Zechstein Midstream in talks to raise around EUR 100m for midstream service roll-out

Zechstein Midstream, an oil and gas midstream services and technology company, is in talks to raise around EUR 100m in order to commercialise its technology and grow its customer base across Europe, Chief Executive Officer Paul Bieniawski said.

Zechstein has been in discussions and signed non-disclosure agreements with a number of private equity firms, he said, adding it expects to attract a European or US investor. Though the company has yet to see cash flow, Zechstein is a perfect fit for a private equity with a development focus, he said, as it has an established platform and business model. Zechstein expects cash flow in 2018, he added.

It may also be a good fit for industrial bidders, such as equipment suppliers trying to grow a service offering, he said.

The company is flexible on the terms of the c. EUR 100m investment, but an investor is likely to acquire a majority stake in Zechstein, subject to a defined corporate plan that is mutually agreed, he said.

The company has undisclosed legal advisers in place, Bieniawski said, and would welcome approaches from M&A professionals pitching advice.

The company, with offices in The Hague and Houston, is focused on creating a pure play midstream business providing gas gathering system services and gas processing services to European producers, and has secured exclusive rights to commercialise a proprietary gas processing technology, proven and used in the US, in Europe, he said.

The company wants to diversify geographically so as not to be exposed to just one market and a limited number of customers, he said, and the capital injection will allow Zechstein to open offices and put boots on the ground, he said.

In 2016, the company’s former majority investor, Haddington Ventures, switched focus away from Europe and Zechstein’s management bought the investor out of the company, he said. Bieniawski declined to disclose the value of this management buyout.

Its cryogenic technology is an improvement on other technologies in the space in terms of capex, opex and environmental impact, he said, and it has signed term sheets for transactions in Poland, Germany, the UK and Netherlands.

The technology is focused on pressure swing absorption (PSA) in gas gathering and processing infrastructure, he said. In the pressure swing, medium inside the pressure vessel attracts the hydrocarbons and vents the unwanted gases, or the other way around, he said, but in this case, the medium is a resin with extreme affinity for hydrocarbons, and so provides greater efficiency.

For example, a normal gas structure may contain around 20% nitrogen before becoming uneconomic, but with this technology it is still viable at 40%-50% nitrogen because it will only attract the hydrocarbons, he said.

The technology is also highly scalable to field life and can be built as modular portable systems, he said. Because of this flexibility, the technology allows producers to make a decision sooner in the development process, he said.

On older fields, perhaps there are systems and infrastructure in place but the field production is declining and becoming no longer economic, but this technology lowers the cost and makes it more viable again, he said.

The company has non-disclosure agreements for its service and technology with a number of oil and companies producers, and so the technology is past the stage of concept, and is deep into implementation, he said.

Zechstein is now out looking actively for customers, he said. Developing projects in Germany, the UK, and Netherlands is the first target, he said, followed by Poland and Romania.

The company could also possibly look at small to medium size asset acquisitions, Bieniawski said. It would not look at targets on the same scale as larger players such as North Sea Midstream Partners (NSMP), which bought Total’s [EPA:FP] North Sea midstream assets in a GBP 585m (EUR 798m) deal in 2015, he said. But if a smaller producer approached Zechstein to sell to it its midstream infrastructure, it would look at it, he said.

by Patrick Harris