Insights

Bart Vossen | M&A in the Energy Industry
POSTED 2.11.20 M&A Masters Podcast

The energy industry is going strong so far in 2020… and the outlook for the future is good as the industry responds to sustainability initiatives and reacts to market pressures.

Bart Vossen of Houston-based SGR Energy shares how upcoming regulations are impacting the industry, as well as why the company looks beyond U.S. borders for most of its customers.

We also chat about mergers and acquisitions in the industry, talking about some prime targets SGR considers and how they conduct acquisitions, as well as where the company is headed in 10 years – they have some big goals, for sure.

Tune in to find out…

  • The biggest obstacle to growth they’re working on this year
  • The product mix that sets them apart from the competition
  • The difference between upstream, midstream, and downstream
  • Energy trends in the Caribbean and Central America
  • And more

Listen now…

 Mentioned in this episode:

Transcript

Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Bart Vossen of SGR Energy. Bart and I had the pleasure of meeting each other during an event in Houston last October. 

And as what I had been thinking about with M&A is it’s literally everywhere. And one of the areas that us Californians don’t think about for where M&A is, is in the area of energy. And the Silicon Valley of energy is Houston. And that’s where Bart and I met. So, Bart, thank you very much for joining me. Welcome to the podcast.

Bart Vossen: Thank you, Patrick. Thanks for the invitation.

Patrick: Now before we get into you and all things SGR Energy, tell me what led you to this point in your career? 

What Led Bart to the Business of Energy?

Bart: Well, I was living up in Bloomington, Indiana. And I was working for a real estate school there and got offered a job down here in Houston to work with the US Department of Treasury and I sold all their ceased property in the Houston area. That contract ended. I went into pressure vessels and structural steel. And I saw an ad, I believe, on Indeed that said timid salespeople have skinny kids. My kids aren’t skinny, I applied for the job. Here I am. So yeah, I came and interviewed and met the guys that interviewed me and then I got to meet the CEO. And soon as I met him, I said I got to work for this guy. 

Patrick: So tell us about SGR energy. what does it do? How is it in the energy space, and go through the specifics. Keep in mind, our audience probably does not know the difference between midstream and downstream. So if you could just share with us some of the lingo with the energy, that’d be great.

Bart: Okay, so there’s three basic areas in oil and gas. There’s upstream, which is the exploration and drilling for oil, there’s midstream, which is the transportation and storage of oil, and then downstream is where they do all the processing and refineries and then they ship it out from there. And SGR, we blend fuel for power plants. So technically we are downstream. But actually, if you go past downstream a couple miles turn right, we’re going to be somewhere over to the side over there. So after everything goes to the refinery, what’s left is the six oil, the heavy oil, the residual fuel, they’re all known as the same thing. 

We take that fuel, we mix it with some diesels and middle distillates, which are actually things that come out of the process higher up in the process. We mix it with some proprietary stuff that we know about and then we sell that the power plants in the Caribbean and Central and South America at the moment. And they burn that and they make electricity. Perfect example is if you go to Sandals or Couples, they have to get their electricity from someplace, Jamaica. 

The power plants that do that, their ship goes in, drops off fuel, they burn it and they make electricity. Our fuel is probably the cleanest in our area. In addition to power generation, we can also make bunker fuel. We blend bunker fuel, which is also known as the gasoline of the oceans. And I’m sure that your people don’t know anything about the new IMO 2020 rule. The International Maritime Organization is part of the UN. 

And they designated, I believe, about seven years ago that fuel on ships at sea will go from 3.5%, which it was up until December 31 to 0.5%. So on January 1st, ships had to decrease the sulfur in their fuel by over 85%. Our fuels, and therefore the sulfur will, you know, there’ll be less sulfur, which is a whole lot less polluting. And we can blend to that specification today also.

Patrick: See, everybody’s thinking about all the plastics in the ocean. And here you are, you’re going to be single-handedly reducing the sulfur in the ocean.

Sulfur Reduction and Advancements in Energy

Bart: We’re trying, we’re trying. And a lot of people are going to use more diesel in their fuel. So people at the gas stations when they drive past they’re going to see diesel prices are going to be higher. We don’t use as much so our alternative blendstocks are cheaper and a lot of them are cleaner than the diesel on distillate. So our fuel is burns better and burns cleaner and it’s kind of most of what we use as a byproduct of something else. So we’re also recycling. 

Patrick: So with this, is the fuel so going toward manufacturing plants, things like that? Because those be domestically used or domestic, US domestic is going just all pure nat gas.

Bart: In power plants, most of the power plants are doing nat gas. There are some like paper mills, industrial burners such as that, that can use our fuel. We’re in negotiations with a few of those, with a few paper companies in the area in the country, but most of our fuel goes to, goes out of the US because natural gas came in in the 90s. And it’s, they say it burns better and burns cleaner and so everybody switched to that. 

But you can’t run a pipeline of natural gas from Jamaica to the Dominican Republic. And there’s no pipelines in the Caribbean. So our fuel is made, shipped and then it goes and we’ll put it into a large storage container and as those people need to make electricity they either ship via truck or rail to their facility. They’ll burn it and make electricity. 

Patrick: Is your market largely, okay is your market largely now Latin America region or the island regions?

Bart: Currently, we got a lot of customers in the Caribbean. We also have Central America. We’re in the process of closing on a facility in Colombia that will allow us to, it’s a terminal in facility that allows us to store a little bit more and take that good crude that we can use out of Colombia. And we, so the clients in Central America. And once we start those contracts and get all that started and taken care of, we also have clients in Asia that are wanting our fuel. 

Patrick: Well, that’ll be a big, that’ll be another very large market for you. 

Bart: That’ll be another huge market. So we’re probably going to double our revenues this year. And once we start those deliveries, they’re going to go crazy. 

Patrick: These firms right on the cusp of, you know, great than spectacular. Now, with this growth coming up I’m just wondering in there and because you and I were, met at an M&A function. Tell me about SGR’s position with M&A. I mean, are they a buyer or are they a seller? What generally can you tell me?

SGR and M&A

Bart: SGR can do both. There are a lot of smaller companies that we could merge with or acquire. And those companies, we could go and, there’s a lot of wells up in East Texas, for instance, that Exxon Mobil drilled and once they got below hundred barrels a day or whatever they can’t use anymore. They’re called stripper wells. So they’ll sell them to somebody and those guys are millionaires just doing that. So we can go and get those guys, take them over, use that fuel. And so we can acquire some of those guys. 

As for us being acquired, our CEO, Tommy, his goal is to be the largest blender of our fuel in the world in the next 10 to 12, 15 years. And he wants to do that as a tribute to his mentor. His mentor in the late 80s, they supplied all the heavy fuels to like Houston Power, and Light, Florida Power and Light. Large electric companies in the US before the natural gas came in. So his goal is to be the biggest and the best.

If somebody came in and wanted to buy us, it would have to be a very good offer because the people that have supported us, our shareholders, he wants to be able to make sure that they’re very well taken care of. So, right now, our goal is to go public. But again, if somebody came in and said, Hey, we want to buy you. Here’s the price and he could agree with that and the shareholders agreed with him then we could look at doing something on that side.

Patrick: Yeah, have you guys had some smaller add on acquisitions in the last maybe 18 to 24 months?

Bart: Not, well, we’ve had one with the one in Barranquilla, where we just kind of took that over. The company sold it. The company that built it originally was an infrastructure hedge fund in Australia that, they’re not an oil and gas business though. They knew we were looking for something, they contacted us, and we took it over, ran it, made it profitable. And so now we’re going to go ahead and finish the acquisition of it. I don’t know, that’s, I don’t know what’s going on there yet. But that’s really the only thing we’ve acquired so far in the group. And more may come but I don’t know what’s on the schedule at the moment, if you will.

Patrick: I don’t know if you could tell us this. So I apologize If we’re pressing too hard, but what are the methods by which you guys are vetting opportunities for acquisition? Are you actively, do you have a banker out there helping you look or are you just because of the network and the people that you work with every day, you already have your ear to the ground?

Bart: Our CFO spotted a few. We’ve already set our eye on a few places. CFO came in I believe July and he’s found a few more. So there’s a few more places that we’re looking at now. Each has their pluses, each has their minuses. Facilities to expand our storage capacity, which we greatly need to do right now. So he’s keeping an eye on those. There’s talks going on with those.

Patrick: So that’s not very different from Tech. I hate to interrupt but what everybody’s looking for is storage. Tech’s looking for more and more storage. I would tell you in our personal lives, we’re looking for more and more storage. And so now we have this. So that’s encouraging to see is that even with a very mature business like energy that is transitioning out, like, you know, with the, with natural gas, you know, domestically but there are other areas for the needs that are there for the powerplants outside of this area. In addition to that, you’ve got the storage, which I don’t think that’ll go away anytime soon. 

Bart: No, no. We’re always going to be needing that. And we could, if we had a magic wand and can wave the magic wand right now get one of the storage facilities, we could increase storage capacity because we have the letters of intent for, we could do a 10 multiple on our deliveries right now. 

Patrick: Oh my goodness. 

Bart: It could happen that fast with the people that want our product, with the IMO that’s come about. The brain fuels that we can blend. The 10 multiple could double. So we’re in a, it’s a very exciting time. We thought this was going to be a couple years from now but when people call you, you stop and you talk to them. People come and say hey look we’ll give you money to do this and this and this and like okay. We’ll talk.

Patrick: Okay, Bart, I gotta tell you it’s very similar to, you know, and I’m giving away a lot of our family, you know, insight here but it’s almost like ask me whether I want to invest in Disney right before Avengers Endgame comes out. And that was kind of a no brainer kind of idea there. We didn’t know how all the streaming services would do, but we knew Avengers Endgame was going to be here and it was going to be, yeah, and that sounds to me your situation looks really great. What else is there that you want us to share? What can you share about SGR Energy with the audience that you want them to take away?

Big Future for SGR Energy

Bart: Like I said, we’ve got letters of intent for, we could do a 10 multiple on or deliveries right now. We’re looking for investors. Anybody wants to do a shameless plug, we currently pay a 12% dividend to our investors. I got in about three years ago, I’m making about 30. I make over 30% because the shares gone up six times since I bought it. 

This year is going to be crazy. So anybody that is interested in, we can’t say we’re sure thing but I mean I don’t, I can’t think of anything else that’s better than us at the moment. Anybody’s looking for a great investment, wants to make some money and then plan as you go public. If all goes well, the next two to three, four years, there could be a 10 multiple on that investment. So on investment today so. 

Patrick: Well, and we’ll be right by along the way as you pick up any additional subsidies or acquisition targets to help build up your infrastructure. Bart, how can our audience get ahold of you? 

Bart: My number at the office is 832-241-2189. And my email address is B as in boy, AR T as and Tom at SGR energy.com. So that’s bart@sgrenergy.com. Anybody wants to hook up on LinkedIn, I’ll be happy to connect with them there. But anybody has questions, shoot an email, give me a call. And I’d be happy to tell them how we can benefit them and what we can do to make them hopefully richer in the future. 

Patrick: Excellent. Well, Bart, I really appreciate this. And while the normal display disclosure out here is this isn’t an advertisement or solicitation to buy or information on investment, it is something that if you’re interested in energy, M&A opportunities or energy investment options, you want to look at something that maybe isn’t on the beaten path, this is definitely ay SGR Energy. Bart, thank you again for joining us and we’re going to talk again.

Bart: Thank you, Patrick, for your time. I appreciate the invitation.