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Confluence Energy

by John Garvey on January 15, 2018, 08:10 am MST


Kremmling, Colorado

Founded: 2008

Privately owned

Employees: about 25

Industry: Energy & Enviro

Products: Industrial absorbents and hearing pellets

Founder and CEO Mark Mathis is turning beetle-kill pine and unwanted scrap wood into eco-friendly absorbents, heating pellets, and other products.

Not long after Confluence Energy launched in 2008, the company was up against the ropes. Originally a wood pellet manufacturer with an eye on ethanol production, its residential and industrial heating products made a lot of sense when oil prices were sky high.

Mathis was, at that time, on the cusp of an agreement with Anheuser Busch to provide them fuel for $9 per million BTUs. That was well below the cost of natural gas, but the econometrics were abruptly flipped. In late 2008 and early 2009, when oil dropped below $50 a barrel, it upended Confluence's strategy and annihilated revenue forecasts.

Every Coloradoan knows about the mountain pine beetle scourge, which has killed millions of acres of lodgepole pine trees. The infestation has rendered much forested land a giant tinderbox. Mathis lit upon the idea of removing this environmental hazard and creating biofuels -- seemingly a win-win. By using beetle-kill pine and unwanted fiber from logging operations, Confluence sidesteps the well-reasoned objection that biomass fuels deplete forests.

"We were going to build a plant that used all that beetle-kill," says Mathis. "We understood the ethanol technology that there were people that could convert a ton of biomass to some number of gallons of ethanol." The challenge was "making sense of the econometrics," he says

Confluence Energy is today far more resilient against market fluctuations due to a broader portfolio of products. In a remarkable twist, the company's ended up prospering from the very oil and gas drilling boom that helped drive prices down, briefly, by two thirds. The firm's best-known product is EcoSponge, an absorbent used to capture oil and gas drilling waste such as fracking fluid and contaminated mud.

Mathis initially began selling EcoSponge to Haliburton. Getting their attention, he recalls, was difficult. After many unreturned phone calls and emails, he made a site visit to Haliburton's Grand Junction office to speak to the buying manager in charge of lost circulation materials (LCMs, which prevent drilling fluid runoff). The buyer was impressed by the absorptive capacity of Confluence's pellets, and Mathis was soon delivering it by the truckload.

LCMs including EcoSponge absorb, isolate and solidify drilling waste for site removal, but there's an interesting twist. With EcoSponge, Haliburton noticed that hazardous compounds in the waste were breaking down due to microbial activity in the cellulose-based product. "When we looked at it, we were basically getting a hydrocarbon bioremediation effect," says Mathis. "I call it hydrocarbon composting."

The discovery was a bit like winning the lottery. Confluence has since enriched and patented the composting material. This saves drilling companies money by allowing them to leave the drilling waste on site rather than hauling it away. Additionally, Confluence has products for air and water filtration, agricultural, garden and household use. In all, the company has 14 product lines, with four new ones launching in 2018.

"We grew 500 percent between 2010 and 2014," states Mathis, "and then when gas and oil crashed again, we had to reinvent ourselves again."

The second oil price crash in the fourth quarter of 2014 was easier for Confluence to ride out. Roughly 65 percent of revenue was driven that year by the oil and gas sector, but Mathis estimates that it will be closer to half for 2017. Adaptability and flexibility are critical in energy industry firms, Mathis notes.

Confluence holds three patents -- two related to drilling waste treatment and one for a pyrolysis process. The latter, an industrial heat-based process, helps cover all the thermal energy needs of the firm's two plants. Furthermore, it produces biochar, a soil amendment that permanently sequesters carbon from the atmosphere.

This is significant. While woody biofuels generate large amounts of greenhouse gas when burned openly, Confluence is, more or less, permanently capturing its intrinsic carbon.

Confluence secured a 10-year stewardship agreement with the Forest Service to dispose of unproductive forest biomass including beetle-kill pine, logging scrap and deadwood at two Colorado plants in Kremmling and Walden. The firm is also building a plant in California which Mathis confidently states will have negative utility expenses due to net metering. Anticipated completion is late 2018.

Challenges: "The regulatory environment in California," says Mathis. Getting permits and entitlements for projects like the California plant requires extra work, and an event such as an endangered species citing can spark a laborious due diligence process. While Mathis is supportive of stringent environmental controls, he notes that it's "another significant layer of time, effort, expense."

Opportunities: Launching and scaling new agricultural and industrial products including TruChar and EcoPett. More broadly, Confluence enjoys the strategic advantages of a business model that repurposes waste profitably and in an environmentally beneficial manner. "This is just one of those unique situations that both masters can be served," says Mathis.

Needs: "I think if we want to achieve our growth strategy," says Mathis. "Capital at the right cost is going to be critical."

Mathis also notes that attracting and retaining talented people can be difficult in today's tight job market.

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