Avocet 'wonder' fuel and the world oil price

by EWAN LAMB

The repeated delays in the launch of the 'revolutionary' Avocet methanol fuel as a replacement for petrol and diesel means any attempt to market the product now would prove to be uneconomic following the collapse of world oil prices, according to at least one business expert.

A set of figures included in a 'Strictly Confidential' Information Memorandum (IM) which was sent to wealthy potential investors from October 2016 onwards indicated the substitute fuel being developed by Avocet Infinite plc would be competitive as long as oil prices were at $58 per barrel or above.

The memorandum seen by Not Just Sheep & Rugby added reassuringly: "Whilst oil prices are currently below this level, the five year average is $87.15 and the 10 year average is $84.257 ". 

But the global pandemic coupled with a worldwide recession which could last for several years has driven oil prices down in spectacular fashion. Currently the WTI (West Texas Intermediate) crude oil price, which is regarded as one of the main global benchmarks, is hovering at around $40 dollars per barrel.

Many of the 650 investors in the Avocet group of companies were undoubtedly attracted by the directors' plans to resurrect a form of fuel pioneered by ICI more than 30 years ago but abandoned on grounds of high production costs. Now, the failure to manufacture and marked 'avocet' fuel is said to be causing a great deal of frustration and anxiety among shareholders.

The recent liquidation of Avocet Infinite (now called Omega Infinite) with a replacement shares 'enhancement' in Avocet Natural Capital plc is just one of the recent developments in the Avocet story.

But following the Avocet Infinite prospectus of 2016 the number of investors increased from 118 to 376 just a year later before another significant rise to 605 by November 2018. By that time the list included several names with individual stakes of up to a million £1 shares and more.

There was no indication given back in 2016 that the Avocet fuel would still not be available in the second half of 2020.

Here's what the original IM had to say: "Any competition (to traditional fuels) faces considerable hurdles in terms of taxation, sympathetic regulation, infrastructure and available proven technology. These factors, while daunting, can be overcome, initially in niche markets (such as UK biodiesel), provided there are cogent reasons for adopting a new fuel. Another potential solution to quicker market entry would be to partner with large oil and gas producers.

"Whilst the availability of Avocet additive is expected to contribute to significant market growth for methanol as a transportation fuel, a static analysis in 2015 would mean that there was a potential market of 22 billion litres of methanol transportation fuel, which would provide a £100 million a year licence and royalty opportunity (at 1p per litre of diesel equivalent)."

And would-be investors were also told: "Income starts in Quarter 4 2017 and is forecast at the minimum production of 10,000 tonnes in the first year, increasing to 100,000 in year two, 400,000 in year three and 1,000,000 tonnes in year four onwards."

There was still no sign of any Avocet fuel being distributed by July 2019 when Avocet Infinite chairman Martin Frost issued a letter to the hundreds of shareholders, telling them: "Eureka - The long avocet additive wait is over: land, maritime and aeronautical markets now beckon!

"Some 50,000 plus litres of ‘avocet methanol’ diesel replacement fuel will become available in November 2019. From January 2020, daily some 250,000 plus litres of ‘avocet methanol’ diesel replacement shall be forthcoming.  In 2020, Avocet Natural Capital Plc expects that it will facilitate the sale of some 300 million litres of ‘avocet methanol’ diesel replacement fuel."

However, it appears 'lift off' has been postponed yet again. 

Profit and loss financial projections issued in the 2016 IM promised total revenue from all Avocet activities, including agriculture, of £8.729 million in financial year 2017 soaring to £122.9 million by 2020.

Other seemingly impressive forecasts included Avocet fuels revenue of £96.8 million by 2020 and £176 million in 2021. Avocet Infinite cash balances were predicted to be £2.571 million in 2017, £89.47 million in 2020 and £224.595 million in 2021.

Outlining the investment opportunity, the document claimed: "To date, Avocet Infinite plc has issued 10.91 million £1 shares from friends, family and the angel community which, alongside debt of £3.25 million, has provided capital for R&D investment into the three divisions as well as also being used for the acquisition (subject to conclusive missives) of  433 acres of prime Scottish Borders farm land and buildings (recently valued by Strutt & Parker at £5 million).

"The current opportunity to invest is in a new funding round totalling up to £5 million, taking the total capitalisation of the group up to £15.9 million. It is intended that this will be the last opportunity to purchase shares at £1 each, with a significant future revaluation towards the end of 2016 given the technical and commercial progress of all three divisions."

A business analyst told us: "Based on the break even figure of $58 for a barrel of oil which appeared in the IM there does not seem to be any realistic chance of the long-awaited new fuel being competitive in present day markets. And with the oil price expected to remain way below average for the foreseeable future the outlook for mass conversions to methanol must be fairly bleak".

Brent crude oil prices will average $33.04 per barrel in 2020 and $45.62 per barrel in 2021 according to the most recent forecast from the US Energy Information Administration (EIA).