Questor Surges on Stricter Energy Pollution Controls

Questor Technology Inc. (QST), Canada’s top pollution-control stock in the past three years, said stricter air quality rules will boost revenue for its flare-gas incineration systems as North American energy output surges.

“The world has changed in the oil and gas industry,” Questor Chief Executive Officer Audrey Mascarenhas said in an interview at Bloomberg’s headquarters in New York on Aug. 23. “Last year, the U.S. put in some tough new rules. The whole conversation around social license to operate is one of the greatest risks for the oil and gas industry.”

Calgary-based Questor is among companies benefiting from greater scrutiny of air quality, waste water and carbon emissions. The U.S. Environmental Protection Agency last year issued rules requiring natural-gas drillers to capture fumes such as methane while projects such as TransCanada Corp. (TRP)’s planned Keystone XL oil pipeline draws opposition from environmental groups such as Credo.

The tougher rules come as U.S. oil production is set to rise 48 percent to 11.1 million barrels a day by 2020, surpassing Saudi Arabia, according to the International Energy Agency. Canadian crude oil output, including from Alberta’s oil sands, will double to 6.7 million barrels a day by 2030 from 3.2 million in 2012, according to Canadian Association of Petroleum Producers.

Destroys Carcinogens

Questor, which gets 50 percent of its revenue from the U.S., is talking with “all the majors” in the North American energy industry about using the company’s equipment, Mascarenhas said, without providing names. The incinerators burn vapors and fumes at high temperatures, destroying carcinogens, toxins and methane, a greenhouse gas, she said.

Questor rose to a record 75 cents on Aug. 26 and has tripled in the past three years, the biggest increase among 10 Canadian pollution-control stocks tracked by Bloomberg. The shares closed flat at 74 cents in Toronto today and have risen 80 percent this year. Mascarenhas owns about 15 percent of the company, according to data compiled by Bloomberg.

Questor’s revenue increased 9.7 percent to C$6.68 million ($6.37 million) last year, while net income before special items fell 13 percent to C$1.04 million. The company competes with Houston-based Cameron International Corp. (CAM) and counts Cnooc Ltd.’s Nexen division and Suncor Energy Inc. among its customers.

‘Risky Space’

“There’s definitely more regulation to support these companies,” Khurram Malik, an analyst at Jacob Securities in Toronto said by phone Aug. 22. “In general though, you’ve got to be really careful with these stocks because it’s a very risky space.” Share prices for small, pollution-control companies can be volatile, he said.

Other Canadian pollution-control companies whose shares have gained this year include GLV Inc. (GLV/A), a Montreal-based manufacturer of water-treatment equipment and CO2 Solutions, Inc. (CST), a Quebec City developer of carbon capture using enzymes. Rising water prices and new rules on mercury output from coal power plants in the U.S. are contributing to the success of some pollution control companies.

GLV has risen 83 percent and CO2 Solutions has gained 92 percent this year. Julie Cusson, a spokeswoman for GLV was not available to comment on the impact of regulation.

Leaky Pipes

“In the sense of CO2 capture, the driving force is going to be regulation,” Thom Skinner, chief financial officer at CO2 Solution, said in an Aug. 26 phone interview. The company is developing an enzyme-based technology to reduce carbon dioxide from fossil fuel consumption and is working on a pilot project for application in Alberta’s oil sands.

Pure Technologies Ltd. (PUR), a Calgary-based company that makes inspection systems for water and wastewater pipelines, has increased 4.6 percent this year. The shares rose 0.4 percent to C$4.82 in Toronto today.

The company works with municipalities and companies to detect leaks and manage pressurized pipeline systems. Paul Moon, a spokesman for Pure, wasn’t available to discuss regulation when contacted by Bloomberg News.

Cities across North America are upgrading aging water and sewage networks to cope with natural disasters like Hurricane Sandy which flooded parts of New York City or this year’s floods in Calgary which may cost $5 billion to repair the damage, according to estimates by BMO Capital Markets.

Tailings Ponds

“There is huge potential for Pure because almost all the water infrastructure in North America is coming to the end of its useful life,” Jason Zandberg, an analyst at PI Financial in Vancouver said Aug. 22 by phone. Zandberg has one of six buy ratings on the stock; it has one sell. “They are the biggest player in that segment in North America.”

In Canada’s oil-sands region, companies mining bitumen use on average 2.7 barrels of water for each barrel of bitumen produced, according to the Canadian Association of Petroleum Producers. Much of that water is abstracted from the Athabasca River and ends up in man-made lakes called tailings ponds that require treatment before the water can flow back into the ecosystem.

“The whole oil and gas sector has been coming under intense scrutiny,” Zandberg said. “That’s definitely a macro trend and we should expect further regulations on all aspects of that industry.”

Currently producers operating in Alberta determine whether capturing, burning or releasing gas, known as venting, is “economically viable,” according to the province’s energy regulator. New rules to address recent increases in flaring are expected by the end of the year, the regulator said in June.

Big Prize

Flaring and vented gas from crude oil and bitumen production increased 66 percent from 2009 to 2011, according to the most recent figures available from the Alberta energy regulator.

Globally, about 5.3 trillion cubic feet of gas is flared annually, the equivalent of 25 percent of U.S. consumption of the fuel, according to the World Bank. Russia and Nigeria flare the most, while North American flaring is rising along with oil production gains.

Oil producers can reduce flaring by connecting the produced gas to pipelines and selling or using the gas. If that’s not economic or practical, that’s where Questor comes in. Using high-temperature furnaces, the waste gas is combusted at the well site using high-efficiency gas incinerators.

Cutting emissions from flaring is “low-hanging fruit” for the industry, Mascarenhas said. “The big prize is using that wasted energy and heat.”

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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