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Three Water Mega-Trends for the Year Ahead

Antelope Water Management – Annual Outlook – 2021

In 2021, we see the emergence of a long-awaited circular water model driven by technology, company economics, and government. Further, we expect this trend to strengthen as a feedback loop unfolds as companies look to harness new water technologies to improve economics, and as government (local, state, and federal) impose more stringent environmental measures. As a result, we expect higher water industrial technology capital spending, heightened government regulations and expectations, and further industry focus on commercial deployment of new technology, to all move in a self-reinforcing manner.

With this backdrop, we see three mega-trends unfolding for water management driven by resource scarcity, the energy transition, and consumer transparency. The unfolding of these themes will affect various established sectors, including oil & gas, mining, agriculture, utilities, and industrials. Companies and local governments that can develop strategies harnessing new technology and business models will be the beneficiaries of new markets that have already started to emerge around these mega-trends.

Resource Scarcity Driving New Markets

There has been significant media attention on water recently following the launch of the Nasdaq Veles California Water Index futures. It will take some time to understand this market-based tool’s effectiveness and unintended consequences. However, we see several overlooked water developments unfolding with potentially more important ramifications for alleviating water scarcity.

Bridging the Water-Energy-Agriculture Nexus: Beneficial Reuse Finally Coming to Fruition

We see several catalysts making 2021 a breakthrough year for beneficial reuse, which entails treating wastewater from oil & gas to such a high standard it can be used for other purposes. Currently, beneficial reuse is allowed in various oil & gas producing stakes, like Pennsylvania and Wyoming. We expect new regulations to make the process possible in New Mexico and Texas as well.

At first, we expect treated wastewater to be used for grassland restoration, as it is being tested in Wyoming. Further, we think the process could qualify for IRS 45Q carbon capture credits. This should generate substantial support from some of the large Independent E&Ps and Majors that are interested in carbon sequestration.

KMX Technologies, an Antelope company, is well positioned for the proliferation of beneficial reuse due to its enhanced treatment and separation capabilities through a proprietary hollow fiber membrane distillation process that can achieve over 98% water recovery rates and zero-liquid discharge.

For this reason, KMX was chosen to be the baseline technology by the U.S. Bureau of Reclamation in the “Development of a screening, testing, and evaluation framework for the beneficial use of produced water from the oil and gas industry”. As a result, we anticipate KMX, and other technologies capable of achieving high water recovery rates, to be the main beneficiaries of these regulatory tailwinds.

Crackdown on Freshwater for Fracking

Another important and under-appreciated recent regulatory development for water management in oil & gas is the New Mexico State Land Office’s recent decision to ban freshwater sales for the oil & gas industry on state land. We see two important ramifications from this development, including an acceleration in produced water recycling for security of supply reasons (to offset lost freshwater volumes) by oil & gas companies in New Mexico, as well as a potential precedent being set for a similar ban on private land.

We applaud State Land Commissioner Stephanie Garcia Richard for this action and agree with her assessment that “we should look at the advancements in water recycling and produced water as our way forward.”

In New Mexico, private landowners can acquire freshwater rights for sale (as an allowance) and do not actually own the underlying freshwater (like in states where the rule of capture is in place, like Texas). As a result, we believe a similar policy move blocking private landowners from selling water to the oil & gas industry is possible and inevitable and could be anticipated from Commissioner Garcia Richard’s statement in announcing the ban, “there is simply no reason for fresh water to be used in fracking.”

We see this as a self-reinforcing situation that will encourage additional recycling as government action encourages industry to seek alternatives of supply, and capital is deployed to new technologies that further reduce water management costs.

For these reasons, we think 2021 will be a disruptive year for water management in oil & gas and see high-end, cost-effective treatment solutions, like KMX Technologies, as poised to benefit.

Energy Transition Driving Critical Mineral Demand

The rise of electronic vehicles, defense spending, optical instrumentation, satellites, as well as the materials that make renewable industry infrastructure are all fueling demand for critical minerals and Rare Earth Elements. While 2020 proved to be the year governments and companies got serious about energy transition plans and climate commitments, we think 2021 will represent the year where the supply chain for these broad and long-range goals starts to get addressed.

Rare Earths Rising

As detailed in KMX’s recently published white paper, “Rare Earth Elements – Untapped Resource”, Rare Earths are available and ready to be extracted and separated from various waste streams, including acid mine drainage and coal impoundments.

KMX’s patented technology and processes treats coal ash impoundment wastewater to <350 ppm TDS permeated water (which can be ready for reuse or discharge) while capturing Rare Earths. The Rare Earth extraction process begins with separating solid sludge from acid impoundment water. The solid sludge undergoes an additional treatment step before the liquid is returned for membrane distillation pre- treatment. The concentrate stream then undergoes KMX’s membrane distillation process where metal salts and REE’s are separated from water and sent to the refinery for purification.

Lithium Opportunities in Oil & Gas

Lithium found in oil & gas produced water is also capable of being extracted using advanced separation technologies, like KMX’s hollow fiber membrane distillation process. Currently, there are over 20 EV and supporting battery plants planned in the U.S. As a result, we expect a multi-year focus on securing domestic lithium reserves and growth in deploying commercial scale lithium development technologies in the coming years. Understanding which produced waters hold what concentrations of lithium will be key to unlocking the potential presented by the lithium opportunity in oil & gas.

Further, economic development opportunities in Rare Earth and lithium rich areas, like the Appalachian Basin and U.S. Southwest, present local governments revenue opportunities while achieving energy transition strategies. It also presents the Biden Administration with an energy agenda that promotes domestic infrastructure development while meeting energy transition goals and national security priorities.

As a result, we think advanced water management technology providers that able to tap into the critical mineral opportunity presented through waste treatment will be key beneficiaries of the energy transition.

Consumer Transparency Driving Investment in Data, Mapping, and Testing

The increased focus on consumer transparency should continue to grow, particularly in a Biden Administration. Potential new regulations related to emerging contaminants in water, food, and products should drive further focus and transparency in these sectors.

At Antelope, we have developed a proprietary GIS mapping system that identifies and integrates environmental risks and liabilities into our investment process. We are also in the process of launching an environmental testing laboratory platform meant to capitalize on the growing need for understanding waste streams in an increasingly regulated environment.

Further PFAS Focus

We expect the Biden Administration to designate PFAS a hazardous material, paving the way for supply chain retrofits and a multi-decade remediation cycle. PFAS and other emerging contaminants are capable of being separated from water and waste through enhanced separation technologies, like KMX’s hollow fiber membrane distillation process. As a result, we expect advanced membrane and other technologies capable of handling PFAS to be in high demand as the PFAS remediation cycle unfolds.

Transparency to Drive New Business Models

We expect increased demand for transparency from consumer and industrial clients to drive new business models, including new ways of delivering data, new analytical applications, and new remediation business models. Antelope’s platform approach to addressing the water crisis was developed to harness the synergies between 1) Industrial Technology, 2) Data & Mapping, and 3) Infrastructure.

Through scaling investment opportunities, deploying solutions across industries and sub-sectors, and integrating best available technology, partnerships, and business models, Antelope is positioning to address the challenges and opportunities presented by these unfolding water trends.

Collaborative Platform Approach

Please reach out to discuss our views on the year ahead, to learn about our platform approach to solving the water crisis, and to discuss collaborative ideas.

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