Under existing federal rules, companies that do offshore drilling face maximum cleanup costs of up to $40 million for environmental damage in the north and up to $30 million elsewhere, when no fault or negligence is proven.
But critics have warned that this represents a fraction of the cost of multimillion- or multibillion-dollar disasters such as Alberta-based Enbridge’s July 2010 pipeline rupture, which spilled more than three million liters of oil into the Kalamazoo River in Michigan. There is unlimited liability for companies when fault or negligence is proven.
BP has just agreed to a record $4.5-billion settlement with the U.S. justice department to avoid criminal charges. This does not include cleanup costs and civil liability.
In recent years, pipelines have moved into the crosshair of environmentalists on safety concerns. Keystone XL and Northern Gateway are 2 such projects that have seen the development of an unprecedented level of opposition. Opposition critics are painting pipelines as an environmental disaster waiting to happen.
The government is reacting with regulatory changes aimed at improving environmental protection. Increasing inspections and standards are part of what Canadian federal Natural Resources Minister Joe Oliver described as “world-class standards” in Canada based on a polluter-pay principle.
The government is also reviewing its liability system which may close what environmentalists believe is a gap in Canada’s existing laws that now leave taxpayers responsible for damage caused by the oil and gas industry.
The new legislation could put pipeline companies on the hook for billions of dollars as they face unlimited absolute liability for spills. This gives the polluter-payer principle a whole new meaning.
But one industry’s problem is another company’s opportunity.
That company is Synodon Inc. SYD.V 0.17 [-0.01] which stands to benefit from the anti-pipeline campaigns thanks to its proprietary pipeline leakage detection technology.
Synodon has a proven technology that is capable of detecting natural gas and liquid petroleum leaks from the air. The technology was developed by the Canadian Space Agency in the 90s. In 1999, the agency successfully deployed an instrument that measured carbon monoxide and methane from orbit.
“So the idea then was if one can detect methane from space, why couldn’t we adapt that technology to detect methane by flying it on a plane?” says Adrian Banica, President and CEO of Synodon Inc.
Synodon acquired the rights to expand the technology, creating a patented commercial service for detecting emissions and leaks from facilities and pipelines. Airborne detection is carried by a helicopter equipped with a gas sensor. The gas sensor is really a big infrared camera that is designed to detect very small color changes in the infrared spectrum.
Every gas in nature absorbs and colors the infrared light that passes through it in a very specific way. It’s almost like every gas has a unique color “fingerprint”. Onboard specialized instruments simply look at the reflected sunlight off the ground and identify the gas based on its fingerprint.
The opportunity to detect emissions from the oil and gas sectors is not only limited to pipeline companies. It starts at the wellhead and moves through all the gathering pipelines and the facilities that these gather the product to, be it processing plants or refineries.
Synodon’s aerial services get around the problems of challenging terrain and inaccurate maps. Its natural gas leak detection sensor pinpoints a leak within two meters of where the gas is breaking the surface. It delivers actual gas plume images to operators allowing them to quantify the severity of the leak.
The technology is even capable of detecting pinhole leaks from underground oil pipelines before any liquid reaches the surface. This provides pipeline operators insight to small corrosion problems allowing them to prevent ruptures and massive environmental damage.
Pipeline companies can now demonstrate that they use the best techniques available to ensure pipeline safety through preventive maintenance. Synodon’s technology could become a standard in the midstream market…and that market is simply huge.
Just in North America you’re looking at more than a million kilometers of transmission pipelines. Synodon is currently targeting 80% of the market by focusing on the top 100 pipelines companies. These are potential clients with substantial transmission networks like Kinder Morgan which own more than 100,000 km of pipeline.
The company currently services customers on both sides of the border but the largest portion of its revenues last year came from the US. This is where marketing effort is focused right now. Synodon’s two core service offerings for natural gas and liquids hydrocarbon leak detection enjoy over 50% in gross margin. All it takes for the company to breakeven are a few contracts for 50,000 km per year or one major contract with a large operator.
But selling to this sector has its own set of challenges.
The sales cycle can take up to 3 years before large orders start rolling in from a client. Pipeline companies prefer to become comfortable with a new technology before committing to bigger orders. They want to see proof it works like it’s supposed to and confirm Synodon is able to deliver on the contract. That’s why they start with small contracts that slowly increase in scope year after year covering larger percentages of their pipeline network.
Synodon has been actively marketing in the US for the past 2 years and is starting to see its commercial efforts bear fruit. The company recently announced it re-signed Nova Chemicals for a 3 year services contract. The new agreement covers Nova’s full pipeline network representing a 3 fold increase in contract value.
Repeat business provides a strong signal Synodon’s new technology has turned the corner and the markets seem to agree. In the last few weeks, the company’s stock shot from $0.10 to over $0.30 cents a share. This is no longer just a science project; this is a commercially viable technology.
Investors may have missed the initial run, but they have not missed the boat. The growth curve is yet to hit as Synodon anticipates signing multiple clients in 2013. If this is the best technology available to the pipeline industry, you can imagine what increasing adoption rates will produce in revenue and cash flow.
*Synodon Inc. sponsored and reviewed this article.