Pieridae Energy, a relatively quiet player in the Canadian energy landscape, has been steadily attracting attention for its ambitions in the LNG export market. But what if the real story isn't about LNG at all? A deeper dive into their recent earnings call transcript reveals a fascinating shift in strategy, a calculated pivot away from the volatile LNG arena towards a more stable and potentially explosive opportunity: custom gas processing.

This isn't just a subtle shift in wording; it's a tangible transformation backed by numbers. While analysts and investors have focused on the impending sale of the Goldboro LNG assets, Pieridae has been quietly building a formidable custom processing business within its existing infrastructure. They own and operate three deep cut liquids recovery gas plants, boasting an impressive sulphur recovery capacity that makes them one of Western Canada's largest sulphur producers. These plants, however, are currently operating at approximately 70% capacity. That's 30% untapped potential, representing a vast, almost invisible reservoir of revenue waiting to be unlocked.

The company has been laser-focused on attracting third-party producers to fill this capacity, particularly those developing deep basin resources. Caroline, their electrified liquids recovery plant, seems ideally positioned to capitalize on this trend, offering a compelling solution for producers seeking efficient and environmentally conscious processing.

Here's where the numbers become truly intriguing. In Q4 2023, Pieridae saw a significant boost in third-party processing revenue, directly impacting their bottom line. This success isn't a one-time anomaly. It's a deliberate strategy, a deliberate creation of a "win-win" scenario for their customers and themselves. Pieridae offers producers a preferred processing option, fulfilling their operational needs while simultaneously generating a substantial new revenue stream for the company.

"As CFO Adam Gray stated, "Third-party processing revenue was particularly impactful in the fourth quarter... Building a meaningful midstream business within our existing largely fixed cost infrastructure, will greatly improve our overall business economics.""

This strategic pivot towards custom processing could be the catalyst for Pieridae's resurgence. Consider this: the company possesses an impressive 230 identified net drilling locations in the Alberta Foothills, an untapped treasure trove of potential production. Historically, developing these locations has been hampered by high per-well costs and fluctuating natural gas prices. But what if Pieridae's burgeoning custom processing business provides the steady cash flow needed to fuel these drilling projects?

The potential is staggering. Even if they develop just a fraction of these drilling locations, Pieridae could significantly increase its production capacity, amplifying the need for—you guessed it—even more custom processing. It's a self-reinforcing cycle, a virtuous loop that could propel the company's value to new heights.

Hypothetical Revenue Growth from Custom Processing

The following chart illustrates the potential revenue impact of Pieridae Energy successfully filling its existing processing capacity with third-party producers.

Note: This chart is based on a hypothetical scenario where Pieridae generates an additional $50-$100 million in annual revenue from custom processing.

Here's a hypothesis worth exploring: if Pieridae successfully fills their existing processing capacity with third-party producers, they could potentially generate an additional $50-$100 million in annual revenue. This influx of cash could then be strategically allocated to fund drilling projects, unlocking the value trapped within their vast inventory of drilling locations. This, in turn, would further increase their production capacity, generating even more demand for their processing services.

The potential is further amplified by their focus on well and facility optimization. They've managed to achieve an 8% base decline rate, already among the lowest in the industry. But their ongoing optimization efforts aim to reduce this to a remarkable 5%, further enhancing their existing assets' longevity and profitability.

While the market fixates on the Goldboro sale, Pieridae is strategically positioning itself as a midstream powerhouse, creating a platform for sustainable growth and value creation. This quiet revolution in their strategy may have been overlooked, but the numbers tell a compelling story. Could Pieridae Energy, the sleeping giant, be on the verge of an explosive awakening? The evidence suggests it's a very real possibility.

"Fun Fact: Sulphur, a byproduct of natural gas processing, is a crucial ingredient in fertilizers. As one of Western Canada's largest sulphur producers, Pieridae Energy plays a vital role in supporting agricultural productivity."