AR November 2006

It is a steady supply of feedstock for a facility that literally does not stop coming. That is how Brad Frazee describes cow manure that is being turned into pipeline quality natural gas at Idaho Falls, Idaho-based Intrepid Technology & Resources Inc.

Intrepid launched the project at the Whitesides Dairy, a 4,000-head dairy farm near Rupert, Idaho, three-years ago. “We’re basically producing pipeline quality gas as we speak,” said Frazee, vice president and manager of biofuel production at Intrepid.

Frazee said Intrepid approached the project from an engineering standpoint. “If you have a large enough operation and you have sufficient manure of the right quality we can turn it into methane gas and purify it into a pipeline quality material,” Frazee said.

Intrepid built the anaerobic digester facilities at Whitesides. Each digester is 13 feet in diameter and 34 feet tall. “We are taking raw manure that is collected on a daily basis at the dairy. We pump manure into those vessels 24 hours a day,” Frazee said.

The digesters heat the manure back up to about 100 degrees Fahrenheit. This breaks down the manure into gases. “It is about 8 percent solids going into the digester and only about 4 percent solids coming out. The remainder has been converted into both methane and carbon dioxide gas. The methane gas we recover,” Frazee said.

“We clean the gas up to the same specs that natural gas has. There is really no differentiation between our product and what’s in a natural gas line.” American Mobil Research Inc, a lab in Casper, Wyoming, confirmed that the gas produced by Intrepid meets the requirement for direct injection into a commercial pipeline system in July.

Frazee said that Intrepid does not compare its cost of production to the cost of natural gas production. “I don’t know what their cost of production is. What we do know is that we can make a profit by selling at current prices,” Frazee said. He said that most anaerobic digesters at dairy farms are currently used to generate electric power.

“We believe the economics of taking it to pipeline quality gas are better than the economics of converting it and selling it as electricity,” Frazee said. Even if the price of natural gas falls, Frazee said that turning manure into natural gas would be economical.

Intrepid currently makes most of its revenues by providing engineering and technical services. According to a filing with the United States Securities and Exchange Commission, the company expects to decrease its engineering and technical services as it completes its transition to becoming a producer and distributor of biogas facilities.

The company reported operating revenue for fiscal 2006, ended June 30, totaling $447,400 compared to $399,153 during fiscal 2005. For the year it reported a net loss of $1.9 million compared to a net loss of $1.4 million during the previous fiscal year.

Intrepid expects to fund its expansion through a combination of debt and equity, according to its filing. Frazee said that Intrepid has about a half a dozen other projects on the drawing board located in states from Washington to Ohio. “We are looking for operations where they’ve got in excess of 3,000 head of cattle in a single dairy operation. That’s a beginning point that makes sense to us economically,” Frazee said.

“While the technology would work on a very small operation, the economics would not pan out. It does take a certain economy of scale to make this profitable.”

The immediate focus however is a five-fold expansion on the facilities at the Whitesides Dairy. “That will be our focus for the next five months. We’ve got a second facility also under construction. Most of these will be online next spring,” Frazee said.

Once online, Intrepid plans to start selling its natural gas to Intermountain Gas Co. It is the primary distributor of natural gas in Idaho. It serves over 275,000 customers.

Intermountain Gas is in the market to buy as long as Intrepid has pipeline quality natural gas said Eldon Book, senior vice president, general manager utility operations, at Intermountain Gas. “That would be the only caveat that we would require,” he said.

Intermountain Gas is a subsidiary of Intermountain Industries Inc., a closely held company based in Boise, Idaho. Book said that the company is not investing in the project. “We’re strictly a local distribution company. We procure gas from the pipeline.”

This would be the first alternative source for Intermountain Gas. Book would not discuss a purchase price saying this is a proprietary issue between Intermountain and Intrepid. “But it will be something that will be fair for them and fair for us,” Book said.

Intermountain’s natural gas supply is currently from Williams’ Northwest Pipeline transmission system, which is a primary artery for the transmission of natural gas to the Pacific Northwest. The pipeline is a 4,158-mile bi-directional transmission system crossing the states of Washington, Oregon, Idaho, Wyoming, Utah and Colorado operated by The William Companies Inc., headquartered in Tulsa Oklahoma.

Book anticipates similar manure to natural-gas facilities across the country. “I think there is certainly a need. The dairy industry is a large industry,” Book said. “If Intrepid and their technology works, I think it’s going to be a great start.”

Book said the project would also help the region. “They’re helping out dairy farmers within the area. That’s all tied to the local economy. I think that is good for everyone,” Book said.