Q4 2024 Aris Water Solutions Inc Earnings Call
Greetings and welcome to Arris water solutions fourth quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. So anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this call is being recorded it is now.
Speaker Change: My pleasure to introduce David turf.
David: David you may begin.
Okay.
Speaker Change: Good morning, and welcome to the Arris water solutions fourth quarter 2024 earnings Conference call I'm joined today by our President and CEO, Amanda Brock, our founder and executive Chairman Bill <unk> and our CFO Stephen Thompson before we begin I'd like to remind you that in this call and the related presentation, we will make forward looking statements.
Speaker Change: Regarding our current beliefs plans and expectations, which are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from results and events contemplated by such forward. Looking statements. You are cautioned not to place undue reliance on forward looking statements.
Speaker Change: Please refer to the risk factors and other cautionary statements included in our filings made from time to time with the Securities and Exchange Commission I would also like to point out that our investor presentation and today's conference call will contain discussion of non-GAAP financial measures, which we believe are useful in evaluating our performance the supplemental measures should not be considered an ice.
Speaker Change: Solution or as a substitute for financial measures prepared in accordance with U S. GAAP reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation I'll now turn the call over to our founder and executive Chairman Bill <unk>.
Thank you David Arris finished a tremendous 2024 with a strong fourth quarter. We saw continued steady produced water volumes as well as increased completion activity during the quarter, leading to a record quarter for our water solutions business.
Speaker Change: Margins remained strong in the fourth quarter, and we pair robust earnings with continued capital efficiency generating significant free cash flow for the quarter and the year.
Speaker Change: 24 represented a meaningful inflection point in cash generation, which allows us to significantly increase shareholder returns in 2025 and beyond while continuing to reinvest in the business.
Speaker Change: We have much to be proud of as we assess the year, but of all of our metrics are most important accomplishment with safety. We ended 2024 without a single employee or a contractor recordable safety incident I'd like to congratulate our entire operations team and recognize the diligence that they demonstrate every hour of every day, there's no greater priority.
Speaker Change: And then the safety of our team and that was on our sites and we're immensely proud of what was accomplished during 2024.
Speaker Change: As we look to 2025, we see steady completion activity and production growth from our long term contracted customers. We will continue to pursue operating efficiencies to maintain and expand the margins. We achieved in 2024 and will continue our disciplined capital investment focusing on cash generation and increasing returns to shareholders alongside a solid.
Speaker Change: Outlook for our current business, we closed a few strategic initiatives, including the purchase of the Mcneil Ranch in Lea County, New Mexico.
Speaker Change: <unk> and Andrews counties, Texas continued progress on our beneficial reuse activities and mineral extraction as well as expansion into industrial water treatment beyond the oil and gas industry, we want to express our thanks to our team our customers and our suppliers for a phenomenal 2024 and are excited as we look forward into 2025 and beyond with that I'll turn.
Amanda Brock: Over to Amanda for more details.
Amanda Brock: Thank you Bill for any 24 was a remarkable year and I'm extremely proud of our entire team.
Amanda Brock: At this time last year. It went to operate safely grow alongside our customers as they expanded their production on our dedicated acreage improve our margins and operational efficiency and leverage our existing asset footprint to optimize our capital spending.
Amanda Brock: We're proud to say, we exceeded those objectives and as a result, we generated significant free cash flow.
Amanda Brock: Supported by this cash and consistent with our commitment to increasing shareholder returns. We're pleased to announce a 33% increase to our dividend to 14th cent per share.
Amanda Brock: We had a strong finish to the yeah, we achieved record quarterly volumes in our water solutions business and.
Amanda Brock: And we grew our water solution volumes, 14% sequentially, we continue to see consistent activity on our dedicated acreage in the core of the Permian Basin for my large long term dedicated customers. We grew our produced water volumes, 7% year over year in 2024 and our customers.
Amanda Brock: Still have multiple decades of remaining inventory in our dedicated acreage providing us significant visibility long term.
Amanda Brock: We maintained our improved margins in the fourth quarter, achieving an adjusted operating margin of 44 cents per barrel and adjusted EBITDA of $54 5 million.
Amanda Brock: For the year, we invested approximately $101 million in Capex and generated 73 million of free cash flow, Steve will go into more detail on our strong financial performance.
Amanda Brock: As the industry becomes more efficient, but larger pad designs longer lateral lengths and foster completions operators need access to large scale infrastructure to ensure a reliable long term supply of recycled produced water.
Amanda Brock: We recently extended an acreage dedication contract on one of our largest customers that dedicates their water sourcing and new Mexico to Arris and we now have over 450000 acres dedicated to our water solutions business with an average contracted tenor of approximately eight yes.
Amanda Brock: This means that over 80% of our forecast of 2025 water solutions volumes are now under long term contract, which together with our long term contracts and produced water handling gives us substantial visibility into future volumes.
Amanda Brock: Looking forward to 2025, our customers are forecasting mid single digit production growth in the Permian Basin and I produced water volumes will grow alongside that we anticipate an increase in water solutions activity in 2025 as certain customers increase their completion activity in our dedicated areas we.
Amanda Brock: Leap, we can maintain the margin improvements we achieved in 2024, and we anticipate further growth in free cash flow, Steve will provide additional details around our 2025 guidance.
Amanda Brock: We will also continue to pursue strategic initiatives that will allow us to accelerate our growth well into the future as.
Amanda Brock: As Bill mentioned in the fourth quarter, we acquired the Mcneil branch comprised of approximately 45000 surface acres, which provides <unk> with significant optionality and long term operational advantages.
Amanda Brock: We believe the location of the ranch can support the industry's growing need for long term water injection.
Amanda Brock: We purchased the branch off the detailed subsurface analysis in collaboration with several of our largest customers and believe it features promising geology and porosity for long term water infrastructure development.
Amanda Brock: The ranch also provides a compelling opportunity to reduce our largest downhole operating expense by eliminating landowner royalties for volumes disposed on the ranch.
Amanda Brock: In addition, we have significant flexibility to maximize the value of the ranch by generating surface and come through rights of way utilization of the surface for power and renewable development beneficial reuse and other industrial applications. We are in discussions with both current and potential new customers to commercialize the use of the rock.
Amanda Brock: <unk>, which we purchased at an attractive valuation relative to recent transactions on adjacent acreage.
Amanda Brock: Yeah.
Amanda Brock: We continue to make progress on beneficial reuse alongside our partners Exxonmobil Chevron Conoco Phillips in Cartera after extensive testing and development of treatment technologies, we have applied to the Texas Commission on environmental quality for a discharge permit for up to 475000 barrels a day.
Amanda Brock: Reclaimed water per day, we hope to have a permit in hand by the end of 2025 with the ability to discharge of water in 2026.
Amanda Brock: And this is also applying his expertise in complex water treatment to industrial uses outside of the oil and gas industry.
Amanda Brock: We were extremely pleased to have recently added assets intellectual property and an experienced team to help us with our expansion into the broader industrial market. This team has developed projects for numerous large industrial companies and positions us well strategically.
Amanda Brock: We look forward to providing further updates as this business grows and with that I'll turn it over to Steve to discuss our financial results for the quarter.
Steve: And details on our outlook for 2025 thank.
Steve: Thank you Amanda we recorded adjusted EBITDA for the fourth quarter of $54 $5 million and adjusted operating margin of 44 per barrel.
Steve: For the full year, we recorded adjusted EBITDA of $211.9 million up 21% from 2023, and adjusted operating margins of 45 cents per barrel up 15% from the prior year.
Steve: Turning to Capex, we spent $18 million in the fourth quarter and $101 million for the full year.
Steve: Expenditures were down 35% year over year, which paired with our strong earnings performance generated $73 million and free cash flow during the year.
Steve: Looking ahead to 2025, we expect produced water volumes for the year to be between 1.15, and one point to 1 million barrels per day up 5% versus 2024 at the midpoint.
Steve: We're forecasting skim recoveries of approximately 1800 20 barrels of oil per day for the year.
Steve: Average price of $70 per barrel, which is down approximately $4 per barrel or 7% as compared to 2024 for an estimated $3 million annual impact.
Steve: And the water solutions business, we expect volumes to average between 460 520000 barrels per day for the year up 15% versus 2024 due to increased customer completion activity.
Steve: Okay.
Steve: We are forecasting continued strong margin performance with adjusted operating margin anticipated to be between 43, and 45 cents per barrel, depending on skim oil recoveries skim oil pricing and customer volume mix.
Steve: This continued produced water volume growth strong completion activity sustained margin strength are expected to deliver adjusted EBITDA of $215 million to $235 million for 2025.
Steve: Finally, our capital expenditures are anticipated to be between 85 and $105 million consistent with 2024 levels, leading to free cash flow generation between 75 and $95 million up 17% over 2024 at the midpoint.
Steve: For the first quarter, we expect produced water volumes to be between 1.085, and $1 125 million barrels per day.
Steve: And water solutions volumes to be between 510, and 550000 barrels per day.
Steve: This outlook reflects the impact of cold weather, which shut in some customer production in January and February.
Steve: This forecast also reflects unexpected well completion downtime from one of our largest customers, which pushed out certain water solutions volumes in January and February.
Steve: While these issues have been resolved and activity is expected to resume in March there is potential that some activity could be delayed until later in the year.
Steve: Despite these volume impacts we believe our margins will be largely unaffected between 43 and 45 cents per barrel for the quarter.
Steve: While production has now returned to normal levels, we anticipate the one time weather related impact to era's first quarter adjusted EBITDA to be approximately one and a half million dollars.
Steve: Net of this amount for the first quarter, we anticipate adjusted EBITDA between 50 and $54 million.
Steve: Turning to our balance sheet, we ended the quarter with net debt of $422 million and a 2.0 times debt to adjusted EBITDA ratio was $332 million of liquidity.
Steve: In terms of financing or $400 million senior notes are scheduled to go current in April and we have begun assessing our refinancing options.
Steve: Finally, we declared our first quarter dividend of 14 cents per share to be paid March 27th to shareholders of record on March 13th.
Steve: This dividend represents a 33% increase over the fourth quarter of 2024 and is a reflection of our stable contracted cash flows low leverage and confidence in 2025 and beyond.
Amanda Brock: With that I'll turn it back to Amanda.
Amanda Brock: Thanks, Dave.
Speaker Change: Everything we would like to offer sincere appreciation to our loyal customers and also our team for all of their hard work and consistent execution in 2024 hour performance was exceptional across all metrics safety commercial contracting volumetric growth cost efficiency and disciplined capital investment alongside.
Speaker Change: <unk> continuous focus on our core business unused strategic initiatives set us up for additional growth in 2025 and beyond in both produced water infrastructure and adjacent industries.
Speaker Change: We remain focused on providing exceptional service to our customers prudently reinvesting in the business and returning excess cash.
Speaker Change: Two shareholders.
Speaker Change: We built a sustainable platform from which we can make investments in new growth areas and we look forward to updating you throughout 2025 on our progress and with that we're happy to take questions.
Speaker Change: Thank you.
Speaker Change: Well now be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment may be necessary to pick up a handset before pressing the star keys, one moment, while we poll for questions.
John: And our first question comes from John I'm, Okay with Goldman Sachs. Please proceed with your question.
John: Hey, good morning, Thanks for the time I want to start on the ranch acquisition hits definitely screening much lower per acre than some other deals. We've seen just curious if you could frame up for us how youre thinking about the return profile on the acquisition and maybe just what the steps are to realizing that return.
John: Certainly thanks John.
John: So early last year, we began looking at what suitable locations with great.
John: Surface characteristics for us to secure future disposal locations for ourselves and our customers looking forward.
John: And we bought the Mcneil ranch at a very attractive price, we evaluated the subsurface with two of our largest customers and we believe that ranch has great porosity and injected it gives us great Optionality is located adjacent to some of the fastest growing areas of the northern Delaware, It's got rail.
John: Gas transmission lines, it straddles new Mexico, and Texas, and we believe there are over 400000 barrels of available disposal capacity and we've already been granted six tenets of about 180000.
John: Barrels of disposal capacity that being said, we think there is great future growth associated with this ranch we are in discussions with our customers on accessing this ranch for future volumes in the 'twenty six 'twenty seven timeframe. So we expect that any capex associated with the development of this.
John: Ranch will be underwritten by long term contracts and NB CS at attractive rates and we expect to develop the ranch in the same way as we have developed our existing network, which is to enter into contracts with our customers and then underwrite and the infrastructure and expansion needed.
John: So as we look forward and it is early days, we are in discussions with our customers. We are also very encouraged by inbounds that have come in unrelated to subsurface.
John: We've had inbounds on solar leasing the ranch for solar for wind power battery, we've got right of way for Substations. So all in all this has been a great acquisition, giving us great Optionality and operational advantages.
John: We look forward to updating you as we go forward and we view this as a great growth opportunity for us to continue to develop it and at the same time, we're remaining very focused on long term free cash flow generation and we're gonna be balancing returns to shareholders and growth Steve If you want to add.
Speaker Change: Ed in terms of how we look at it from a financial perspective, and we're just very encouraged.
Speaker Change: Just to echo some of what I'm into said you know this is really about the strategic ability to secure force base for future growth for the next five to seven years. So John when we look at ownership of the land. This really comes down to lease versus buy and as long as we can retain their strategic optionality for the poor space in development of it it's going to come down to you having to compete on a return basis.
Speaker Change: As with any other project.
Speaker Change: That's clear thanks, Rob John Amit.
Speaker Change: Sorry, sorry.
Speaker Change: Alright, John the last thing to mention is that you know what.
Speaker Change: We did foreshadow some of this as it related to addressing royalties for barrels that we dispose on this ranch, we obviously will be and not paying royalties.
Speaker Change: Yeah, absolutely that's clear and maybe just a quick follow up you touched on this briefly but.
Speaker Change: Would you expect to kind of stay active on the surface acquisition side is this kind of it for now you've talked more broadly about kind of more traditional water M&A, maybe just frame up the kind of go forward acquisition acquisition strategy for us.
Speaker Change: And we continue to look for opportunities for inorganic growth, we continue to evaluate and companies as they come to market, but as we have consistently said they've got to have great contracts, great assets, good inventory and for there to be strategic imperatives to buy them.
Speaker Change: At a price that we believe can be supported so we will continue to look at companies and we will continue to look at other opportunities to ensure that we have got a pathway to robust growth in the future.
Speaker Change: Yeah, and I don't think John This is are we we believe that we're going to acquire.
Speaker Change: Continuing to grow the land business and kind of the pace at which we added this over the next years, that's probably not part of the core strategy, but really a strategic move to to really protect the business and have a lot of options with it.
Speaker Change: Alright, absolutely, let's clear I appreciate the time thank you.
Thanks, John.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question comes from Spiro <unk> with Citi. Please proceed with your question.
Speaker Change: Because I. This is Chad on for Spiro I think just starting off on the dividend you've grown it very rapidly over the past two years can you talk about what more normalized growth looks like and if you have a specific target yield in mind going forward.
Speaker Change: Yeah, Hey, good morning. Thanks for the question Yeah, we have steadily grown shareholder returns in a sustainable manner really one of our key goals and we're pleased that we can deliver with this increase to our shareholders.
Speaker Change: We have been starting up from a relatively low payout you know relative to midstream names.
Speaker Change: Strong performance that we had in 2020 for this 33% increase was really meant to underscore our commitment to growing that those returns over time as well as reflecting management's confidence in the long term outlook for the business.
Speaker Change: So going forward, we don't have an explicit target around payouts, but we will look to evaluate dividends most likely on an annual basis.
Speaker Change: And would expect future increases to be at a more consistent level.
Speaker Change: But likely at a lower growth rate relative to the 33%, but we don't have a specific number or range at this time.
Speaker Change: Okay understood and then just following up on Mcneill acquisition can you talk about sort of timing to develop this asset and when we can expect to see benefits show up in EBITDA.
Speaker Change: Secondly, I think we are looking at developing this ranch and instead of 26 2007 timeframe and so looking at revenue off the ranch other than the surface revenue associated with some of the activities that we're looking at right now and meaningful an impact really in those.
Speaker Change: T S. Instead of 27 time frame.
Speaker Change: Okay got it thanks for the time, that's all I had.
Speaker Change: Thanks, Chad.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Jeremy Tonet with J P. Morgan. Please proceed with your question.
Hey, this is Noah cats on for Jeremy. Thanks for the question going back to the Mcneil Ranch acquisition, you guys spoke to it a bit but how do you plan to integrate the ranch into your existing operations and what synergies do you expect to receive from the acquisition.
Speaker Change: You speak any optimization efforts that can be accomplished to cut future costs. Thanks.
Speaker Change: And good morning, Noah and thanks for the question. So I mean, the comment I made to to John's question. If we are disposing on the ranch, we don't pay royalties and that is one of our largest opex items. So that immediately is an optimization is a benefit.
Speaker Change: As we look to grow out of position.
Speaker Change: The location of the ranch is adjacent to one of the fastest growing areas in the northern Delaware. So it is associated with way, we have been investing in infrastructure and signing contracts in that area. So we see it as very synergistic and we see it as giving us great Optionality.
Speaker Change: The T and giving us the operational advantages associated with the fact that the ranch has got these great subsurface characteristics that some of our largest customers have found very attractive.
Speaker Change: Got it you have an opex advantage, and we think positions us well for future growth opportunities with our customers.
Speaker Change: Thanks for that and then switching gears a bit as a follow up.
Speaker Change: Can you provide an update on the potential you see for the desalination desalination and mineral extraction projects should we expect any other projects coming up the pipeline like these and do you have any further updates you can provide relating to these revenue streams in 2025.
Speaker Change: No we've been pretty specific that there's unlikely to be revenue in 'twenty. Five we are looking more towards 26, we continue to work on the iodine projects in fighting those locations, we expect to be under construction toward the end of the year on those projects, where we will be looking.
Speaker Change: At a royalty stream type stretch up and not be required to contribute any capex we haven't.
Speaker Change: Working on magnesium, we are continuing to see progress in our pilot and most importantly, we have filed for a permit with a TCE to in Texas, which is being very constructive for the census, this charge of 475000 barrels a day and we expect to have dropped permits in hand by year.
Speaker Change: Brand and be able to in 'twenty, six and work with our customers, who want access to and that disposal capacity and to develop and operate and facilities to discharge the water safely.
Speaker Change: Okay. Thanks for that I'll leave it there.
Speaker Change: Thank you Sir.
Speaker Change: Thank you.
Speaker Change: And our next question comes from police Satish with Wells Fargo. Please proceed with your question.
Satish: Thanks, Good morning, So I guess, you kind of alluded to this but it seems like the plan for the wrenches potentially building a water pipeline to bring your customers volumes too new.
Satish: Those are wells that you build at the ranch can you give us a ballpark of how much capex would be.
Satish: <unk> with the with this type of project and developing it would it be comparable comparable in scale to one of your peers announced the large water pipeline last night would it be kind of in that range in the hundreds of millions of dollars or potentially less than that.
Speaker Change: Morning, Nathan Yes, we expected given timing of that release that you know we would get a question like that so the answer is no. We did not expect them to be looking at capex in that range. One of the advantages of the location of this ranch and where development is is that we have the ability to do this in phases.
Speaker Change: And so we will work very closely with our customers as these new volumes and need to be moved to the ranch.
Speaker Change: <unk>.
Speaker Change: It's all going to be phased.
Speaker Change: Phase development as I said, so we do not expect to have a significant capex number like the headline number that was in the release from from West.
Speaker Change: Steve do you want to talk about how we look at underwriting. This yeah I think as we look at a potential commercial opportunities here, but he is gonna be underwritten by contracts that support long term growth free cash flow growth for the company. So it's going to be consistent with a structure that's going to support the company's long term outlook and bell.
Speaker Change: That should help.
Speaker Change: Got it thanks, and then maybe turning to beneficial reuse of the permit with the Texas Commission for 75000 barrel, it's pretty quite significant.
Speaker Change: First question do you have customers already committed to this volume or expressing interest and then what kind of capital would be required for this project I guess, it's called the Red Bluff treatment facility.
Speaker Change: How large is that would you bring in any partners and when would you need to make an FID decision on that.
Speaker Change: And great question, Puneet and from a competitive standpoint, I will just say, yes. We are in detailed discussions and there was considerable interest in accessing that.
Speaker Change: That was volumes.
Speaker Change: We work very closely as you know in the consortium with Exxon and co Tara Conoco and.
Speaker Change: And Chevron all Oh.
Speaker Change: I'm very familiar with what we are proposing to do with this project. We anticipate it will be a combined project, where we ultimately will operate it.
Speaker Change: We are going to be looking at seed toward end of year as we see the project go.
Speaker Change: Through the regulatory process.
Speaker Change: So this is something that we will update you on as we go but it will absolutely be with partners and we expect our role to be more technology design operation and for a consortium.
Speaker Change: Got it okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Moderator: And our next question comes from Jeffrey Campbell with Seaport Research Partners. Please proceed with your question.
Jeffrey Campbell: Good morning, and congratulations on the strong quarter I wanted to ask you a couple of questions about the industrial water recycling that you alluded to on slide five of the presentation.
Moderator: The first question is.
Moderator: This sounds like this is going to involve working with somebody else's water versus deriving value from your own.
Speaker Change: Is that correct. So that seems like an intrinsically different business I wondered if you could just give us a kind of an early snapshot of what this might look like.
Moderator: Yeah.
Jeffrey Campbell: I'm sure Jeffrey yes.
Jeffrey Campbell: You know the industrial water sector is growing rapidly and we have been pretty consistent on saying that we have developed expertise and proprietary treatment and we know how to deal with complex boards that we've been doing that for the produced water industry as we look forward.
Jeffrey Campbell: And we believe there is a real opportunity to take our expertise to the treatment of industrial wastewater and so that is why we brought this team in house, they've got deep expertise in industrial wastewater projects, where they've successfully completed projects for large industrial customers there.
Jeffrey Campbell: Focuses on high recovery treatment solutions.
Jeffrey Campbell: They minimizing waste streams.
Jeffrey Campbell: And it is you know in some part using reverse osmosis systems, which we are using in beneficial. We use. So this is a great platform are bringing in people expertise and assets to help us not only in our own beneficial reuse asset, but also to position us very well to continue using them.
Jeffrey Campbell: And their backlog and delivering projects outside of oil and gas in adjacent verticals. We are very encouraged by what we think we can do.
Jeffrey Campbell: In the industrial auto sector.
Okay great.
Jeffrey Campbell: Just as a follow up to that.
Jeffrey Campbell: Depending on how this evolves.
Jeffrey Campbell: With these projects would be primarily limited to Texas and New Mexico, you know near your current oil and gas operations or could this become a multistate endeavor.
Jeffrey Campbell: Jeffrey the way we see this Israeli is a multistate endeavor.
Jeffrey Campbell: This team already has a backlog of projects in multiple states that has great references.
Jeffrey Campbell: Very large industrials and we would see this.
Jeffrey Campbell: And as you know, obviously, not just Texas and not related to the Permian, but in in a multi state.
Jeffrey Campbell: [noise] rollout.
Jeffrey Campbell: Okay.
Jeffrey Campbell: Great. Thank you I appreciate the color.
Jeffrey Campbell: Okay.
Jeffrey Campbell: Thank you.
Speaker Change: And our next question comes from Derrick Whitfield with Texas Capital. Please proceed with your question.
Derrick Whitfield: Thanks, Good morning, all and congrats on your year end close and updates.
Speaker Change: Starting on the right.
Speaker Change: As they started on Mcneil ranch and they could be on your direct operations could you speak to how you're organizing your commercial teams to attract other surface activity, which would drive additional income through power development beneficial reuse and other industrial applications.
Derrick Whitfield: And thanks for the question Derik and honestly, we closed on the ranch at the end of last year, and we have not exactly gone out looking for opportunities. We are very encouraged because these are being in balance.
Derrick Whitfield: From people, who know where the Ron Chez, who understand what the advantages are associated with the ranch. It's got a gas transmission line a power line. It's got a railway line there of Substations being built around it there's a power plant being built across the street. It's located next door to hard which is the fastest growing town in new Mexico. So these inbound.
Derrick Whitfield: I have come to us without us having to go out at this point. However, we are allocating you know time and people to responding to these inbounds as we continue to.
Derrick Whitfield: Focus on our core operations, which is permatang working with customers for long term opportunities associated with disposal and beneficial reuse.
Derrick Whitfield: Terrific and then maybe leaning in on slide 12, a bid.
Derrick Whitfield: <unk> a more fulsome update on beneficial reuse cases with this update regarding reservoir replenishment, how should we think about the cost of desalination in the potential ramp to discharge up to 475000 barrels.
Derrick Whitfield: And we have spent a lot of time with the pilot.
Derrick Whitfield: And focusing on technologies that not only are robust enough to deal with this complex water, but a cost effective and we have made tremendous progress with our partners on getting the cost of desalination on an operational perspective down to a pace that it becomes to be competitive.
Derrick Whitfield: And as we look at how we are going to do this as I said in an earlier answer the capex associated with this which I think is what your question is about will be with partners and and we are evaluating one how we phase into this whether or not we start with 100000 desalination.
Derrick Whitfield: From a.
Derrick Whitfield: Design perspective is modular so it is easy to add desalination trains as you grow. So we look forward to sort of giving you more data on this as we get further with the permit process.
Derrick Whitfield: Terrific great update.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Chris with Johnson Rice. Please proceed with your question.
Chris: Good morning, everybody.
Chris: I wanted to touch on activity levels. It feels like most of your customers are very stable in their operations, but one of your larger customers is has come out with some.
Chris: Lay offs and stuff around the world and didn't know if that impacted your all in all just wanted to clarify that the activity that that one of your larger customers is doing on your own.
Chris: Or in your dedicated acreage is still moving forward as we thought it was you know in the past few years.
Chris: It is all systems go down and so I think Chevron has announced layoffs and they have announced and you know some initiatives that will impact production in other parts of the world, but if you drill down to what they are saying about the Permian and what they're saying about their operations and the Delaware they've been very.
Chris: To think about hitting this milestone of over a million barrels a day. They are still ramping up. So we are not seeing anything that is impacting their.
Chris: Activity on our property and our acreage dedications. It is all systems go and if anything right. Now we are seeing a slight uptick in activity definitely on the completion side and what's great about that is that we know you know we providing water for completions, we're going to get more water for disposal.
Chris: That's good to hear and one kind of broader kind of industry question, particularly on M&A.
Chris: Diamondback came out and said that they.
Could possibly sell their water systems to pay down some of the debt from the acquisitions that you did recently I don't know if that is necessarily in your wheelhouse or not but just a broader M&A question do you feel like that is.
Chris: Is that the industry is going to continue to consolidate over the next couple of years.
Chris: GE will be a major player in that.
Chris: And I think I think that's right and so we said we really make sure that what we're looking at from an asset perspective, it fits the criteria that we're looking for car.
Chris: Oh, the asset quality of the contract and obviously the operator is spinning out some of their owned and operated assets you need to make sure that you can commercialize that.
Chris: That business for other folks water to really make the economics work and then youre really negotiating the contract directly with the operator to ensure that you have a position and we did that was with contrail and conoco several years ago. So that model still exists and there's still opportunity sets up both for consolidation of bumps among water peers as well as operator.
Chris: In our system that might find a better home with.
Chris: More of our water midstream operator.
Speaker Change: I appreciate the color. Thanks, a lot guys.
Todd: Thanks Todd.
Speaker Change: Thank you.
Speaker Change: No further questions at this time I would like to turn the call back to Amanda Brock for closing comments.
Amanda Brock: Thanks, So we had a great 2024, and as we've expressed with very encouraged about our 2025 outlook, we want to thank our customers we want to thank the team and we look forward to updating you on our progress and the strategic initiatives as the year develops so thank you for calling in and if we don't talk to you before.
Speaker Change: We will talk to you at the next quarter earnings have a great day.
Amanda Brock: Sure.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Amanda Brock: Okay.
Amanda Brock: [music].