In Colorado, a company called IX Water has launched a crowdfunding program on StartEngine, hoping to raise $1 million via private investing to commercialize its brackish water treatment system.
So far, $425,000 had been raised, at a $13.1 million valuation. The company wants to build a collection of components to clean water used in oil drilling or other manufacturing processes. These include devices to clean out particles, metals, and volatile chemicals like benzene and toluene.
The company can also clear out salt and sulfur, or the salt water can be used to produce chlorine derivatives through electrolysis.
It’s a great idea. The oil and petrochemical industries have wasted a lot of water. The problem is making the numbers work.
IX Water was launched with technology spun out of the Los Alamos National Laboratory in New Mexico. They have plants in Golden, Colorado and Calgary, Alberta, along with a manufacturing partner in Dalian, China. (Dalian is on the North Korea side of the Yellow Sea in northern China, opposite Beijing.)
The CEO is John (Grizz) Deal. He has extensive experience dealing with Los Alamos spinoffs and the energy industry. His sister, Deborah Deal-Blackwell, is vice president for marketing. Co-founder Randall Wilson worked at a foundation owned by Lockheed Martin (NYSE:LMT) to commercialize its technology, and has done the same around the Sandia Labs. This is not their first rodeo.
According to Crunchbase, IX Water has been working since 2012 to reach this point. It has the technology, it has the team, it has the manufacturing all lined up.
What it needs are customers; people who will pay for treating their wastewater.
Out of Money
In theory, oil and chemical companies should pay for treatment as part of their operations. They would make up some of the cost by reselling the water.
But then the oilpatch went broke. When oil operators are operating, they make bold promises about cleaning up their mess someday. When they go broke, they walk away. They don’t produce brackish water with their wastewater, and they don’t use the brackish water, either.
Olin (NYSE:OLN), which uses the kind of salt water IX Water would produce to make chlorine and other products, recently shut its chlor-alkali plant in Freeport, Texas, at the center of brackish water supply. When the oil and gas industry was hopping Olin had happy days. Since the business began faltering two years ago the stock has been cut in half.
Regular readers at InvestorPlace will recall that the Olin process can also produce hydrogen, with some additional technology. Olin had taken chlor-alkali assets from Dow Chemical as that firm merged with DuPont to create Dow Dupont (NYSE:DD).
Now, with the oilpatch and petrochemical industries flat on their backs, there’s no money to pay for treatment, even with the simplified IX Water system. There’s also going to be a limited hydrogen supply for companies like Plug Power (NASDAQ:PLUG), which piggyback on chlor-alkali production to produce hydrogen.
The Bottom Line
IX Water notes that oil and gas production results in 150 billion barrels of wastewater per year. Fracking uses water-soluble chemicals, pushing them deep underground, at pressure, to fraction rock. Dealing with the resulting wastewater is a huge problem. Someone should deal with it. IX Water can.
But without an industry to pay for treatment, where is the money going to come from?
Deal is a Democrat, who ran two years ago to chair the local party. He lost. The party’s platform supports wastewater treatment. A Democratic administration might even help IX Water get the money it needs, buying wastewater, supporting treatment, creating a market.
If that happens, Deal and IX Water can make a deal. If it doesn’t, I don’t know.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks