CorEnergy Infrastructure Trust (CORR) announced 2Q23 results today, and this company, which has had a very difficult time operating in the current inflationary environment, offered a very important first step towards a transformation.
With Exxon's (XOM) recent move to buy Denbury Resources (DEN) - touted by Exxon management as a play on transforming DEN's CO2 injection network into CCUS systems, more so than as a play on Denbury's productive assets - we see that the North American hydrocarbon pipeline game is changing.
While I am disappointed that CorEnergy has yet to close the transaction to sell its Missouri natural gas pipeline assets (MoGas and Omega) to utility giant Spire - with closing now expected by year-end - and not shocked by management's reduction of its FY24 EBITDA guidance to $24-$26mm form the prior guidance of $33-$35mm (passing though tool increases on CORR's California crude oil pipelines has been a VERY slow process), I see that a butterfly is beginning to emerge from the caterpillar that is Crimson Midstream, the California crude oil pipeline assets that form the heart of CORR.
From CORR's press release this morning:
CorEnergy continues to seek emerging carbon capture and sequestration business opportunities in California....As part of this effort, the company has funded approximately $1 million of development cost supporting the Lone Cypress Hydrogen Project, a proposed blue hydrogen plant at CRC's Net Zero Industrial Park at Elk Hills Field in Kern County.
California Resources (CRC) was spun out for current Buffett darling Occidental Petroleum (OXY) in 2014 and currently holds the largest mineral reserves of any player in the state of California.
The difference between this announcement and XOM/Denbury's combination, is that the Lone Cypress actually aims to convert emitted methane into blue hydrogen, which is an extremely useful fuel, while Denbury's existing CO2 pipes will merely carry that gas to underground storage locations.
The idea of CCUS projects - to sequester CO2, a naturally occurring gas - into undergrounds storage areas - is probably the most mind-numbingly stupid of all ESG efforts, right up there with Climeworks plans to suck CO2 out of the air (which recently achieved more funding).
What CRC, in association with Brookfield Renewable, and now with CORR in the consortium, will produce with blue hydrogen is several steps above mere storage on the transformational food chain.
In contrast to the fool's errands that are carbon storage efforts, blue hydrogen, according to XOM's website, can actually be used in the following ways:
Blue hydrogen may one day be the lowest-cost option to help decarbonize industrial heating, residential heating in extremely cold climates and heavy-duty vehicles.
You can heat homes with it, or you can shove it into a cavern. To me the choice is an obvious one.
Much like Denbury Resources, which emerged from a Covid-era bankruptcy filing to graduate to a $4.9 billion takeover by Exxon (the value of which has actually increased since the deal closed, as XOM/DEN was an all-stock deal and XOM stock has performed very well of late), CorEnergy Infrastructure Trust, via its legacy Crimson Midstream California pipes, owns a very valuable and scarce (California is not building an new oil pipelines in 2023, and probably never will) resource that adds value to the company.
There are no secrets in the energy sector. As blue hydrogen gains in acceptance, CORR's California pipelines will become that much more valuable, and eventually this small company's assets will, in my opinion, become too valuable for a large company to resist.
We are still holding the preferred shares of CorEnergy Infrastructure Trust, (CORR-A) , which closed Friday at $8.32/share, or 33 cents on the dollar versus a face value of $25/share.
There is value in scarce assets. Industry players always see that, even if the securities markets don't.
I look forward to hearing more from CORR management on the future of the new CorEnergy on today's conference call. That call will be held at 12 pm ET.
I have found the most patient, generous group of small- and medium-sized investors for ExCap, and I am truly blessed to count them as colleagues. But that means that I really don't like to let them down by investing in losers, and today's press release shows that CorEnergy and, specifically for us, CORR-A, still has a chance to become a winner.
