Bakken, Rockies and other areas — but it’s really the Permian area that provides the most excitement on Devon.
The company also has strong financials with moderate leverage, and like Apache, Devon has one of the better free cash flow yield profiles in my coverage universe at 15% to 17% assuming mid-$50s oil. So they too have a very notable free cash flow potential.”
The top pick from Mr. Dingmann:
“To me, Diamondback (NASDAQ:FANG) is one of the best pure Permian companies with boots-on-the-ground Midland operations.
Diamondback’s industry-leading operations are easily recognized by its near industry-low all-in cash costs. Not only does the company have some of the lowest expenses, but they have wells that generate some of the highest flow rates.
Diamondback’s organic operations are among the best and their external activity has been equally as impressive.
They recently announced two attractive acquisitions. One was with a private Midland Basin operator called Guidon Operating. We believe Diamondback paid a very reasonable price for these quality assets.
Secondly, Diamondback bought a public company called QEP Resources (NYSE:QEP), also with ample tier-1 Midland Basin acres. To me, once those two deals close, it’ll immediately boost the number of top locations Diamondback has to go drill.
So we believe the company is the complete package by delivering among the lowest costs and highest flow rates resulting in some of the most economic wells with a plethora of top inventory to be able to continue to do so.”
To get all of Neal Dingmann’s insights into the E&P sector and for his complete opinions, read the entire 3,358 word interview, exclusively in the Wall Street Transcript.
Oliver Peoples CEO of Yield10 (NASDAQ:YTEN)
Oliver P. Peoples, Ph.D., was named President and Chief Executive Officer of Metabolix in October 2016 in conjunction with the transition to Yield10 Bioscience as the company’s core business.
Dr. Peoples was a co-founder of Metabolix and served as Chief Scientific Officer from January 2000 until October 2016, and was previously Vice President of Research and Development. Dr. Peoples has served as a director since June 1992.
Prior to founding Metabolix, Dr. Peoples was a research scientist with the Department of Biology at the MIT where he emerged as a pioneer of the new field of metabolic pathway engineering and its applications in industrial biotechnology.
The research carried out by Dr. Peoples at MIT established the fundamental tools and methods for engineering bacteria and plants to produce Mirel biopolymers.
Dr. Peoples has published numerous peer-reviewed academic papers and is an inventor of over 90 patents and patent applications worldwide. Dr. Peoples received a Ph.D. in Molecular Biology from the University of Aberdeen, Scotland.
In this 3,541 word interview, exclusively in the Wall Street Transcript, Dr. Peoples explores the challenges that face his company.
“A key part of our gene trait — gene discovery platform — is the oilseed Camelina, which is an oilseed that’s native to Northern Europe. It’s been used in food and industrial use for well over a century, but it’s basically like rapeseed or canola or soybean.
It really has two major components in the seed. The first is the oil — vegetable oil — and the second is the protein.
The protein is usually used in animal feed, similar to what happens with other oilseeds. And that oil is important for a number of reasons.
One, it’s actually got some interesting nutritional properties, so it’s used as a food oil in Europe. It also has some omega-3 fatty acids in it, which are important in the diet. And there are also applications in aquaculture feed for salmon, for example. There’s proof of that.
The third area is obviously Camelina, which has a very fast growth cycle of about 100 days, and it opens up the potential to produce more oil per acre if you were to use that as what they call a winter cover crop in the corn belt, for example.
So the general concept of cover crops is you plant your soybean as usual in the spring, you harvest it in the fall, and after you’ve harvested the soybean, you plant a cover crop — an oilseed cover crop like Camelina — and that crop will sit in the ground over the winter, and it comes up very quickly in the spring.
And by the time you’re getting close to being able to plant soybean again, you’ve got a new harvest of oilseed — Camelina oilseed. That of course gives you a way to increase the productivity of land.
But more importantly, the use of cover crops actually has tremendous environmental benefits in terms of reducing the runoff of nutrients into the water system.
Of course, that ties into things like NOx — nitrogen oxides — emissions. It also increases the soil organic content, which again is an issue regarding climate change. And so as a result of great Camelina as a cover crop, what you’ll end up with is an oil that has a very favorable carbon footprint.
And, of course, when you look at the renewable fuels — particularly the new renewable diesel that’s being mandated in California — and you look at the industry, including many of the big oil players, like Exxon (NYSE: XOM), Phillips 66 (NYSE: PSX) and several others, they’re all basically converting existing petroleum refineries over to renewable diesel.
Of course, that’s going to result in significantly increased demand for vegetable oils in addition to the waste oil that comes from restaurants and all those types of things, plus tallow from the meat sector. So there’s going to be an increasing demand for oil and, in particular, for vegetable oils that actually have a very good carbon footprint or a low carbon intensity index.”
Dr. Peoples explains that the applications for Yield10 products vary considerably:
“We’re testing PHA Camelina for the first time this year. And the PHA is a new crop product. It is a natural polyester material that’s produced in microorganisms.
And Yield10 transfers the genes for that into Camelina, so we can produce the PHA biomaterial directly in Camelina seed. And there we see the potential for a very large-scale production capability, addressing the market for fully biodegradable, renewable, sustainable plastics.”
Near term commercialization for the former MIT researcher’s company Yield10 is the goal:
“Our platform has turned out to be very successful. In addition to testing our traits in Camelina, we are working with a number of seed companies — spanning Bayer, Forage Genetics, Simplot and GDM Seeds — for testing our new traits. They’re testing genetic changes in some of the major crops.
But in the Camelina space, the main milestone is really around the beginning of the commercialization of that platform.
Last year, we planted our first 50 acres of seed production and it went very well. We are currently in the process of preparing samples of oil and protein for various customer testing programs.
We will be reporting out the data from last year’s field trials in the first quarter. That will include the oil trait and yield genes. That will also include the PHA biomaterial genes.
And then one of the things that we are really being very pleasantly surprised about has been the tremendous interest from across the globe on new technologies for reducing the pollution caused by petroleum plastics and the researchers’ interest in the biodegradable plastics.
Actually, there was a recent IPO through a SPAC — special purpose acquisition company — by a company called Danimer Scientific (NYSE: DNMR). But generally speaking, we believe we’re on a path to the fairly exciting new, potentially disruptive technology for the plastic space.
There is now the potential to produce plastic as a cool product with low carbon index fuel, and another cool product in the form of plant-based protein that we can use for food production.
So it’s a nicely integrated story; a lot of pieces are beginning to come together, and have been coming together over the last year. We’re now becoming increasingly excited about the prospects for this approach — we’re just working very hard to move forward into commercialization.”
Get the complete details on the MIT Biotechnology pioneer Dr. Peoples’ near term plans for Yield10 by reading the entire 3,541 word interview, exclusively in the Wall Street Transcript.
Drew Justman, CFA, serves as a Portfolio Manager on Madison Investments’ covered call, dividend income and value strategies. He has been working in the financial services industry since 2001 and joined Madison in 2005.
He earned his BBA in finance and economics and M.S. in finance from the University of Wisconsin-Madison, specializing in the Applied Security Analysis Program. Prior to joining Madison Investments, Mr. Justman worked at Merrill Lynch.
In this 3,478 word interview, exclusively in the Wall Street Transcript, the Madison Investments Portfolio Manager details his firm’s investment philosophy and his personal top picks.
“Madison Investments is 100% employee owned. We were founded in 1974, so we’ve been around for a long time. We manage just under $19 billion as a company; a little less than $9 billion of that is on the equity side, which is where I work.
And really what we’re known for is, we like to participate in up markets and protect capital in down markets. In fact, our company has trademarked the phrase “Participate and Protect,” and what that means is we’re willing to forego a little bit of upside in the strong markets in order to make sure we protect capital in the down markets.
We think by doing that over a full market cycle, we can hopefully outperform our benchmarks while taking on below-average risk.
So downside protection is what we’re really known for, and that’s something that we really focus on here on the equity side and throughout the company.
I should also say, we’re located in Madison, Wisconsin, hence the name Madison Investments.”
The investment selection is process oriented:
“The Dividend Income approach comes from a background of serving bank trusts and conservative clients that wanted equity market exposure and also an income stream.
The question that we try to ask and answer is, how do we achieve good returns and high income and growing dividends and avoid big drawdowns in bear markets?
Avoiding big drawdowns in bear markets helps clients stay invested throughout the full cycle when they might otherwise feel like getting out, and this is critical in order to generate strong long-term returns. And so the answer to that question is, we buy high-quality, large-cap, blue-chip stocks with above-average dividend yields when they’re out of favor. So that’s the background and the 10,000-foot view.
I’d like to talk a little bit more specifically about our process.
The first step in the process is we screen all U.S. traded stocks, and we identify the stocks that have a market cap that is greater than $2 billion and a dividend yield that is 1.1 times the S&P 500 or higher. This produces an investable universe that is around 200 to 250 stocks in most market environments.
The second part of our process is we apply our “relative yield screen,” and this is something that we think is unique to what we do; we’re not aware of any other managers that do this.
Let me explain what relative yield is. Relative yield is a stock’s dividend yield divided by the S&P 500 market yield. Each stock has its own normal historical range. We’re long-term investors and so we like to look at a stock’s relative yield range over 10, 15, 20 years.
We find that when a stock price is low, its relative yield is high, and conversely, when stock price is high or expensive, its relative yield is low. And we think by buying stocks when relative yield is high and selling them when relative yield is low, that is a sustainable, repeatable process that takes the emotions out of the investment decision-making process.
So relative yield is kind of our secret sauce, and that’s really how we identify when to buy and sell stocks.
The third step in our process is we perform bottom-up fundamental analysis of the relative yield candidates that we identify.
Stock prices that have high relative yields means their valuations are generally attractive and stock prices are down. It’s our job to determine why the stock is down. Is it due to a temporary issue, or more permanent or terminal issue?
We want to invest in companies where we believe the issues are temporary.
Within the fundamental analysis that we do, we really focus a lot of time on the following things: First, does a company have a sustainable competitive advantage? This is really important; I’ll get into that more in just a second.
The second thing we look for is, does a company have a strong balance sheet? And then the third thing is, does the company have a history of consistent dividend growth?
We want to construct a high-quality portfolio that has stocks that have all three characteristics.
We want to own stocks that have sustainable competitive advantages, otherwise known as wide moats. Morningstar provides moat ratings for many companies; 35 out of 42 holdings, or 83% of the portfolio, are rated wide moat by Morningstar, which is the highest rating it gives.
That compares to 25% for the S&P 500 and 13% for the Russell 1000 Value Index. So that’s one objective metric we use to try to define high quality.
And then we also look at strong balance sheets. S&P provides financial strength ratings, and 36 out of 42 holdings, or 85% of the portfolio, is rated A- or better by S&P, compared to 33% for the S&P 500 and 22% for the Russell 1000 Value Index.
I’ll also add, 100% of the portfolio is rated investment grade.
And so those two factors — sustainable competitive advantage and strong balance sheet — we use as objective metrics to try to highlight the high-quality nature of our portfolio.
We also want to find companies that have a consistent history of dividend growth. We’ve observed that stocks with wide moats, strong balance sheets and a long history of dividend growth tend to hold up better in bear markets and market corrections, and that’s really important for protecting on the downside.
The last step in our process is, we identify these stocks and we build a diversified portfolio of 40 to 50 high-quality, large-cap, blue-chip names with above-average dividend yields.
These are household names like Home Depot (NYSE:HD), Johnson & Johnson (NYSE:JNJ), McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG), Pepsi (NASDAQ:PEP) and Verizon (NYSE:VZ), just to name a few.
We have a rule of a maximum weight of 5% in a stock, and we have a sector rule of 2x the S&P 500 sector weight or 20%, whichever is greater. We believe this allows us to be different than the underlying index, but also won’t penalize our portfolio too heavily if we are wrong on a stock or a sector.
So that’s our process.”
Get the complete picture by reading the entire 3,478 word interview with the Madison Investments Portfolio Manager Drew Justman, exclusively in the Wall Street Transcript.
Alaina Anderson is a Partner and Portfolio Manager at William Blair & Company.
Ms. Anderson joined William Blair in 2006 as a Research Analyst on the Global Equities team and has over a decade of experience covering stocks globally.
As Portfolio Manager of William Blair’s International Leaders ADR strategy, Ms. Anderson leads decision-making for a $700M portfolio.
In addition to these responsibilities, Ms. Anderson is intimately involved in creating and publishing investment insights for William Blair’s institutional clients, as well as client retention and business development activities.
Ms. Anderson is the former president of the Chicago Booth School of Business Black Alumni Association and a Leadership Greater Chicago Fellow from the class of 2014. She is also a board member and Fundraising Chair of the North Lawndale Employment Network and a member of the William Blair Investment and Audit Committees.
Ms. Anderson graduated from Wharton School at the University of Pennsylvania with a B.S. in economics and earned her MBA from Chicago Booth School of Business.
She is member of Delta Sigma Theta sorority and a member of the Chartered Financial Analyst (CFA) Society of Chicago.
In this 2,103 word interview, exclusively in the Wall Street Transcript, Ms. Anderson details her investment philosophy and gives investors her top picks.
“I cover real assets, which for us includes real estate, utilities, infrastructure and construction. The utilities sector includes independent power producers and renewables companies.
Some people may think that renewable energy generators, from an S&P GICS sector perspective, are in the energy sector. That’s not the case. Those companies are in the utilities sector…
We think the energy transition is a long-tailed phenomenon, and it’s a structural shift in how we’re going to generate power and fuel transport and activate heavy industry. So we would expect that as we emerge from the COVID crisis, we will get back on the ground for delivering capacity growth in the renewable space. Capacity growth was disrupted, but it did not stop.”
Her top utility pick is based in Florida:
“One of the big stories of 2020 was when NextEra Energy (NYSE:NEE) eclipsed ExxonMobil (NYSE: XOM) in market cap. I think there was a story in the Financial Times when that happened…
It is important to note that NextEra, as part of its holdings, holds Florida Power & Light, which is the utility in Florida for power and light.
The interesting thing about NextEra is that a third-to-40% of its EBITDA comes from its nationwide footprint in wind and solar. So they generate wind and solar through NextEra Energy Partners (NYSE:NEP).
And they have about the largest installed capacity base in the U.S. and combined in wind and solar.
So on the one hand, it’s a very well-run utility that has the benefit of having a high return on assets, and in Florida, they have a good population growth rate. So they get good volumes, because everybody wants to move to Florida.
So the utility aspect of NextEra is very stable to slightly growing. And they have a very large installed base for renewable energy that they can sell into; not only their utility in Florida, but utilities elsewhere, because they have a very broad installed base across the country. We’re very positive on NextEra as well.”
The valuations today are justified by several factors, according to the William Blair portfolio manager:
“Valuations across the global renewables space are underpinned by the fact that the energy transition is underway. And it is becoming more and more evident that the energy transition is becoming so impactful that it’s leading to a rethink of fossil.
When you look at the aggregate market cap of the energy sector over the last 10 years, the S&P fossil energy sector has gone from being 12% of the S&P to about 3% or 4% today. So the traditional legacy energy sector is becoming less relevant because the energy transition is in full swing. And that has had a result in the valuations in the renewables space re-rating dramatically.
We get comfortable, because we think that the growth algorithm for renewables is predicated on four things that you have to believe.
At this point, for valuations to make sense, you have to believe that installed capacity will surprise on the upside, or you have to believe that returns from here are going up, and that is the like returns on invested capital, or IRRs, for these businesses are going up.
Or you have to believe that the weighted average cost of capital is coming down, or that the competitive advantage period for these companies is going to be longer than we originally expected.
We lean towards the installed capacity surprises to be on the upside, and the competitive advantage period to be longer. And that helps us get comfortable with current valuations and gets us more comfortable with the belief that there’s more upside to the stocks where we’re invested.”
Ms. Anderson also details her investment in a biodiesel stock:
“Neste (OTCMKTS:NTOIF) is another company that we had invested in for quite some time, and we continue to support.
It’s a global leader in renewable diesel and biofuels. So there are quite a few areas of the economy that emit a lot of greenhouse gas, but are hard to decarbonize.
For example, air transport and heavy freight are among those areas. And Neste, because of its applications on renewable diesel and biofuels, addresses the decarbonization in those spaces.
We expect them to continue to generate double-digit CAGR in earnings.
The market is growing tremendously, particularly in Europe and Germany, and they are establishing a very strong presence in the U.S., particularly on the West Coast with their diesel franchise.
So we think this is transformative technology that has a long runway for growth.”
Read the entire this 2,103 word interview with Alaina Anderson for the complete detail on these and other portfolio picks, exclusively in the Wall Street Transcript.
Frances Tuite is part of the Investment Team of Fairpointe Capital, LLC, serving as Co-Portfolio Manager for the Mid-Cap and ESG Equity strategies, and is responsible for investment research for both strategies.
In addition, she manages the 1837 LP long/short equity fund, which she founded in 2000.
Prior to joining Fairpointe Capital, Ms. Tuite managed the 1837 Fund at RMB Capital and at Talon Asset Management (under the name Talon Opportunity Partners). Previously, she worked at Sirius Partners and Harris Associates as an analyst and portfolio manager, as a sell-side research analyst at William Blair & Company, and as analyst and Director of Research at Johnson Investment Counsel.
Earlier, she was employed at Procter & Gamble in their financial management training program.
Ms. Tuite received a B.B.A. from the University of Cincinnati in finance and accounting and an MBA in finance and accountancy from Miami University in Oxford, Ohio. She holds the CFA designation, is a member of the CFA Institute and the CFA Society of Chicago and has passed the Certified Public Accountant examination.
She is a member of the Chicago Finance Exchange, an invitation-only organization for senior women leaders in finance, and a member of International Women Associates, which pursues global understanding and universal human rights.
She serves on the Steppenwolf’s Directors Circle, and as an Advisor to Recovery on Water, a non-profit focused on rowing for breast cancer survivors. She’s been a competitive rower for over 40 years and rides her bike to work every day in Chicago.
In this 2,965 word interview, exclusively in the Wall Street Transcript, Ms. Tuite details her investing philosophy and shares some of her highly recommended ESG stocks with our readers.
“We are headed up by Thyra Zerhusen, CEO and CIO, who’s been leading the strategy since 1999; she has focused on the midcap space for a long time.
She and I worked together in 1999 for four years, and then went separate ways, so rejoining her has been pretty straightforward since we have had a history together. The bulk of the assets in the firm have always been in the Mid-Cap strategy with a core approach.
I joined Fairpointe to assist in running an ESG strategy that we incepted at the beginning of 2018, something that we talked about last time and that I’ve always been very passionate about.
I also brought with me a small, long/short U.S. equity hedge fund.
My roots are in value investing, but value not in the sense of book value but in the sense of looking at intrinsic value — I was at Harris Associates for many years — and just thinking about businesses and what they’re really worth and also looking for a very attractive risk versus reward.
So trying to protect the downside and yet look for interesting upside. I think what has differentiated us, and my career, has really been our long-term focus and low turnover approach, with a concentrated portfolio of companies that are either misunderstood or undiscovered by the market for various reasons.”
Frances Tuite specializes in ESG stocks with a valuable upside opportunity:
“…The strategy is really looking for turnaround situations, or maybe a company that is spinning off a segment, or where the market hasn’t fully appreciated a restructuring or a change that a company is going through, or where we believe the market has a different view on the outlook for the company’s products or services — that’s always been our approach.
Both portfolios are concentrated. The Mid-Cap strategy generally has 40 to 50 names.
The ESG strategy has around 40 names, so that’s more concentrated even than Mid-Cap.
We generally overlap in the two strategies in terms of names, and we’ve always been involved in governance as a firm and voting proxies, so the G part of the analysis has been with us a long time.
I brought more process to the due diligence on both environmental and social issues. So we do apply ESG principles to both strategies, but the ESG has more constraints than the Mid-Cap.”
One of her favorite ESG stocks is female led re-bar manufacturer:
A company we bought that you might not think of as an ESG name is Commercial Metals (NYSE:CMC), which is a steel company. While it does have a carbon footprint, it produces steel from 99% recycled inputs.
The company takes scrap metal and melts it, but uses an electric arc furnace versus a coal, iron ore or blast furnace, so it is a lot more energy efficient. They are also ahead of the curve in terms of recycling their water.
Commercial Metals is led by a female CEO, which is unusual in the steel industry. When we initiated the position, they actually had a female CFO, but she has since retired. The company’s board is also well diversified.
Re-bar is the majority of their products, so it’s a necessary item to be used in this economy.
Rebar is used in highways, bridges and construction of buildings. Certainly, our bridges need repair, as do our highways.
So here you have a company that you might, on the surface, say, OK, steel, metal company, how can that be a good ESG name?
But we took a more pragmatic approach to our assessment of the company and what it was doing and how it was conducting its business. We consider ESG factors as risk issues, and we didn’t see significant risks to their business from their management or operations.”
Frances Tuite, the ESG stock specialist, has some interesting niche product company investments:
“…A really interesting health care name called CONMED (NYSE:CNMD), and it’s a $3 billion market cap company, so pretty small for most funds. We bought the stock in July when it was $2 billion in market cap.
CONMED makes instruments for orthopedic and general surgery.
Because of COVID, the stock got knocked down as hospitals were not doing any surgeries for a period of time. Their earnings were under pressure, but the stock looked very attractive to us. The company had done an acquisition at the end of 2018, so the balance sheet had some leverage on it and the market this year hasn’t liked levered companies for the most part.
The acquisition they made in 2018 was very interesting.
The company was Buffalo Filter and it manufactures a tool that is used in surgery, especially minimally invasive surgeries. For example, when you cut the skin you use a laser, and during that process smoke is generated.
That smoke can be the equivalent of 30 cigarettes for the health care workers in the operating room if they are not doing anything to control it.
This tool evacuates the smoke, protects the health care workers, and is now being regulated and mandated in some states. Buffalo Filter has 80% market share and it’s growing over 20%. CONMED is not a household name and Buffalo Filter products are a small niche market that is growing rapidly.
The smoke that is given off can be carbon monoxide, it can have carcinogens and it can have contaminants from the body of the person being lasered.
From an environmental perspective and also health care worker, these products play an important role. We were able to buy this company during this period of COVID concern and it’s been a huge win for the portfolio.”
Get all of Frances Tuite’s ESG stocks by reading the entire 2,965 word interview, exclusively in the Wall Street Transcript.
Cynthia (CJ) Warner is President and Chief Executive Officer for Renewable Energy Group, Inc. (REG) and is a member of the board of directors.
For more than 35 years, Ms. Warner has held executive positions in the energy sector in operations, business development, strategy, environment, health, and safety. Prior to REG, Ms. Warner was Executive Vice President, Operations for Andeavor.
She oversaw Andeavor’s refining, logistics, and environment, health, safety and security groups. Ms. Warner was also Andeavor’s Executive Vice President, Strategy and Business Development, where she led the company’s strategic growth initiatives.
She joined the company in 2019, bringing more than 30 years of experience in energy, oil refining and marketing, and related technology development.
Ms. Warner recently was named a Fortune 2020 Businessperson of the Year.
She also is a member of the board of directors for IDEX Corporation and a member of the board of directors for Sempra Energy. She is a member of the National Petroleum Council as well as the Board of Visitors of the Vanderbilt University School of Engineering.
In this 3,180 word interview, exclusively in the Wall Street Transcript, Ms. Warner explains how she is managing the “Bernie’s Mittens” of the ESG stocks:
“You’re seeing a lot of heightened interest in the investment community in ESG — environmental, social and governance — types of investments.
And REG sits right at the heart of ESG. That’s what we’re really all about. And because we’re on a growth trajectory and because the demand for our product and the focus on what it is that we do is increasing, there’s a really nice confluence between investor desire for finding better ESG investments and coming to companies like REG. And we feel we have a good solution for them.”
The Bernie’s Mittens of stocks has some serious science backing its development:
“We take waste products of biological oils, either used cooking oil, like the types of oils that would be produced from Burger King or Kentucky Fried Chicken.
We also take fats, oils, and tallows from renderers. We do take some refined vegetable oil as well, and then a waste product from the ethanol production process called distillers corn oil; it’s inedible corn oil.
All of those materials can be converted through transesterification to produce biodiesel, or through hydrodeoxygenation to produce renewable diesel.
Both of those processes produce a high-quality diesel fuel that can be used in any diesel engine and it’s much lower carbon than petroleum diesel. In fact, using biodiesel reduces carbon by over 86% versus using ULSD, ultra-low sulfur diesel, or petroleum diesel.
So it’s a very nice way to reduce carbon and reduce waste at the same time and close the carbon cycle. We’ve been doing this for over 20 years and continuously improve the technology.
And we’re very excited about the prospects for the future because the technology is still quite young. And we know that we still have improvements that we are going to continuously make over the future.
…We took the concept of biodiesel and transesterification and extended that to hydrodeoxygenation, so we also produce renewable diesel, which is also a very good product.
It is not oxygenated, whereas the transesterification does produce a methyl ester, which is an oxygenated molecule. They both have very good qualities.
And in fact, blending them together produces REG Ultra Clean Diesel, which is one of our fastest-growing products that we sell on the market.”
The market for Renewable Energy Group, as a “Bernie’s Mittens ESG Stock”, is growing rapidly:
“The United States does have a renewable fuel standard, which is kind of a cornerstone of incentivizing the growing development of renewable fuels for on-road transportation.
California took that and really accelerated it by putting in place a low carbon fuel standard with a goal of significant decarbonization by 2030. And each year, they ratchet up the requirement for carbon reduction.
So that’s been a very interesting market for us, and for that market, our material is very attractive, because it’s, as I mentioned, one of the most readily available ways to decarbonize today without having to make big investments. That makes California a very interesting market for us.
Oregon, in turn, also has a low carbon fuel standard. They started a little bit later than California. They haven’t been ratcheting up the carbon intensity reduction quite as rapidly as California, but they’re coming on quickly. So that’s also a very interesting market.
Canada’s British Columbia also has a low carbon fuel standard and is very similar to Oregon and California. All of those markets are very interesting for us.
Moving over to Europe, the European Union has the RED II, which is also focusing very much on decarbonization and the use of cleaner feedstocks.
And so they’re very interested, for example, in converting used cooking oil to biodiesel as we do, and then the Nordics have a very strong pull on decarbonization. So all of those markets are good focus target markets for us — they are the pioneers in what we can see is happening because now Canada is talking about a low carbon fuel standard as early as 2022.
Many, many municipalities have now stated their desire and their targets for decarbonization. And it feels like we’re at an inflection point where from multiple perspectives, there’s a desire to decarbonize and therefore, either soft targets or even hard targets being put in place to enable that to happen from a real standpoint as opposed to just a dream or a vision.”
Renewable Energy Group is the Bernie’s Mittens for ESG investing:
“You’re seeing a lot of heightened interest in the investment community in ESG — environmental, social and governance — types of investments. And REG sits right at the heart of ESG.
That’s what we’re really all about.
And because we’re on a growth trajectory and because the demand for our product and the focus on what it is that we do is increasing, there’s a really nice confluence between investor desire for finding better ESG investments and coming to companies like REG. And we feel we have a good solution for them…
There are some big names out there that have been quite clear about their not just recommendations but mandates for investing more into the ESG space and, in some cases, de-investing from heavy carbon industries.
You have names like BlackRock, State Street, UBS, which have all been very, very clear that this is a direction that they expect to take. And again, we’re very happy to be one of the solutions for what they’re searching for.”
Get the complete 3,180 word interview with Cynthia Warner, President and CEO of the Renewable Energy Group (NASDAQ:REGI), the Bernie’s Mittens of ESG Stocks, exclusively in the Wall Street Transcript.
Tony Guglielmin joined Ballard Power Systems as Senior Vice President and Chief Financial Officer in June 2010.
Mr. Guglielmin previously was Senior Vice President, Finance and Chief Financial Officer of Canada Line Rapid Transit Inc. (CLCO), a $2 billion rapid transit project connecting the Vancouver International Airport, City of Richmond and downtown Vancouver.
Earlier, Mr. Guglielmin held senior management roles in treasury, investor relations, corporate development and strategic planning at Finning International Inc. in Vancouver. He was Corporate Treasurer of British Columbia Hydro and he held various management positions with The Bank of Nova Scotia in Toronto.
Mr. Guglielmin received a B.A. in economics and political science and an MBA from McGill University. He also holds the Chartered Financial Analyst designation and belongs to a number of professional organizations including the Financial Executives Institute.
He is on the Board of Information Services Corporation (where he also serves as Chair of the Audit Committee), as well as a number of private companies.
In this 6,488 word interview, exclusively in the Wall Street Transcript, Tony Guglielmin details his company’s strategy for investors:
“We’ve been public for over 27 years, traded on the Nasdaq and Toronto Stock exchanges. Our core business is the design and manufacturing of fuel cell stacks and engines for a number of end-market applications.
Our current focus is particularly on medium- and heavy-duty transportation. But we also provide fuel cell engines and systems into other markets, like the backup power market and distributed generation, as examples.
The company has been around for over 40 years. It was a private company, started up here locally in the Vancouver, British Columbia, Canada, area by its original founders. And today, we are approaching 1,000 employees.
Our global headquarters are here in Vancouver, British Columbia, Canada. We also have offices in Europe and Asia.
Ballard Power Systems Europe is located in Denmark, servicing the European market.
We also have an office in China — at Guangdong, China — for sales and service. We also have a small office in the United States in Bend, Oregon, servicing the United States market.
We also have an important joint venture in China with a company called Weichai Power.
It’s the world’s largest diesel engine manufacturer. We’re a 49% owner of that joint venture and that joint venture in China is important with the China market being the largest market for engines for commercial vehicles.
And that joint venture is to assemble Ballard-designed engines — stacks and engines for the Chinese market. So that’s our basic footprint.”
Mr. Guglielmin details fuel cell technology for investors:
“A fuel cell is a rather simple looking product, but quite complex. A fuel cell is an energy conversion device. And I’ll distinguish that from a battery, because obviously, when we think about zero-emission transportation, one often thinks of battery-electric, also, Tesla, obviously, which is using lithium-ion batteries.
I’ll just distinguish, where a battery, the fuel in a battery, is stored within the battery, as we all know. And then the life of the battery is determined by how long the charge can stay in a battery and you have to recharge it.
A fuel cell, on the other hand, is more of a conversion device. The fuel is outside of the fuel cell, so it’s stored in a tank.
No different than the hydrogen fuel stored in a tank, no different than a combustion engine. And the fuel cell itself has some attributes of the battery in that the fuel that you use from the tank passes through the fuel cell and combines with air, ambient air; it creates an electro-chemical device.
So the oxygen combining with the hydrogen passing through a fuel cell creates electricity. And the only byproduct from that electricity is a small amount of water, so the H2O that comes out of the combination of hydrogen and oxygen.
So the fuel cell has an anode and a cathode and a membrane in the middle.
An individual cell is really combined in, what we call, an MEA, or a membrane electrode assembly, which is basically an anode and a cathode — with a catalyst in the middle that allows the protons and so forth through a pass-through and some plates, usually a carbon-based plate, to provide the rigidity and allow the hydrogen to flow.
And so each fuel cell, an individual cell, creates a little bit of power and as you stack these up, a number of individual cells, that’s what we call a fuel cell stack, which is literally a stack of a number of individual cells.
And that fuel cell stack is essentially the device I described. It’s a solid-state device with no moving parts. You can generate enough power in an individual stack to move a bus or a truck.
There’s a tremendous amount of energy density in a fuel cell. You can create an awful lot of power on a very small device and that stack goes into an engine with a bunch of balance of plant.
And fundamentally, that fuel cell can replace the combustion engine in the same way that a battery could. And then from that point forward, what a fuel cell does, which is where the batteries and fuel cells start to compete, if you will — that’s the power source that drives the electric drive system.
So when you think of a battery-electric vehicle, a Tesla, you’ve got the batteries that are driving the electric drivetrain and all of the electronics. A fuel cell car or fuel cell truck has essentially the same electric-drive system.
It’s just using a fuel cell with the hydrogen to drive that system. So we call it a fuel cell electric vehicle. It’s a pure electric vehicle driven by the fuel cell itself. So that’s really what a fuel cell is.
It’s a relatively simple-looking device, but it’s quite complex.
There’s a lot of chemistry, a tremendous amount of patents and know-how that goes into the design of those individual fuel cells and also how to stack them up and put them in an engine and that’s what Ballard does.
We design, we make our own fuel cells, we make everything inside the stack, we make our own MEAs, we make our own plates. And that’s where a lot of our patents and know-how resides. It’s right in the core of the fuel cell itself.”
The company is positioned for global clean energy growth:
“China is a massive market opportunity. And so in China, we’ve been active in China for many years.
We have CRRC. It’s one of the world’s largest train companies, rolling stock train companies. We’ve did some work in the rail market with CRRC many years ago. We’ve done some work as well in the light-duty passenger train market as well.
In China, we have a project in the train market.
But we announced two years ago, 2018, this joint venture with Weichai Power. Again, Weichai makes about 1 million diesel engines a year — they’re the largest supplier of diesel engines to the truck/bus, commercial truck market in China. They recognized, as part of this momentum in China, to move to zero emissions and fuel cells. They recognized the need to do that in their business and so they have had to make a direct equity investment.
Two years ago, they made a 19.9% investment in Ballard, and then we set up this joint venture with Weichai.
They own 51%, we 49%, and that joint venture is up and running today. It went into operation in about the mid-last year 2020. And again, it assembles Ballard-designed engines. So we design them and we also sell the core MEA — the core material that goes into the fuel cell that was on that technology.
Ballard continues to sell those to the joint venture, but the joint venture then assembles these stocks and engines for the truck, bus and the forklift market for the Chinese market.”
Get the complete detail on Ballard Power and read the entire 6,488 word interview, exclusively in the Wall Street Transcript, Tony Guglielmin, CFO of Ballard Power Systems.
