Entropy Inc. has entered a non-binding strategic financing agreement with a leading energy transition investor, and to provide a year-end corporate development update.
Highlights of the Strategic Financing Agreement
Entropy and a leading energy transition investor have agreed to the terms of an exclusive, non-binding financing agreement expected to provide sufficient capital for the execution of Entropy's near-term growth plan, including a structured initial commitment of $300 million. The financing is expected to close during first quarter 2022, subject to customary closing conditions including confirmatory due diligence and completion of definitive transaction agreements, and implies an Entropy value of approximately $300 million pre-financing. We look forward to working with our new investment partner to accelerate our mission of reducing atmospheric carbon dioxide using Entropy's low-cost, low energy-intensity carbon capture and storage ("CCS") technology. Further details of the transaction will be announced upon execution of definitive agreements.
Year-End Corporate Update
Entropy has evolved rapidly since our introduction to the markets in March 2021, and we are pleased to provide an update on several notable elements of the business.
With international carbon markets evolving rapidly, commercial CCS projects are now feasible in many jurisdictions around the world. However, in most cases it is necessary to apply the most sophisticated CCS technology to carefully selected point-source emissions to achieve commercial returns. Entropy has acquired and developed numerous innovations that have driven CCS costs down to the point where post-combustion projects (including capture, transport and storage) are economically viable at carbon pricing of CAN$50/tonne.
Significant Pipeline of Projects with Years of Development
Entropy is currently working with third-party emitters under eight Memoranda of Understanding ("MOU") and thirty-four non-disclosure agreements ("NDA"). From these established and developing relationships, Entropy has now high-graded nine scoped projects leveraging Entropy's modular technology. Entropy's pipeline of projects under MOU now exceeds 1.8 million tonnes per annum ("Mtpa") and just over $800 million of estimated net capital expenditures. Pre-FEED (front-end engineering design), engineering, and subsurface evaluations are underway for each project, and final investment decisions for several are pending, subject to financing, commercial agreements, and regulatory approval.
Entropy's breakeven carbon pricing remains approximately CAN$40/tonne (USD$32/tonne) for capture only, or CAN$50/tonne (USD$40/tonne) for capture, transport and storage. Typical all-in capital efficiency for mid-sized projects (including capture, transport and storage) are approximately $400/tonne per annum ("tpa"), with several near-term projects expected to fall below that metric. However, certain projects that are first-of-their-kind or involve more challenging exhaust conditions may exceed $400/tpa pending further research and development. Typical operating costs are expected to be $15/tonne, with certain projects approaching $20/tonne depending on the energy efficiency of the emitting facility.
Entropy's current business plan anticipates approximately $250 million of net capital expenditures per year, with several years of project inventory under MOU. In addition to MOU projects, Entropy continues to be engaged with numerous other third-party emitters in multiple industrial applications including boilers, compressors, cement production, reformers, chemical plants and power generation, in multiple jurisdictions. These evolving projects exceed 3 Mtpa in aggregate, in addition to the projects under MOU.
Update on Entropy's Glacier Project
Entropy's Glacier Phase 1 modular CCS project is progressing on-time despite global supply chain disruptions, with operations scheduled to begin in early second quarter 2022. Projected total installed cost remains close to original estimate of $27 million with minimal impacts from the current inflationary economic environment. All major equipment has been purchased, major contracts for installation have been awarded, and modules have been fabricated in Alberta facilities. Upon commissioning of the CCS equipment, Entropy will initially run MEA (monoethanolamine, the industry standard solvent) for up to three months to establish the baseline energy intensity of Entropy's patent-pending process. Subsequently, Entropy will run our patent-pending Entropy23TM solvent to establish a full-scale dataset of solvent-specific performance versus MEA in a commercial application.
Entropy Technology Licensing
Entropy is pleased to introduce a licensing model to those companies that are interested in deploying Entropy technology under their own funding and ownership. As a part of this service, Entropy will provide project scoping, regulatory management, process design, procurement, construction management, commercial and geological disposal support, and non-exclusive use of Entropy's patent-pending CCS process and Entropy23TM solvent in exchange for a commercial licensing fee.
Entropy Introduces Integrated Carbon Capture with First Deployment at Glacier
Entropy has developed an integrated CCS design ("iCCSTM"), whereby original equipment manufacturers of industrial process equipment will integrate Entropy technology into new equipment at the factory. Entropy believes that iCCSTM should eventually be available on all industrial equipment including power generation, compressor engines, boilers, cement kilns, steel smelters and hydrogen reformers.
As previously announced, Entropy has collaborated with North American equipment fabricator Compass Energy Systems Ltd. on the first iCCSTM design for a compressor engine. Prototype designs are approaching final and total costs are estimated to be 25% less than a comparable retrofit project. The first iCCSTM installation is expected to be at the Glacier Gas Plant in approximately 12 months ("Glacier Phase 1b") and is designed to capture approximately 16,000 tpa.
Ongoing Research and Development at CETRI
At the University of Regina's Clean Energy Technologies Research Institute ("CETRI"), the second protocol of Entropy's research and development is underway. During this phase, Entropy's patent-pending technology will run over 6 months to demonstrate the degradation-resistant properties of Entropy23TM over extended periods; extended Entropy23TM degradation characteristics are expected to be determined late in first quarter 2022.
Executive Team Appointment
Entropy is pleased to announce the appointment of Mr. James Martin to Vice President, Engineering. Mr. Martin has been with Advantage since 2019 as Director, Operations and has been critical in the early stages of Entropy's business, including the Glacier Phase 1 project, as well as technology and patent development. Mr. Martin has over 30 years of experience in all aspects of gas processing operations and has served in several engineering and management roles for various companies.
As Entropy and our financing partners work towards closing the strategic financing agreement, Entropy intends that the net proceeds would be used to fund near- to medium-term growth plans including construction of the Glacier Phase 1b iCCSTM project, Glacier Phase 2 project and advancement of several CCS projects currently nearing final investment decisions.
Entropy is excited about the future our business has in 2022 and beyond with the tremendous engagement of third-party emitters and global growth in support for commercial carbon capture and storage.