It has been an eventful 18 months in the life of Energy Pathways, the integrated energy transition company, since its RTO at the end of 2023. At the time, the company said it was set to progress “ready-to-go” gas development and support the UK’s objectives for energy security and Net Zero ambitions.
As someone who not only dislikes Net Zero as a concept—believing it to be a scam—and hates even more the cost of it to the taxpayer, I forced myself to keep an open mind on the company. This was partly due to having met the management in the run-up to its RTO and finding them quite affable and experienced, and partly due to my overriding wish to see small-cap companies succeed. But even from the start of 2024 on the stock market, it was always going to be a challenging ride.
Zak Mir takes a charting look at EnergyPathways (EPP), after the integrated energy transition company, announced this week that it has received correspondence from The North Sea Transition Authority.
The RTO
EPP had raised £2 million, giving it a market cap of £6.3 million at the end of 2023. However, it was known even then that in order to achieve its ambitions, a lot of cash and a lot of negotiation with the authorities would be required and much of that negotiation was going to be difficult, even before the change of government in July last year. One can point to the way that governments and small companies make for strange bedfellows, even at the best of times, especially given the way the juiciest tenders tend to go to the largest players (the COVID-19 PPE tendering process notwithstanding).
Nevertheless, the cause was worthy. We certainly needed energy security—especially in the wake of the Russia–Ukraine invasion, which effectively turned off the taps in Europe for gas supply. This made the company boast that the Marram project was a fully appraised field in the UK–Irish Sea containing up to 35.3 BCF of underdeveloped gas, a reassuring one. It seemed something of a no-brainer when you add in the “green-friendly” tag of being a low-emission energy solution, and a low-cost development with access to infrastructure. The whole proposition appeared first rate. Perhaps the best kicker was the promise of long-duration energy storage and hydrogen production, offering flexible power generation.
In addition, the company had also submitted licence requests for blocks containing the Knox, Lowry and Castletown undeveloped gas fields—all of which meant that for a £6 million market cap company, there was certainly a lot going on.
2024
Initially, things looked bright at the start of 2024, with the company announcing it had partnered with MCS and Mermaid on the Marram project. As far as Marram was concerned, the company said that first gas could be achieved as soon as early 2025—which would obviously have been great.
Instead, in April 2024 the company said it was anticipating delays in the licence application for Marram. In the following months, in a corporate update, EPP said it was making positive progress on the Marram energy storage project (MESH) but had been outbid for Castletown. At the same time, it said that it had made “out-of-round” requests for gas production and gas storage licences with the North Sea Transition Authority (NSTA)—one of this country’s money-wasting, damaging, and not-fit-for-purpose quangos, whose decisions appear to be based on subjective whims or a total misunderstanding of the brief.
In June last year, EPP confirmed its interest with the NSTA in relation to two prospective gas storage areas that incorporate the development-ready Knox and Lowry gas fields. So far, so good.
Heating 2.2 Million Homes
Things appeared to get even better by August, when the company confirmed it had applied for a gas storage licence to develop a storage hub equal in size to the largest existing facility in the UK. Marram—also referred to as the Marram Energy Storage Hub project—was to store enough energy to heat 2.2 million average UK homes. The ante had been well and truly upped by this time.
In September, the company said that FID for MESH was now expected by late 2025, with first energy supply anticipated in 2027. However, there was a fly in the ointment: the company’s cash position, which by that time was just under £1.2 million. The market realised that if it was to fulfil its worthy, environmentally friendly ambitions, it would need a little bit more cash in the kitty. At the time, the shares were languishing near the 1.5p level, compared with 4p at the time of the RTO.
The Green Loan Facilty
Happily, this was all to change on 3 October last year, when EPP announced a £5.1 million Green Loan Facility. The terms of the loan were: a three-year term, the principal amount repayable at maturity, and a coupon of 12.5% per annum paid monthly. On the face of it, the cavalry had arrived in the form of Global Green Asset Financing Limited, a new Luxembourg-based green project and corporate finance platform. What was not to like? The shares soared from 1.5p to just under 12p in a matter of weeks—understandably, given that EPP was now apparently funded to execute its strategy.
Small Cap Hero
From that time, CEO Ben Cube was feted as something of a small-cap hero, even though the usual suspects—who always like to throw mud at successful companies—were querying the nature of the funding, the counterparty and how much it might eventually cost to deliver the EPP strategy. Ironically, few of those same critics have recently been questioning how flimsy and unaffordable Net Zero policy is (a policy no one voted for), and how unreliable and erratic the government is as a business partner.
NSTA Thumbs Down
Given the lead-in to EPP’s MESH update this week, the news that the NSTA has informed the company that it does not consider it appropriate to award a Gas Storage Licence beggars belief. It is as much of a curveball as a lone assassin taking out the US President from the sixth floor of the Texas Book Depository. One even wonders if the NSTA would like to give what could be a highly profitable project to a larger entity?
The August 14 RNS
In Thursday’s RNS, EPP said it was resubmitting its application to the NSTA, as well as pursuing a s.35 direction—meaning it would seek approval directly from the Secretary of State. One would imagine that going directly to a minister could and should prove more satisfactory for EPP than relying on the pen-pushers at the NSTA, and could yet lead to a winning result.
But for retail investors in the stock, the damage has certainly been done. The answer may be that they will average down and hope that the coming months deliver a successful conclusion on MESH. However, the damage is done, and EPP risks being added to the list of “too good to be true” companies that punters fell for.
The question now is whether, with the company sinking to a market cap of £4 million, it can be regarded as an “option money” entry point for those who feel that the latest share price collapse is overdone—and whether even a hint that MESH will get the green light could spark a rebound once and for all? The trick in these situations is normally to wait until there has been capitulation in the market. One would guess that this may happen in the next week or two, and probably if / when the shares approach their main 1.5p lows.
Disclaimer & Declaration of Interest:
The information, investment views, and recommendations in this Zaks Traders Cafe interview are provided for general information purposes only. Nothing in this interview should be construed as a promotion or solicitation to buy or sell any financial product relating to any companies under discussion or referred to or to engage in or refrain from doing so or engage in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the commentator but no responsibility is accepted for actions based on such opinions or comments. The commentators may or may not hold investments in the companies under discussion.
