LONDON (Alliance News) - Highlands Natural Resources PLC shares rose on Tuesday after it said it is in advanced discussions about acquiring its first producing asset in the US and said it has broadened its strategy to expand into the oil field services industry, but warned that the technology it has invested in is unproven, though a potential game-changer.
Highland shares were up 29% to 11.94 pence per share on Tuesday afternoon.
The company, which made its initial public offering in March, said the discussions to acquire an oil and gas producing asset in the US are "advanced" and said the expansion into the oil field services industry will allow the company to "capitalise on prospective opportunities identified in the arena".
To expand into the oil field services sector, Highlands is set to acquire a 75% stake in global patent applications that have been submitted by US-based Diversion Technologies. The patents cover a new diverter well-stimulation technology known as "DT Ultravert".
Diverters are used by the industry as a method of enhancing the production of oil and gas from wells that have already been stimulated by hydraulic fracturing, otherwise known as fracking.
"The oil and gas industry is searching for a breakthrough in diversion technology to increase oil and gas production without the expense of drilling new wells - Diversion Technologies believes it may have such a breakthrough," said the company.
The company said Diversion's new technology can offer a potentially more effective and cheaper method to stimulate conventional and unconventional formations, with less than 20% of the original costs currently associated with drilling and completing a well.
Highlands said estimates show this technology trend could earn over USD1.1 trillion during the patent's life, and said the fracking industry is worth over USD50.0 billion per year worldwide, but noted that the technology is still under development.
"This technology trend will, in one form or another, reshape an industry that is projected to earn over USD1.1 trillion during the patent's life and could be a disruptive force in the market. However, we are aware that the technology is still under development and have therefore ensured that the acquisition is structured to minimise dilution and cash outlay from shareholders," said Chief Executive Robert Price.
"The board cautions investors. Like all new technologies in the oil field, "DT Ultravert" may not be successful in every application. While in the board's opinion, this technology is seemingly revolutionary, it is currently unproven in the field," the company said.
Highlands has signed a heads of agreement with Diversion to acquire the 75% stake in the pending patents in return for 1.9 million Highland shares and 30.0 million warrants exercisable at 25.0 pence. Highlands is expecting to close the deal before May 25 subject to completion of the definitive agreement and due diligence.
"We have identified a range of exciting oil and gas production acquisitions and oilfield service technology opportunities since listing in March and while we work hard to complete our first production acquisition as soon as practicable, we are delighted to have entered into this potentially transformational deal to acquire a 75% interest in Diversion's pending patents and rights to any future patents," said Price.
"Considering the potential upside available if the technology proves successful, and the low capital expenditure required to roll out this type of business, which has a royalty-based revenue structure, we believe this is an opportunity too good to miss," he added.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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