Oracle Power (LON: ORCP) shares are up 2% or so today on their latest announcement. This is about a green hydrogen project.
Oracle Power describes itself as an international natural resources project manager. This is at the very highly leveraged end of the business of building the natural resources sector of the future. By leverage here w do not mean specifically any borrowing by the firm – rather, the value of the firm is hugely leveraged to the success of any one single project.
For example, Oracle Power has two gold prospects in Australia. The firm currently is valued at around the £7 million mark. Actual proof of gold in mineable concentrations and in volume at either of those prospects would clearly have a value many multiples of that current overall corporate valuation.
The same is true of another of their projects, a lignite mine and associated power station in Pakistan. Or, equally, this green hydrogen project.
In fact, green hydrogen has even higher leverage. The gold projects are about proving that there’s a viable mineral deposit there. If there is, great, but that’s not a technological advance nor development. There are no implications for other gold mines, or even potential ones, elsewhere in the world. The lignite project is again the application of a standard technology to a known resource base. So, while the project would be very large and success would generate substantial value, it would not be the first proof of a technology that can then be applied elsewhere.
Green hydrogen is different. It’s clear and obvious that we would very much like green – that is, hydrogen not produced from fossil fuels – hydrogen to work. It solves a lot of our problems over batteries and energy storage for example. But no one has, as yet, been able to make green hydrogen fully economic at significant industrial scale.
So, anyone who does manage to do that – as Oracle Power might – would then have a technology which could be replicated in many other situations and parts of the world. That’s the increased leverage which technological development, rather than simple resource exploitation, offers.
But, of course, greater potential returns also come with greater risk. For if this green hydrogen is a problem that no one has as yet cracked then there’s obviously some difficulty with cracking the problem of green hydrogen. No one specific project can be 100% relied upon to do so either.
Another way to put this is that green hydrogen is an excellent idea but for it to be value additive it does actually have to work. The very thing which people are having trouble with.
Oracle Energy remains a high-risk and potentially high-reward natural resource project developer. The proof will be in the pudding, bringing a profitable project either to completion, or to a valuation event where another investor will step in to complete.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.