Lunch With: Kineticor Resource’s Andrew Plaunt talks raising capital with Michael Tims
Andrew Plaunt has a great idea and a business plan, but needs money to make it happen. We found him the perfect lunch date
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
YOUNG EXEC: Andrew Plaunt, CEO, Kineticor Resource Corp.
HISTORY: Founded Kineticor, which plans to capture flare gas from oil producers and use it to generate electricity, in May 2013. Prior to that, he was the founder of Kineticor Renewables, a wind energy producer whose assets were sold in March 2011 to Algonquin Power.
NUMBER OF EMPLOYEES: 3 (including himself)
LUNCH: Risotto of the day (roasted chicken, cauliflower, bell pepper puree and wild mushrooms)
SENIOR EXEC: Michael Tims, Chairman, Peters & Co.
HISTORY: Tims has been with the energy financier for more than three decades, joining in 1980 when it was still a boutique shop and the National Energy Program was just nine days away. Since then, he’s helped grow it into one the most influential players in Calgary’s business community and a key component of the province’s energy sector.
NUMBER OF EMPLOYEES: 90
LUNCH: Soup of the day (seafood chowder) and Caesar salad, extra anchovies. “Lots of them, if that’s possible.”
His office may have moved from Bankers’ Hall to the other side of the Bow River, but Michael Tims, the outgoing chairman of Peters & Co., still comes to Calgary’s Teatro restaurant as often as he can. Dario Berloni, the appropriately dapper owner of Teatro, swings by to say hello. “Two days in a row,” he says. “It must be a good place.”
Today, he’s having lunch with Andrew Plaunt, the 28-year-old CEO of Kineticor Resources, a company that seems to have found a way to monetize the natural gas that gets flared off at oil wells. It’s actually the second iteration of the Kineticor name for Plaunt, who founded Kineticor Renewables, a wind-energy play, two years earlier. That company was an attempt to capitalize on the wind farm contracts that were offered by SaskPower under its Green Options Partners Program, which allowed private power producers to sell up to 10 megawatts to the provincial utility. “ We thought there had to be an opportunity there,” Plaunt says, so he raised $95,000 from friends and family, but quickly realized that the opportunity wasn’t in building out the capacity as it was in securing the opportunity to do it. “The big thing with wind development is that it takes a very long time,” he says. “To develop a wind farm takes three to seven years, and we knew we didn’t have enough money to sustain ourselves.” So, rather than trying to last those years, Plaunt and his partners decided to option the land, knowing that if they got the 10-megawatt contract they’d be able to raise the money to fulfill it. In the end, he won two 10-megawatt contracts, and things really took off. “We started getting calls from everybody and their dog trying to buy it,” he says. “We actually spent more time selling the company than we did running it.”
The assets were ultimately sold to Algonquin Power. “That was our first taste of seeing the value of those contracts,” Plaunt says. And so, after bringing many of his original investors along with him and hiring a CFO, he raised half a million dollars and founded Kineticor Resource Corp. last March. This time, though, he wants to capitalize on those lucrative long-term contracts through a different SaskPower program, its Flare Gas Power Generation Program. It offers 20-year contracts, only this time up to a limit of one megawatt per contract.
Tims perks up at this point, pulls out a pad of paper and a pen and starts writing down the numbers Plaunt is giving him. “There’s a social purpose in this too, right,” Tims says. “If they can stop the flaring, that’s smart for everybody. They need that in the Bakken area in North Dakota. I was reading recently that they’re flaring 260 million cubic feet a day. Think of the power in there – and what impact we’re having on the atmosphere. And we have Obama lecturing us on the environmental consequences of the oil sands!”
Plaunt agrees, and points out that even in Saskatchewan there’s the flaring equivalent of 400 megawatts of power. Kineticor has applications in for 13 megawatts, and while he doesn’t think they’ll all get approved he’s confident that enough of them will to create some momentum. Producers, he says, are coming to him now, rather than the other way around. Tims, who’s still scribbling away on his pad of paper, mentions the name of a company that Plaunt might want to get in touch with.
The food hits the table, and after a few bites, they get down to brass tacks. What, Tims asks, does the build out phase look like, and how much capital does Plaunt need? “If everything goes to plan,” he says, “we’ll probably need about $30 million over the next three years.”
This is Tims’s wheelhouse. He asks Plaunt about the conversations he’s had with the banks – productive ones, it turns out – and then offers up a tidbit of advice. “One of the things we usually end up advising companies to do is raise more equity than they think they’re going to need. It never quite happens the way you think it will.”
Plaunt agrees, and says that while he doesn’t anticipate difficulty raising the $1.5 million he’ll need to secure debt financing, he’s not sure what form that next round of financing should take. They’ve discussed an equity line of credit, and they like the certainty that offers them. “One thing about the equity line of credit,” Tims says, “is that they usually want all of the equity coming in at the same price. So by doing a deal for a bigger amount in that way, you get certainty of having the equity available but you lose the opportunity to get issues done at successively higher prices.”
Plaunt agrees. “And that’s the thing – we do like the certainty because we can go out and sell, sell, sell, and we know we’ll have the dollars there. We have to weigh that against at what stage it might make sense to go public and raise money or just be constantly raising money. But me and our CFO, we don’t have the experience raising [money] on the public markets or through the brokerages, so I don’t have a good indication of what the market wants.”
Tims does. “One of the things you’re probably going to end up concluding is that you’ll want to stay private longer than you think. And even if you do end up using an investment dealer, you’ll probably want to raise the money privately. In part, that’s because of the size at which the stock market starts to pay real attention. The threshold has gotten higher and higher, and if you go too soon you’ll find like a lot of companies that you won’t get the liquidity you wanted because you’re way below the level at which institutional investors are allowed to care.”
One alternative is a dividend-paying limited partnership. “People won’t necessarily be able to sell their shares any time they want to, but they do get a yield on it,” Tims says. But, he continues, there’s another alternative, one that’s becoming increasingly popular for companies like Kineticor: the grey market. “There are a number of firms which are active in that market,” Tims says, “including us.”
“Are you saying you guys are trading private stocks between brokerages?”
Tims agrees in between determined attempts to scoop up the last drops of his soup. His praise clearly wasn’t idle talk. “In the oil sands game, there’s ones like Laricina and Osum that are still private companies but they’ve probably raised three quarters of a billion dollars each. And there are many others that are nowhere near that size.”
Plaunt lets it slip that he’s actually had preliminary conversations with FirstEnergy, a direct rival of Tims’s firm. “They’re a good shop,” Tims says. “You probably expect me to say ‘Oh, those bums,’ but they’re a very professional group.”
“It sounds to me like you’ve got an excellent plan,” Tims continues. “It’s just a question of figuring out what your best route is to fund it – and, of course, at your stage, you can’t make any big mistakes. You can make little mistakes, but you can’t make any big ones.” Tims asks if much competition has arisin.
“Not yet,” Plaunt says. “There are some people sniffing around, but it’s not like competition is our main focus. It’ll get there for sure, because as this market evolves more competition will come in, but right now it’s a bunch of little players testing the waters. I think there’s a good opportunity to become a front runner by going out, raising money and really pushing it.”