Thursday, August 25, 2005

Bomb Detection Just Got Better - 08.25.05 (ESNR)

Wealth Daily
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Thursday, August 25th, 2005
Baltimore, MD
Jackson, WY
Missoula, MT

Bomb Detection Just Got Better

  • Bomb Detection That'll Put Dogs Out to Stud
  • Venezuela Expects Oil Exports to China to Increase Fivefold
  • Let the Bidding Begin: Indian Oil Considers an Offer on PetroKazakhastan

For where the instrument of intelligence is added to brute power and evil will, mankind is powerless in its own defense.

- Dante Alighieri


Dear Wealth Daily reader:

The world has changed. The attacks of September 11 have altered the way Americans as well as other global citizens live.

As a direct result of the attack, homeland security in America has become a massive market. In fact, it costs US taxpayers like you and me a whopping $200,000,000,000 a year!

Companies like Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), and Boeing (NYSE:BA) have already made literal fortunes from this market.

A few months ago I learned about a tiny $32 million company that has developed a new chemical vapor analysis system that could save literally thousands of lives.

The name of the company is Electronic Sensor Technology (ESNR.OB)

EST's key product is the zNose. The zNose is like an electronic bomb-sniffing dog. Only better.

The zNose provides comprehensive, real time analysis of any chemical, vapor, or toxin in less than ten seconds with part-per-trillion sensitivity. It can detect virtually any kind of explosive as well as over 3,000 different chemicals and compounds.

Let me tell you a little bit about how it works.

Let's suppose a suicide bomber wielding a water bottle full of chemical explosives attempts to board an airplane, bus, or train. Using the aging screening methods the explosives would slip right through. That's because traditional screeners are mainly looking for metal products.

But the zNose would detect the compounds within 10 seconds and save hundreds, maybe thousands of lives.

You see once the zNose detects any suspicious odors, the system creates a visual display of the chemical onto any conventional computer screen making it easy to quickly evaulate and elimate the threat.

The sad part is that this technology has only been recently perfected. If it existed ten years ago it could have saved countless lives.

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This company's technology could have:
  • prevented the maniac shoe bomber Richard Reid from ever boarding American Airlines flight 63
  • prevented the 1995 attack on the Tokyo subway system that killed dozens of commuters and injured over 5,000
  • detected the explosives used in the Oklahoma City bombing and saved the 170 innocent Americans who were inside.

The zNose might have even been able to stop the recent terrorist attacks in London.

Government agencies and public companies such as the Army, Navy, Air Force, Marines, US Department of Agriculture, SC Johnson, Honeywell Corporation, and Lockheed Martin have already invested millions of dollars in the zNose.

This company has been researching and developing chemical vapor analysis technologies for over ten years. In other words, they're the experts in this field.

There are four sub sectors of the homeland security market where I believe this technology will revolutionize security.

Sub sector #1: Airport Security

Existing non-visual screening technques are limited to metal detection. But that's not enough to stop today's terrorists.

Like I exlpained before, the zNose can detect threats beyond the conventional.

And the market is there. Government and private sectors are already willing to spend more to protect air travelers. Over the next five years airports expect to spend close to $4 billion to modernize baggage and cargo screening. But that's just the tip of the iceberg.

Last year over 650 million people traveled by air. That's about 1.8 million per day who need protection. I believe the zNose will become the standard of airport security.

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Subsector #2: Maritime Port Security

Our nation's ports have been identified as one of the biggest security threats the country is faced with. This has led to the development of new more advanced container security systems that will give way to an $840 million market over the next few years.

The zNose is able to sniff out any biological, chemical or radiological elements within containers.

When you study the numbers, as I have, you begin to realize how big the problem really is and serious this threat really is. Over 9 million cargo containers arrive to American port each year. But here's the truly frightening part...only 2% of the seaport cargo is thoroughly inspected!

With so many containers there just isn't enough manpower to search each and every one. But that's exactly what this company's technology does. The zNose will enable security officers to quickly and accurately search and detect possible safety hazards.

There are 185 deep ports in the US and most are in major cities. Even a relatively small attack could kill hundreds of thousands.

Let me give you an idea how big of a threat this is. If one 10-kiloton weapon were detonated in a major seaport it could instantly kill upwards of 1 million innocent Americans...direct property damage could excess $500 billion....direct disruption of trade could result of a $200 billion loss with and indirect loss of over $1 trillion!

And I haven't even begun to discuss other illegal contraband that this technology can detect like illegal drugs that are transported through seaports by the tons each and everyday.

Subsector #3: Border Security

Unfortunately America's borders have been easier to cross than a dirt road.

The numbers are nothing less than shocking.
  • As many as 20 million illegal aliens currently reside in the US
  • In 2004 the US Border Patrol arrested 1.1 million illegal aliens who attempted to cross into America along the 1,950-mile U.S.-Mexico border...up more than 24 percent in 2003
  • In a single day, more than 4,000 illegal immigrants walk into Arizona alone
  • Last year Customs and Border Patrol argents made 56,321 seizures of illegal drugs weighing a total of almost 3 million pounds with an estimated street value of over a billion dollars

The zNose uses nonintrusive measures to accurately investigate any vehicle or person entering through our borders and identify them for threats.

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Subsector #4: Building HVAC security

Even the air we breathe is at risk. A terrorist could easily slip a chemical agent into any office or shopping mall HVAC system and kill hundreds of innocent people.

Consider the dangers of bioterrorism:
  • A simple pinhead full of ricin is enough to kill an adult man.
  • Phosgene is a nasty agent that can cause your lungs to fill with water causing suffocation
  • The nerve gas sarin can shut down your nervous system causing death in just minutes

Building HVAC is probably the easiest target for a terrorist attack. Think about it. When you go to the mall there is no virtually no security. (That is other than the rent-a-cops. And if you're like me you wouldn't trust those guys with a firecracker.)

But there's more. The zNose has several commercial applications as well.
  1. Environmental Industry - it can analyze chemical compositions at environmental testing and clean up sites
  2. Aeronautics and Space - it can detect leaking propellant or jet fuel.
  3. Petrochemical and Petroleum - it can ensure greater quality control by monitoring processes.
  4. Postal Services - it can screen chemical, biological agents as well as contraband such as drugs.
  5. Chemical Industries - it can detect leaking chemical that could lead to disaster business and employees.
  6. Food and Beverage - it can provide quality inspections by detecting harmful bacteria, molds, and other spoilages on foods.
  7. Medical and Life Sciences - it can be used for blood, urine and breath analysis.
  8. Agricultural - it can detect contaminants in soil.
  9. Law Enforcement - it can be used to detect drugs and alcohol
  10. Oil and Gas Companies - it can detect for carcinogens like Benzene in gasoline and other fuels

The possibilities are really limitless.

EST's share price has been on the gradual decline, but has been rebounding of late.



I believe that EST is ready to go. That's because in the past two weeks EST has received two order totaling $4.25 million, which is really not a whole lot of bread to a company like Lockheed Martin. But you have to remember, EST is a blip compared to LMT.

I believe that the zNose is the future of homeland security and will become an industry standard.

The stock trades for $0.56 a share. I consider it a speculative play in the highly volatile microcap security sector. Because of this, I'm recommending it for purchase with a tight buy limit up to $0.65 a share. Don't chase it. If your order doesn't get filled, wait.

In addition, place a 25% stop-loss on this position.

Venezuela Expects Oil Exports to China to Increase Fivefold

South America's largest oil company, Petroleos de Venezuela SA, says that it expects the company's exports to China to increase fivefold by 2012 in an effort to lessen its dependence on US exports.

In an interview, Petroleos de Venezuela board member Asdrubal Chavez said the company expects to export 300,000 barrels per day by 2012.

Mmmmmm? Doesn't that name sound familiar? It should. It turns out that Adsdrubal Chavez is the first cousin of President Hugo Chavez. You'd be a fool to think that politics don't play a major role in the Petroleos de Venezuela decision.

President Chavez has said a number of times that he wants the South American country, the world's fifth-largest oil exporter, to "diversify" its customers and reduce its dependence on the U.S. market.

The U.S. currently imports about 60% of Venezuela's daily exports of about 2 million barrels a day while China received only an average 12,300 barrels per day in 2004.

The problem is distance. It takes a tanker about 45 days to reach China from Venezuela if they go via Africa.

From Panama, the trip would shorten to 25 days. But there are no pipelines to Panama. However, Venezuela is already exploring the possibility of constructing pipelines across Colombia or Panama.

It seems like the company is pretty intent on selling to the Chinese. Petroleos de Venezuela has recently opened a sales office in China to evaluate opportunities in exploration, production and refining.

The company also plans to spend up to $2.2 billion on tankers through 2012 to double its fleet and enable it to send more oil to Asia.

Petroleos de Venezuela has said that it is looking to buy 42 tankers, including at least 14 supertankers. The company currently has 21 tankers, enabling it to carry 26 percent of the country's oil exports.

Venezuela plans to spend $56 billion through 2012 to about double the country's oil production capacity to 5.1 million barrels a day. The country is now producing about 2.6 million barrels a day.

Let the Bidding Begin: Indian Oil Considers an Offer on PetroKazakhastan

State-run Indian energy monster, Oil and Natural Gas Corp. is considering place a bid on Calgary-based PetroKazakhastan Inc.

ONGC officials are pondering whether to outbid the rival $4.18-billion offer from China Natural Petroleum Corp.

The deal however is unlikely. PetroKazakhastan has already signed an agreement with CNPC that prevents it from soliciting any higher bids.

ONCG was asked to tender another offer in the second round of bidding, but PetroKazakhstan accepted the Chinese bid before it had a chance.

Any counterbid will at least have to top the $4.3-billion plus a $125-million break-up fee that PetroKazakhastan would have to pay if it were to accept a rival offer.

As a state-owned company, ONGC must seek the support of the Indian government before pursuing any foreign acquisition worth more than $75-million. But the clearance has already been granted.

India now imports more than 75 per cent of its oil and is fully dependent on natural gas imports.

Kazakhstan, given the country's location, is a logical target for India and China. The country has about 40 billion barrels of oil reserves (3.3 per cent of the world's crude supply) plus 3 trillion cubic metres of natural gas (1.7 per cent of the global market).

ONGC has dealt with Canadian companies before. A few years ago it paid $1.2-billion to buy Talisman Energy Inc.'s 25-per-cent stake in the Greater Nile project in Sudan. ONGC has also talked to EnCana Corp. about buying the Calgary firm's assets in Ecuador.

India, like China, is energy starved. These countries will be scouring the planet in search of energy resources to meet their growing needs.


- Luke Burgess


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