Q4 2024 Select Water Solutions Inc Earnings Call
Speaker Change: and Joseph Gordon-Levitt, The 47 Cases It Cost to Give Birth to an Immigrant.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please signal the operator by pressing Star then zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Garrett Williams, Vice President corporate Finance and Investor Relations at select water solutions. Please go ahead.
Speaker Change: Thank you operator, and good morning, everyone. We appreciate you joining us for slick water solutions conference call and webcast to review, our financial and operational results for the fourth quarter and full year of 2024 what.
Garrett Williams: With me today are John Smith, our founder Chairman, President and Chief Executive Officer, Chris George Executive Vice President and Chief Financial Officer, Michael Starkey Executive Vice President and Chief operating Officer, and Mike <unk> Executive Vice President and Chief strategy and Technology Officer.
Chris George: Before I turn the call over to John I have a few housekeeping items to cover.
Chris George: Replay of today's call will be available by webcast and accessible from our website at select water Dot com. There will also be reported a telephonic replay available until March 5th 2025.
Chris George: Access information for this replay was also included in yesterday's earnings release.
Chris George: Please note that the information reported on this call speaks only as of today February 1920, 25, and therefore time sensitive information may no longer be accurate as of the time of the replay listening or transcript reading.
Chris George: In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities Law. These forward looking statements reflect the current views of select management.
Chris George: Various risks uncertainties and contingencies could cause our actual results performance or achievements to differ materially from those expressed in the statements made by management.
Chris George: The listener is encouraged to read our annual report on Form 10-K, our current reports on form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks uncertainties and contingencies.
Chris George: Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures now I'd like to turn the call over to John.
John: Thanks, Gary Good morning, and thank you for joining us I am pleased to be discussing select water solutions again with you today.
Speaker Change: Overall 2024 was another record setting year for select both operationally and financially.
Speaker Change: I'll start by highlighting some of our big wins over the past year.
Speaker Change: Walked through the general outlook for 2025, and discuss a number of large strategic opportunities.
Chris George: I'll, then hand, it off to Chris to speak to the fourth quarter and future outlook in a bit more detail.
Chris George: During 'twenty 'twenty four we transported recycled and dispose of record water volumes. This resulted in 26% annual revenue growth and strong 62% growth in annual gross profit from our water infrastructure segment.
Speaker Change: Hey, all a new all time high performance for consolidated adjusted EBITDA, and adjusted EBITDA margins and strong cash flow from operations.
Speaker Change: With this strong operating cash flow in 2024, we were able to find a diverse capital allocation strategy throughout the year, including expediting, our organic growth Capex plans focused on water infrastructure segment.
Speaker Change: Executing nearly a dozen small bolt on infrastructure acquisitions, increasing our base dividend by 17% during the year, while also funding our maintenance capital to support our market, leading water services in chemical technologies company.
Speaker Change: With a clear primary focus on our water infrastructure growth strategy, we continue to sign up big organic infrastructure projects with large acreage dedications during 'twenty 'twenty four we signed up eight major new organic infrastructure projects under long term contra.
Speaker Change: <unk> encompassing about $115 million of growth capital to be spent across 'twenty 'twenty four and 'twenty 'twenty five.
Speaker Change: We also added more than a dozen a dozen additional bolt on contracts to the existing assets in the portfolio as well.
Speaker Change: Okay.
Speaker Change: These initiatives combined with our recent acquisitions will provide strong continued growth for this segment in 2025 and well into 2026 as new projects come online and we continue to enhance the broader networking and utilization potential of our infrastructure.
Speaker Change: Assets.
Speaker Change: Operationally in 2024, we moved more than 1.5 billion barrels of water a market leading scale and breadth that continues to grow every day.
Speaker Change: We continue to grow our recycled volumes far outpacing our annual sustainability linked credit facility targets, while disposal volumes and overall systems use utilization increase materially as materially as well.
Speaker Change: Through our organic expansion and acquisitions in water infrastructure, we have increased the percentage of our profitability coming from our Duction weighted revenue as demonstrated by 43% increase in produced water disposal volumes year over year.
Speaker Change: Overall, we built a very strong portfolio of contracts over a relatively short period of time.
Speaker Change: We now have more than $2 5 million acres under a long term area dedication encompassing an estimated 1.3 million acres of existing leasehold supporting a combination of disposal pipeline and recycling solutions.
Speaker Change: Even with this pace of growth our new project potential backlog continues to grow and currently sits at a record high.
Speaker Change: These dedications cover acreage and the best operational basins across the U S and provide a significant backlog of future well inventory.
Speaker Change: Produced water volumes and captive future revenue and cash flow opportunity I truly believe the future financial outlook for select is the strongest it has ever been.
Speaker Change: From an organic project standpoint, I was very pleased to get.
Speaker Change: Several additional long term contracts to the finish line in the fourth quarter.
Speaker Change: For example in the fourth quarter, we were able to add a substantial new 124000 acre dedication underwriting a new Greenfield recycle project in the Central Basin platform area of the Permian Basin.
Speaker Change: The anchor tenant for this facility has an existing recycling customer and one that select has successfully developed multiple recycling and water infrastructure facilities.
Speaker Change: In both the Midland and Delaware basins. This customer's loyalty is a testament to our operational and technical capabilities and it reinforces our position as a trusted partner to help our customers add resilience to their development plans and achieve their operational financial and <unk>.
Speaker Change: Our ship goals through value add solutions.
Speaker Change: Additionally, in the fourth quarter, we signed a 15 year agreement for another new recycling facility and 20 plus miles of incremental pipeline network build out that further expands our existing northern Delaware water network and infrastructure and Lea County.
Speaker Change: This contract adds another 31000 dedicated acreage to the system, bringing our total northern Delaware position to approximately 600000.
Speaker Change: Bind dedicated acres in Lea County alone.
Speaker Change: Further support our northern Delaware Network in January we acquired an existing six mile produced water pipeline with 45000 barrels per day of throughput capacity from a key customer. This line is integrated directly into our newest expansion and that I just spoke about.
Speaker Change: We will further commercialize the broader network with additional customers.
Speaker Change: As we plan longer term, we also acquired approximately 2100 surface acres of largely private ranch land during the fourth quarter and the northern Delaware and Eddy County to the southwest of our current Lea County system.
Speaker Change: As a surface resource owner this asset can provide us with high margin reoccurring revenue streams on a standalone basis more importantly, it positions us for further westward expansion for future recycling and infrastructure development and long term network.
Speaker Change: Gration across the entire northern Delaware Basin in New Mexico.
Speaker Change: Our continued system build out and expansion across the northern Delaware Basin integrates increased storage recycling transportation and disposal, providing enhanced commercial water balancing flexibility that will benefit our customers development plans and support them.
Speaker Change: Creasing complexity and intensity for both their completions and production operations.
Speaker Change: With a very strong backlog of additional greenfield brownfield and bolt on infrastructure projects and acquisitions. So lax water infrastructure segment as established as one of the fastest growing infrastructure franchises in the industry. Accordingly, we expect to see annual.
Speaker Change: Water infrastructure segment revenue and gross profit to continue to grow by 15% to 25% during 2025 and further growth ahead into 2026.
Speaker Change: Before we get to our water services and chemical technology segments I'd like to speak to our views on the energy markets for 2025 overall, we expect a fairly steady commodity price environment across both oil and natural gas markets with some potential mirrored.
Speaker Change: Medium term upside to the natural gas as LNG demand continues to grow.
Speaker Change: U S. Lower 48 activity levels are expected to modestly reduce compared to 2024 overall.
Speaker Change: And hold flat to modestly higher relative to the second half of 'twenty 'twenty four even with these activity levels. We expect our chemical technology segment to drive solid revenue growth in 2025 and maintain our expectations that we can improve the margin profile of both the chemical tech.
Speaker Change: Allergies and water services segments this year.
Speaker Change: Our water services business remains.
Speaker Change: Critical to our overall success and we must drive continued free cash flow improved margins.
Speaker Change: And a strong return on assets out of this segment.
Speaker Change: We fully require both our water services and chemical technology segments to convert more than 70% of their gross profit and a free cash flow, providing an ongoing source of capital funding for our water infrastructure growth initiatives and expect that to continue into 'twenty.
Speaker Change: 25.
Speaker Change: However, as we look for ways to further improve our margins stabilize our cash flows and enhance our returns within water services.
Speaker Change: We will continue to evaluate the segment for underperforming nonstrategic areas of potential consolidation during 2025.
Speaker Change: They're our yards our service offerings that we determined cannot achieve our required objective over the course of 'twenty 'twenty five we will look to redeploy those personnel assets and potential capital resources into other regions or parts of the business that can.
Speaker Change: These efforts combined with a modestly declining macro activity outlook should drive water services revenue.
Speaker Change: Modestly down on a year over year basis, while gross margins before DNA ultimately improve across the period.
Speaker Change: Looking across the entire company for 2025, driven primarily by the continued growth in our water infrastructure segment. We finally, I anticipate seeing stronger year over year adjusted EBITDA growth. During 2025, we also expect to pull through at least 30%.
Speaker Change: <unk> of this adjusted EBITDA into free cash flow after accounting for all maintenance and growth Capex and should provide good optionality for capital allocation, including incremental shareholder returns additional organic or inorganic investments or additional strategic in there.
Speaker Change: <unk>.
Speaker Change: We are always reviewing additional strategic growth initiatives that we can capitalize on our expertise.
Speaker Change: <unk>, we have spent more than 15 years, developing water resources and solutions for the energy industry.
Speaker Change: While we have more recently pioneered and successfully capitalized on that transition toward produced water recycling and large scale network development select has a core legacy a sourcing contracting storing and moving fresh water to where it is demanded.
Speaker Change: I have always believed that this diversified.
Speaker Change: Expertise has a potential application outside the traditional energy sector and to that end. We are excited to announce that the further advancement and diversification of our water infrastructure platform with the expansion of our Colorado operations and then.
Speaker Change: Municipal industrial and agricultural water markets.
Speaker Change: In February 2025, we committed to initial $62 million investment alongside multiple strategic partners to consolidate one of the largest senior water rights and storage portfolios in the state of Colorado, along with rights to cover 16300 acre.
Speaker Change: Feet of source water per year, as well as a complementary water storage assets.
Speaker Change: This is the equivalent to an annual volume of approximately 125 million barrels per year or 350000 barrels per day.
Speaker Change: In addition to select operational capabilities.
Speaker Change: Capabilities are key partners in this investment brings substantial experience investing in municipal and industrial water real estate and energy projects.
Speaker Change: And in addition to capital our partners are also contributing a combination of existing water rights storage assets and real property.
Speaker Change: These water resources are well positioned to serve high end growth markets in Colorado, and the mere aggregation of these very senior and strategic water rights into a single consolidated portfolio creates a substantially enhanced economic opportunity.
Speaker Change: As we commercialize the asset we expect to convert additional storage options and construction.
Speaker Change: Proximately 16000 acre feet of reservoir storage that only further enhances the value and the deliverability of our significant water resource.
Speaker Change: This is a natural extension of select existing capabilities and expertise that provides our shareholders unique exposure has atlanta and resource owner to high gross margin long term contracted and growing cash flows.
While this type of opportunity will have longer paybacks compared to our current water infrastructure investments. We believe this investment fits well within our infrastructure growth strategy and will be a foundational part of our future business.
Speaker Change: With this opportunity we become a land and resource owner of various strategic senior water rights and storage infrastructure that will be critical to the commercial industrial and social.
Speaker Change: Expansion of Colorado, and the coming years.
Speaker Change: Over the next couple of years, we intend to sign several ultra long term supply agreements with municipality industrial our agriculture customers and by doing so so provide low risk long term increasing cash flows.
Speaker Change: That both our shareholders and the Colorado stakeholders can count on that.
Speaker Change: The very long term nature of municipal water contracts would introduce and increased time to our contract portfolio with agreements in this space often providing for up to 50 years of dependable lease water income.
Speaker Change: We look forward to growing alongside local economies and providing a highly needed water solution through a project with great long term returns select strides to operate our business at the intersection of good stewardship and good economics, and we are proud to build on that value with this project.
Speaker Change: Act.
Speaker Change: To conclude I firmly believe in the infrastructure growth strategy, we have undertaken recently.
Speaker Change: I believe this strategy best position select to drive long term shareholder value.
Speaker Change: And ultimately I believe that select remains uniquely positioned in the competitive energy landscape and now the municipal and industrial sector to advance the integration of water and chemical technology solutions with high margin long term contracted infrastructure I'm very excited.
Speaker Change: Sided about what the future holds for select and look forward to further executing on this vision during 2025 and ended 2026 and beyond.
Speaker Change: At this point I'll hand, it over to Chris to speak to our financial results and our 2025 outlook in a bit more detail Chris. Thank.
Chris George: Thank you John and good morning, everyone. As John mentioned 2024 was an important year for select across many key annual financial metrics.
Chris George: This includes generating $1 $5 billion of consolidated revenue, 53% gross margins in water infrastructure $258 million of adjusted EBITDA.
Chris George: $235 million of cash flow from operating activities, and finally $78 million of free cash flow east.
Chris George: These financial results enabled us to invest strategically in the business alongside providing $38 million of total returns to shareholders across dividends and buybacks over the course of the year.
Chris George: We were able to raise our quarterly dividend by 17%, while finishing the year with a strong balance sheet that we have further enhanced subsequent to year end.
Chris George: In January of this year select entered into a new five year sustainability linked credit facility, including $300 million of revolving commitments and $250 million of funded term loan commitments.
Chris George: This facility provides a very attractive financing cost of capital within the traditional bank markets, which I believe will help support enhanced equity returns overtime.
Chris George: Select has always maintained a disciplined approach to the use of leverage which has benefited us during times of cyclical stress in the market and we firmly ex maintain this discipline in the future.
Chris George: However, select ongoing transition to a growing infrastructure based production Levered full lifecycle water solutions company provides us with a chance to enhance our capital structure in support of the significant opportunities. We have ahead of us.
Chris George: Even with the fully funded term loan we maintain a net debt to EBITDA leverage ratio at closing substantially below one times, ensuring we sustain a strong conservative balance sheet with enhanced overall liquidity.
This new facility also reinforced our overall commitment to good stewardship through the renewal of our two primary sustainability linked kpis.
Chris George: Growing our recycled produced water volumes and maintaining our market leading employee safety record through a total recordable incident rate well below industry averages.
Chris George: Supported by a tremendous operational performance and technical advancements in recent years and substantial ongoing capital investment we set a new five year target to recycle more than 400 million barrels of produced water annually by 2030 more than eight times. The original target, we set up and since surpassed back in 2022 and more than two and a half times.
Chris George: Our 2024 results.
Chris George: Increased demand for water recycling by our customers has led to significant investment in numerous facility expansions, while our infrastructure networks that balanced water supply and demand across customers and regions have been instrumental in allowing our customers to manage their produced water waste streams, while maintaining consistent dependable and geographically.
Chris George: <unk> optimized access to demanding completions water.
Chris George: This increasing need for water recycling and our ability to reliably deliver these critical volumes as exemplified by our recent announcement from earlier. This month highlighting that we recently reached 50 million barrels of lifetime volumes recycled at our second facility in partnership with Oxy.
Chris George: Importantly, we were able to reach this milestone in half the time it took to get there with our first oxy back facility.
Chris George: These networks will continue to see enhanced utilization in water balancing capabilities that make these expansions highly accretive.
Chris George: As John noted between our acreage in area dedications, we have amassed a portfolio of over $2 5 million acres of produced water handling and treatment opportunities overlaying, the best geology, and the United States.
Chris George: Northern Delaware facility expansion, we executed in the fourth quarter.
Chris George: And the new Central Basin platform recycling project highlight examples of the types of projects. We expect to continue bolstering our dedicated acreage portfolio with <unk> and we added another 150000 acres under dedication in the fourth quarter alone.
Chris George: The dollar weighted average contract duration of 2024 executed contracts with over 10 years in length and when looking at the overall contract portfolio given the majority of our acreage dedications were only just put in place over the past 24 months or so there is still a tremendous amount of long term captive revenue opportunity within the scope of our portfolio.
Chris George: While many of these contracts do have completions market activity exposure to them. The overall returns are underwritten conservatively and we pride ourselves on ensuring we are underwriting not just the customer, but the geology and the geography as well.
Chris George: In 2024, we reached our goal of 50% or greater gross margins in water infrastructure, well ahead of schedule, which led to gross profit growth of 62% on the year significantly outpacing our strong revenue growth of 25% for the segment.
Chris George: We are proud to deliver on the strategic goals and targets, we have set forth as we transform our company and accordingly, we maintain our expectation of delivering 50 plus percent gross margins during 2025 as well as driving the gross profit contribution from our water infrastructure segment to greater than 50% of the consolidated gross profit for select by the end of 2000.
Chris George: Five underpinned by more contracted high margin revenue streams.
Chris George: Water infrastructure maintained a strong 55% gross margin before DNA during the fourth quarter alongside a more modest 6% revenue decline during the period.
Chris George: This revenue decline was substantially less than the 10% to 15% decline, we potentially anticipated as certain key assets that we plan to take offline during Q4, where ultimately taken offline much later in the quarter than originally anticipated.
As we worked with our customers to support their development activities late into the quarter.
Chris George: While this delay was a benefit to Q4. These asset conversion efforts combined with the continued system expansion requirements driven by multiple new recent contracts and acquisitions supporting our northern Delaware Buildout.
Chris George: We will result in a further deferral of certain water infrastructure revenues until the second quarter, resulting in a low single digit percentage revenue declined during the first quarter. However.
Chris George: However, with a number of ongoing projects set to come online during the second quarter and the anticipated strong growth in water infrastructure performance over the full course of 2025, we firmly anticipate a strong second half 2025 run rate that significantly exceeds the first half we.
Chris George: We expect a double digit percentage upward growth trajectory in each of the second and third quarters of 2025 for our water infrastructure segment driving towards year over year growth of 15% to 25% for the segment overall in 2025.
Chris George: As we continue to commercialize the new facilities over the course of the year. We also believe there remains capacity utilization enhancement that can drive further upside into 'twenty, six alongside new contract wins or other strategic enhancements.
Chris George: Looking at our other segments in more detail in the fourth quarter. The water services segment saw revenues decline by about 10% driven primarily by seasonal activity declines. While this was on the better end of our expected revenue guidance, our gross margins before DNA in services during the fourth quarter decreased to 16, 4% a disappointing outcome.
Chris George: Which we expect to recover from during the first quarter of 2025.
Chris George: We expect a low to mid single digit percentage revenue increase in the first quarter for water services with margins recovering back to the 21% 22% range with additional margin improvement. Following later in the year.
Chris George: Switching over to chemical technologies, even with seasonal activity declines in the fourth quarter. This segment saw strong sequential revenue growth of 14%. During Q4, driven by continued new product development key customer wins and ongoing market share gains.
Chris George: Margins came in lighter than our expectations at 13%, we expect both revenue and margins to continue to improve for this segment in the first quarter and throughout 2025 as increased production volumes drive continued product cost efficiency and improved manufacturing absorption rates across the rest of the year.
Chris George: In the fourth quarter SG&A modestly increased to $39 million, we expect SG&A to track towards 10% to 11% of revenue in both the first quarter and full year 2025, as the business mix shifts to an increased weighting to higher margin revenue streams.
Chris George: Altogether, we saw consolidated adjusted EBITDA of $56 million during the fourth quarter of 2024, a bit below our expectations, largely resulting from higher cost impacts within our water services and chemical technology segments.
Chris George: For the first quarter of 2025, we expect an uplift in consolidated adjusted EBITDA to 60% to $64 million as customer activity gradually ramps across the quarter from low fourth quarter activity levels.
Chris George: While this is below where we would like to have been given the accelerated growth trajectory. We expect in water infrastructure, starting in Q2, and the anticipated margin improvement in our services and chemical segments. We firmly expect another year of record adjusted EBITDA with our second half of 'twenty five exit rate positioning 26 for another record year thereafter.
Chris George: Looking below the line, we anticipate cash tax payments in 2025 to be relatively modest $5 million to $10 million, including state taxes, and our book tax expense percentage applied to pretax operating income to likely stay in the low 20% range.
Chris George: I expect depreciation amortization and accretion will continue in the low $40 million range quarterly modestly increase from recent acquisitions and continued capital investment.
Chris George: Additionally, quarterly interest expense should increase to $4 million to $5 million per quarter in support of the funded term loan component, we added to our debt structure with the recently announced sustainability linked credit facility.
Chris George: With fourth quarter net capex of $52 million, we finished the year at $157 million of net capex below our previous guidance of $170 million to $190 million.
Chris George: Bulk of this reduction represented a mere timing impact of ongoing projects spin, which should carry over into 2025.
Chris George: We're entering the year with a healthy ongoing project backlog and additional development opportunities related to the recent acquisitions and contract and currently expect $170 million to $190 million and net capex in 2025.
Chris George: We anticipate $50 million to $60 million of this capex going towards ongoing maintenance and margin improvement initiatives. The remaining largest component of this overall spend is for growth capex, which is heavily weighted towards infrastructure growth projects to fund these water infrastructure investments alongside our ongoing capital returns our water services and chemical.
Chris George: Technology segments. Each provides strong cash flow at low capital intensity, returning 70% to 80% of profits and cash flows after capex as John noted.
Chris George: Additionally, we anticipate generating $10 million to $20 million of net proceeds from asset sales to net against this gross capex spend during the year.
As we've outlined we expect to see stronger year over year growth in adjusted EBITDA in 2025, and should convert 30% of those dollars into free cash flow from operations after capex on a consolidated basis.
Chris George: This should provide us with good optionality to continue to evaluate further enhancements to our shareholder return program and more importantly continue to invest in the business.
Chris George: As we think about our overall capital allocation framework, we continue to prioritize adding long term contracted production weighted revenues and generally finding ways. We can enhance our face slowed a stability long term to our diversified water solutions platform.
Chris George: Accordingly, I am very excited about our most recent investment in a very unique portfolio of water rights in Colorado for long term municipal industrial or agricultural development.
Chris George: These water rights and the anticipated projects, we can develop over time should provide a great way to enhance the stability of our business long term through repeatable predictable and perpetual growth.
Chris George: While initially structured for select is a minority investment whereby we own 35% of the limited partnership and 25% of the general partnership.
Chris George: As we find opportunities to contract these water in storage Reits select has the exclusive right to invest up to another approximately $84 million in the partnership over the next three years through the accumulation of additional water rights and Buildout of additional infrastructure.
Chris George: In doing so we would anticipate transitioning to a majority of <unk> 56, plus percent ownership position over time and eventually operating these assets long term.
Chris George: While it will take some time for this investment to translate to realized earnings. We believe the partnership could generate $20 million to $30 million of consolidated annual net income out of initial anchor contract underwritings with longer term earnings potential that's more than double that upon full commercialization and rate realization.
Chris George: Because we expect this asset will be primarily underpinned by municipal customers with structured offtake and ratable pricing escalators are long term risk profile and anticipated volatility of these assets are expected to be very low, which should provide very high quality repeatable and predictable cash flows that can be financed efficiently.
Chris George: Used to fund additional long term growth or returned to shareholders over time.
Chris George: We believe there are many more opportunities for select to utilize the strength of our integrated water and chemical expertise in new and creative ways and I'm excited to jumpstart that initiative with this initial investment.
Chris George: In summary, 2024 was a great year for select as we hit a number of key milestones advanced our strategic initiatives and improved our overall financial performance.
Chris George: And while the first half of 2025 may start out of the gates a bit slower than we would've liked to have seen more importantly, I believe with our continued organic infrastructure investments M&A execution and enhanced balance sheet, we are well positioned to see a strong pace of growth into the second half of 2025, and we will continue to capitalize on additional opportunities throughout the year.
Chris George: <unk> select remains distinctively positioned to advance a unique integration of water and chemical technology solutions with high margin long term contracted infrastructure.
Chris George: I'm excited about the infrastructure oriented strategy, we've undertaken and the incremental value it brings to our customers our company and our shareholders and I look forward to the year ahead with that I'll hand, it over to the operator for any questions.
Chris George: Operator.
Chris George: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Jim Rollyson from Raymond James. Please go ahead.
Jim Rollyson: Good morning, everyone and that's a lot of information to unpack, but maybe we could start John with the new venture in Colorado, I guess, you and I have talked about this.
Speaker Change: Potential foray into the municipal side of the business is a longer term strategy. So kind of interesting to see that your are front and center, but maybe you or Chris could talk a little bit about the timely.
Speaker Change: Timeline of investment cycle, there and really the return profile and margin profile, maybe compared to what you've been doing on the recycling side. So we get a little sense of that.
Speaker Change: Sure so.
Speaker Change: As we said at the beginning of the call Mark Lyons is in here with US too Jim I don't know, if you've met Mike yet or not but.
Speaker Change: He is one of the people that setting up our AR our efforts here.
Speaker Change: As well, but when we look at it we think of it and.
Speaker Change: And an opportunity to put really high gross margin related revenue.
Speaker Change: The company with <unk>.
Speaker Change: Contracts that could be up to 50 years and linked and these contracts as escalators in them that really juice the returns over the course of the.
Speaker Change: Of the contract life. The other way we look at it is it's really when we say repeatable predictable.
Speaker Change: It's very predictable and repeatable in the sense that we own the water rights and those water rights are.
Speaker Change: In nature just.
Speaker Change: Completely repeatable they don't go away, they're not depleting and they don't.
Speaker Change: The river water rights and water rights off of.
Speaker Change: Our land adjacent and storage that we will build off those water rights.
Speaker Change: Sure.
Speaker Change: The management of the water.
Speaker Change: As we go forward, but let me open it up and maybe Mike or Chris have some addition to it here yes.
Speaker Change: Yes, Jim as we think about tier.
Speaker Change: Specific point around the returns and how that compares to our traditional.
Speaker Change: Infrastructure and recycling projects and it's definitely a different type of opportunity.
Speaker Change: This is really more of a resource development opportunity. So it does come with.
Speaker Change: What I would say are meaningfully higher margins than our traditional water infrastructure projects.
Speaker Change: It's obviously a.
Speaker Change: A large upfront investment to procure and consolidate those those resources together.
Speaker Change: But that that provides immediate valuation uplift for our investment in longer term, while the payback might be a little more extended here.
Speaker Change: As we spend the next couple years getting these contracts in place.
Speaker Change: We ultimately think that the overall returns are very competitive if not better than some of our.
John: Other opportunities here, and we're quite comfortable making the investment and frankly, the long term stability and predictability of it looks like John said create a very different tinder in profile to this opportunity.
Speaker Change: Mike anything else to add.
Speaker Change: Yeah, I'll, maybe just add I mean, the big operating model change years. This positions select to truly be a land and resource owner. These are very senior water rights with broad reach across the state either through exchange programs or physical canal connectivity.
Speaker Change: So this is a scarce resource that is in very high demand across the state and we're looking to partner with those who need it most and I think the as Chris was saying.
Speaker Change: The asset is really up into the right because we see even.
Speaker Change: Demand in excess of 50000 acre feet of water just in the immediate vicinity that we can go get which is.
Speaker Change: Many multiples the size of even this water asset that we are consolidating here and this is one of the largest water holdings now in Colorado. Once consolidated so I think this puts us in a great position to partner with the local communities with local businesses create jobs and I think the economics.
Speaker Change: Find it as Chris said are very competitive.
Speaker Change: Man that sounds certainly appealing in the.
Speaker Change: Long term nature of this coming from you guys from having the oilfield background is.
Speaker Change: Probably a welcome change.
Chris George: Maybe shifting gears for a follow up Chris If you look you know obviously there was a little bit of puts and takes on water infrastructure from a short term perspective and that your fourth quarter had a little bit of benefit in that business from kind of the timing of taken some facilities offline that is going to hit in <unk> and then as you kind of laid out your ramp into.
Chris George: The back half of the year, if we think about that 15% to 25% revenue growth I'm just trying to understand some of the puts and takes here obviously whatever that revenue impact is the facilities being offline temporarily through the growth part of that or expansion.
Chris George: Then as you if you get up to the 20 or 25% end of that full year growth, where does that put you kind of exit rate revenue run rate.
Chris George: As I look into going into <unk> I mean, it seems like the math can get you into the mid.
Chris George: Mid twenty's or higher percentage year over year growth thoughts hunger and <unk> over this year for 2020 for <unk> is that in the right ZIP code or maybe how you little color on how you think about that.
Chris George: Yes, I mean, certainly Jim as we think about the.
Chris George: The full year versus the trajectory across the year, you are going to exit at a.
Chris George: I would say substantially higher exit rate than we're going to see in the first half of this year.
Chris George: Now if you kind of put that into perspective, I would think that the.
Chris George: Third quarter, and Youll see a little seasonality always impact the business for the third quarter in the second half run rate should be.
Chris George: That approaches.
Chris George: 50% or even double the kind of growth percentage rate that youll expect to see on a full year basis. So your revenue trajectory and profitability trajectory heading into 2026 inherently absent incremental investments should provide good continued uplift in growth into into next year, and we would expect to continue to find opportunities.
Chris George: To invest over the course of this year that that helps support that.
Speaker Change: Got it and then just if I could sneak one little thing in here you mentioned in the prepared remarks in the press release.
Speaker Change: At or above 50% margins <unk>, obviously impacted by those facilities being offline, but is there any reason to think that this kind of.
Speaker Change: Mid 50, plus range you've been over the last couple of quarters doesn't doesn't kick back in once once youre kind of normalized in the second through the fourth quarters.
Speaker Change: No I mean, I think Jim we've been quite pleased to have gotten too to those kind of levels here. We certainly got to that 50 plus percent ahead of schedule and we probably got higher than we.
Speaker Change: Thought we might be able to do over the course of 'twenty four as well so we're quite comfortable with our ability to maintain margins in that 50% to 60% range as we continue to bring new investments online.
Speaker Change: There is always a little bit of time to work through the operational efficiency of those assets.
Speaker Change: But certainly as we look forward, we expect to maintain margins in that.
Speaker Change: Overall, 50% to 60% range and I think we've been positively performing to the upside there and we were able to maintain 55% in the fourth quarter, even with some of that now.
Speaker Change: Revenue softness so near term, maybe a little lower than that as we get these new assets brought online and work through that initial efficiency.
Speaker Change: Efficiency piece.
Speaker Change: But I think that where we're underwriting well within that range and have opportunity to continue to to maintain or grow that.
Speaker Change: I appreciate that opportunity sounds exciting thanks, guys.
Jim Rollyson: Thanks, Jim.
Speaker Change: The next question comes from the line of Bobby Brooks from Northland Capital markets. Please go ahead.
Bobby Brooks: Hey, good morning, guys. Thanks for taking my question I wanted to continue on.
Speaker Change: What's the Colorado piece, I think that was really interesting and exciting news, but obviously also this kind of a lot of questions that come up with it. So I guess, just maybe starting off could you just help me piece together kind of what you guys are bringing to the table. It seems like youre actually supplying some freshwater obviously you're also bringing your expertise.
Speaker Change: Dealing with water, but what what what are you guys really bringing to the table here and maybe what are the partners bringing.
Speaker Change: Yes sure thing so as we mentioned I mean, we've been active in this space for more than 15 years, we've operated in and around Colorado.
Speaker Change: For for a large majority of that time, so we bring everything from automation managing canal movements head Gate management ditch management. So I think we're definitely bringing the operator.
Speaker Change: <unk> set to this I think in addition, I think we'd be remiss not to recognize along those 15 years, we have built and managed very large freshwater resources and commercialize them for our oil and gas customers are very successful and we continue to do so and many of the other basins that are still predominantly freshwater based.
Speaker Change: So from a <unk>.
Speaker Change: Day to day feel this is very much our.
Speaker Change: Normal operations I think it's just taking it and expanding it into some higher value markets.
Speaker Change: The other folks that we are partnered with I think bring similar expertise and also brought access to these very unique entities that bring extremely senior water rights as I mentioned with very broad reach existing storage assets are large scale reservoirs and options to further build.
Speaker Change: Thousands of acres of physical land and real property that.
Speaker Change: That I would that I would mention also has very good access to power infrastructure as well and as you think about some of the customers we're targeting data centers and other customers like that are absolutely on the list. So really this is in summary is leveraging our existing capabilities. Some key strategic partners to unlock new water.
Speaker Change: And new value.
Speaker Change: Got it that's excellent color and so maybe could you just talk about like so you've been in and around Colorado doing stuff with water for 15 years could you maybe just talk about like how did this opportunity really developed.
Speaker Change: And outbound with your team kind of having a conversation hey, we think there is an opportunity to consolidate some assets here and kind of diversify the revenues or was this kind of.
And inbound deal I'll, just kind of curious how it develops.
Bobby Brooks: Yes, Bobby maybe maybe to start you know obviously as we continue to look to build out the overall strategy we've had.
Bobby Brooks: Our focus on what might be opportunities that makes sense to take our current capabilities. Our current expertise and how do we deploy that expertise into into some direct diversification strategies.
Bobby Brooks: So this this kind of opportunity has always been on the.
Bobby Brooks: The table as a potential.
Bobby Brooks: Horizons.
Bobby Brooks: Step out as we build out the infrastructure strategy overall.
Bobby Brooks: So it's certainly been part of the thought process and we've had ongoing dialogues relationship development work over the last couple of years, but Mike you want to speak to this more specifically.
Yes, I think as a part of our core business, we're always asking what else and what next and so I think this this largely answers that and as I said, our core operations, especially in Colorado, I mean, we feel the water scarcity in that market every day like we already own water rights owned wells operate.
Bobby Brooks: Wells owned storage, we're in that market every day and when you look at the forecasted demand you talked to municipalities you talked to industrial customers all looking to source water you realize that doing it.
Bobby Brooks: <unk> successfully and at a large scale is just quite challenged so I think what we saw here was a very very unique asset that largely hadn't touch those markets and so I think through the combination of the skill sets of our partners of select we're able to bring again bring this new water to new customers and ultimately.
Bobby Brooks: We've been looking and we'll continue to look across all of the freshwater assets that we hold to see if there are additional pathways to new growth as well in other basins in other geographies.
Bobby Brooks: One thing to add Bob when you think about how water resources are managed and regulated permitted it's a very localized market stable.
Bobby Brooks: State by state and region by region, and so a lot of those.
Bobby Brooks: Those experiences we have in terms of managing water resources overlap with other demand applications for water like these municipal agricultural type of.
Bobby Brooks: A applications and so we are oftentimes historically working through our own.
Bobby Brooks: Water rights permitting and seniority through some of these other areas and so in doing so we've got a lot of relationships and experience.
Bobby Brooks: And application around how our water rights translate across the space and what other Reits are out there that we might be able to utilize our develop on our own.
Bobby Brooks: Awesome, that's terrific, calling and then maybe just one last one for more on the base business. So.
Bobby Brooks: Chemical technologies nice sequential step up and you guys see some nice growth there in <unk> with the guidance that you've given.
Bobby Brooks: You guys have called out new product initiatives driving market share gains. So I just wanted to dive a little deeper there.
Bobby Brooks: Where are you winning market share and why and from who.
Speaker Change: Yes, no. It's a good question, we certainly have seen quite a bit of progress.
Bobby Brooks: <unk>.
Bobby Brooks: Over recent months and in the back half of the year.
Bobby Brooks: We certainly saw a little bit of a dislocation in our chemicals business over the course of 'twenty four but it really started to ramp back up in the back half of the year as some of our new product development really took hold in the latter part of 'twenty four.
Bobby Brooks: As the market ebbs and flows we've certainly seen more.
Bobby Brooks: I would say.
Bobby Brooks: Pressure on the completions market space around some of the.
Bobby Brooks: The pressure pumping relationships.
It's definitely been a lower activity environment, but as as we continue to translate our expertise around chemistry and around water to relationships with our operator customers.
Bobby Brooks: It's translated to.
Bobby Brooks: Opportunities to solve the problems that we face, particularly as we push more towards produced water reuse and recycling.
Bobby Brooks: Products that are required for those solutions win more towards specialty application of chemistry.
Bobby Brooks: Lend more towards developing new and creative ways to apply.
Bobby Brooks: Apply new products two to those recycled barrels and so that's been a key focus for us as we continue to advance our recycling strategy as well.
Bobby Brooks: So thats been the focus but as we look forward I mean, we certainly see strong.
Bobby Brooks: Growth recovering in that business and the margins improving as we continue to ramp up the production through our manufacturing facilities.
Bobby Brooks: And see those share gains John.
Bobby Brooks: To add anything there.
Speaker Change: We would point out that you know has a.
Bobby Brooks: A big portion of that business comes out of the Permian Basin, we have the only in basin reactive chemistry plant there.
Speaker Change: <unk>.
Speaker Change: What's become very important and continues to be important is as we came out with a fresh waters and onto produced waters. The matching of that chemistry to that water has become very important and that's that's the.
Speaker Change: Staying in front of it.
Speaker Change: Yeah.
Speaker Change: With new.
Speaker Change: Formulas and new.
Speaker Change: Methods in which we apply the other thing that's become very apparent is chemistry is getting affected by the laterals. So the longer laterals. The different kind of makeup of chemistry matched to that water is becoming more and more important and we have developed really.
Speaker Change: Direct relationships with the operators that people drilling these long laterals in producing these wells fracking these wells and weather.
Speaker Change: Whether it's <unk>.
Speaker Change: Specced in chemistry that goes through the Frac horsepower company or direct to operator chemistry applications, we're working with with the owners of that reservoir rock to how to advance the chemistry to make it do what it's supposed to do and longer laterals and do it with the dirty water that we're using that.
Speaker Change: A frac with versus fresh yeah, that's a great point, John raises the type of chemical product thats required to maximize your productivity out of a well at the end of a four mile lateral versus the end of a two mile lateral is a different type of product it requires a.
Speaker Change: Different application of stability to it to get out to that full full lateral lengths and so that's been one of the key areas that we've been focused on as well as we continue to extend out these lateral lengths over time, how do you maximize the efficiency of that product ensure that you get the same type of benefit at the end of that four miles that you're looking to get.
Speaker Change: Out of that.
Speaker Change: First or second model.
Speaker Change: Terrific color I really appreciate it guys.
Speaker Change: And I'll return to the queue. Thank you thanks Bob.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Jeff Robertson from mortality such please go ahead.
Speaker Change: Thank you and good morning on the Colorado.
Speaker Change: Business did I hear right that the demand in the vicinity that you can access with this venture is upwards of 50000 acre feet.
Speaker Change: Yeah, Hey, Jeff This is Mike.
Speaker Change: This is based on I mean demand is higher than that this is based on us just being in the market and thinking about what are natural.
Speaker Change: Market is around the assets, where we have easy accessibility through either physical or other exchange transfer means. So so the answer's, yes that just the demand in the area really dwarfs. The size of this asset and this asset is already one of the larger.
Speaker Change: <unk> holdings in the state that is not directly owned by municipality at the moment. So it is like that.
Speaker Change: Please.
Speaker Change: How would you go about increasing beyond the 16300 feet that this.
Speaker Change: The initial business covers to be able to tap into the greater demand that you see.
Speaker Change: Yes, I think look.
Speaker Change: Looking looking farther so the lifecycle of this asset.
Speaker Change: Initially, we're actually taking advantage of a bunch of unique state program. So high efficiency farming lease fallow practices. It allows us to both create jobs and economic value for local agricultural customers, but also to begin to bring some of this water to municipal and industrial customers over time.
Speaker Change: If you look carefully in these various ditch systems and groundwater rights systems.
Speaker Change: There are still shares of these three different share types that we own that at least in my opinion over time, we are a natural owner of these shares as well and can continue to bring them to market I think having it in our consolidated play with the complementary storage just makes it even higher.
Speaker Change: Value to the end customers. So I think it's that coupling of senior water right storage assets physical land and access to that power and other utility infrastructure that allows us asset even to continue to grow beyond what I would call it pretty conservative underwriting of what we've marked out today and some of the return profiles and.
Speaker Change: The potential margin delivery and Jeff we were pretty comfortable with the market demand and the total addressable market opportunity here, we've utilized not only our own research with third party experts and research in this space and then this region to help supplement our.
Our underwriting capabilities here.
Speaker Change: So we're pretty confident in the long term demand, but to your point there is definitely opportunity to continue to add to the scale of the resource over time, albeit it takes the relationships the effort and the ability to aggregate into a larger resource that can be supplemented for.
Speaker Change: The size of the contracts that we're talking about.
Speaker Change: Can you can you talk a little bit about how.
Speaker Change: How long it took to work together with the partners that you have to.
Speaker Change: To get you to the point, where you are today.
Speaker Change: And the reason I'm curious is I'm curious as to the.
Speaker Change: The ability to use this as a some sort of a template and other areas like you spoke about.
Speaker Change: Yes, it's a great question I mean, similar to select our partners have been in this basin and in this business around municipal and industrial water for I would say, 10% to 15, if not 20 years as well. So I think the partnership is very complimentary of folks that.
Speaker Change: That only do this as their core business.
Speaker Change: These are folks that make markets that routinely buy and sell water shares and then us, obviously, who own and administer and operate watershed. So I think the.
Speaker Change: The deal itself.
Speaker Change: Came together fairly naturally I would say I mean, there is an understanding and appreciation of everybody's skills from across the table.
Speaker Change: And I think that let the deal come together pretty quickly and I think we will also get us into market quickly as we approach customers for LOI and eventually.
Speaker Change: In the coming two three years like the actual executed signed contracts and the margin starting to show up on the on the P&L.
Speaker Change: And honestly the demand in the market is high so I'm, probably being a little conservative here, but there are folks and ongoing discussions right now who are in desperate need of the water.
Speaker Change: Okay.
Speaker Change: Obviously familiar with a lot of the permitting issues in Colorado I'm just curious.
Speaker Change: About the regulatory requirements that you have to deal with to get.
Speaker Change: To the point, where you have these ultra long term municipal contracts.
Speaker Change: I think so out of the gate because we are leveraging these state programs around and obviously.
Speaker Change: Each water share has a different use case attached to it there is no regulatory or or.
Speaker Change: I would say water court risk here, we're taking fully as existing shares and putting them to work and again I'll highlight that as actually a unique capability of this partnership our ability to work with farmers with landowners and put in place. This lease follow program that's not a.
A small lift but the folks that are in this partnership have done it and know how to do it very well. So this allows us Jeff to get out of the gates with a with a large chunk of that 16000 acre foot.
Speaker Change: Holding as available to go to market and then of course over time, we will continue to monetize that asset and that gets us towards the higher end of the gross profit targets that Chris had mentioned.
Speaker Change: I wanted to ask John also to chime in on this as he has been very close to this.
Speaker Change: Yep.
Speaker Change: The one thing that I want to point out because it's it's really important I mean, we've known these people for a while we do believe that the skill sets complement each other in a meaningful way.
But with that we also want to point out we've been in the DJ basin for more than 15 years. The D. J basin Theres been procuring fresh water rights and dealing with regulatory and movement and.
Speaker Change: All of the various things you had to do in the same manner for 15 years I mean, we've been in the D. J basin since the beginning.
Speaker Change: Yeah.
Speaker Change: Really applying fresh water into horsepower and procuring and moving and swapping and doing all the things that this exact project is just in a bigger way and with municipality.
Jeff: We've been doing it Jeff.
Jeff: If I could ask one more just on the base business, Chris do you have.
Chris George: Any thing in your expectations for margins in infrastructure.
Chris George: To reflect the potential for increased utilization on your water assets in some of the gas in your areas.
Chris George: Yes, that's a good question, Jeff I mean, certainly.
Chris George: As John spoke to earlier I think we probably see a fairly steady commodity price environment. Overall that said, we do see upside in the gas markets and particularly probably somehow.
Chris George: Some upside opportunity in the Haynesville thinking about that Haynesville position, our business is 90% plus weighted to production in the Haynesville.
Chris George: Built a very strong market, leading infrastructure platform out there and with our large pipeline gathering infrastructure.
Chris George: So to the extent, we start to see gas market upside an opportunity I think.
Chris George: First and foremost, it's probably going to come out of that basin and we are clearly positioned to capitalize on that with easily the largest disposal platform in the haynesville overall.
Chris George: Thank you for taking my questions.
Chris George: Thank you Alicia.
Chris George: Thank you.
Chris George: The next question comes from the line of John Daniel from Daniel Energy. Please go ahead.
Speaker Change: Hey, guys. Good morning, Thank you for including me.
John Daniel: I guess, the first one and not knowing much about municipal and industrial water markets, but is there much in the way of M&A opportunities that you guys can prosecute.
Speaker Change: To expand.
John Daniel: Yes, I mean, it's a good question John.
John Daniel: John I think.
John Daniel: I think first and foremost we'll be focused on.
John Daniel: A more organic strategy.
John Daniel: Obviously through this partnership we're deploying capital to consolidate and to some extent acquire these water resources from legacy owners of those rights. So part of the play here is effectively an acquisition and consolidation of those legacy rights into a larger.
John Daniel: Consolidated portfolio that can then be aggregated into the scale of contracts we're talking about.
John Daniel: So that that was a.
John Daniel: Component of the strategy here.
John Daniel: So we view this one is more of a resource play in terms of other opportunities I mean, we're not looking to get downstream into the municipal markets. We're looking to focus on being a resource owner and in infrastructure.
John Daniel: Provider so.
John Daniel: As we think about acquisitions.
John Daniel: These type of opportunities trade it.
John Daniel: A different values and legacy.
John Daniel: Energy and oil and gas markets do and.
John Daniel: If we can build our way into those opportunities I think that should be a great way for us to participate and deploy capital and provide overall returns that are competitive with our existing business.
Substantially provide.
John Daniel: I think enhance long term value.
Speaker Change: Okay. Thank you and then just one going back to the the Haynesville someone just asked about that.
Speaker Change: I'm not mistaken aren't the rules with like water treatment disposal, a little bit tricky.
Speaker Change: Trickier in Louisiana versus Texas.
Speaker Change: Like what's the opportunity if all of a sudden there's a call on incremental gas drilling in 'twenty six and Louisiana.
Speaker Change: How much capacity do you have what what are any operators, reaching out to you know that sort of get prepared.
Speaker Change: Okay.
Speaker Change: Yes, John this is Michael.
Speaker Change: As you know the rules vary state to state in terms of what you can do in terms of the water treatment.
Speaker Change: The Haynesville is more similar to Texas than it would be too.
Speaker Change: Perhaps the northeast or the Bakken or in Mexico, where you are more challenged so we have done water treatment in the Haynesville, we could we could easily ramp that up to support activity.
Speaker Change: We've built the largest disposal gathering and network in in East, Texas, North, Louisiana, and so we're well positioned to take advantage of increased activity there and to the extent that they are able to get the gas out of the Marcellus. We're also very well positioned there as the largest disposal provider in the Marcellus Utica.
Speaker Change: Enabled the largest transfer provider there as well so we would welcome the increase in activity from natural from LNG.
Speaker Change: Associated gas and I think we're very well positioned to ramp up and take care of our customers.
Speaker Change: Okay.
John Daniel: Sure Hey, John one thing that I don't know.
John Daniel: I know, Mike will address the recycling and we see some of that in the Haynesville, probably see more of it.
John Daniel: Discussed a little bit about our system our system is a very unique system.
John Daniel: There is different application rights to dispose water between Louisiana, and Texas, and our system goes across Louisiana, and the best acreage there it comes into Texas into the best disposal capacity.
John Daniel: In that area in Texas, and we have a unique position of being able to deal with the.
The regulatory authority as it relates to disposal as well.
Speaker Change: Okay, and maybe to put an example of that Jon we announced that we have two and a half.
Speaker Change: Acres under dedication and if you break that down by region.
Speaker Change: Our largest region.
Speaker Change: Permian and the Haynesville the Permian is fairly obvious given all the deals we've done in the last year and hopefully expect to do in the next year. The haynesville, one that might be a bit surprising until you look at the system that we have there and how you really can't replicate it and so that's where we're getting a large concentration as well.
Speaker Change: Is that how much of that is being piped because when you go out there and drive around you don't see nearly the same number of trucks today as you did a few years back and you know I don't know if that's because of the piping or just because activity is down.
And it's kind of a micro question, but just curious.
Speaker Change: Activity is certainly down so that would be a florida, but the overwhelming majority of it is pipe for us.
Speaker Change: That's really what sets us apart is the pipeline we have that goes into a variety of disposal wells that creates that.
Speaker Change: Reliable predictable offload for the customer that is in base and reducing their low.
John Daniel: John when you think about the limitations around new disposal capacity I mean, theres certainly some states that are going to be more restrictive than others that you're probably quite familiar with but when you think about how you resolve that you either need to figure out where cycling two to meet the demand for that dispose barrels.
Speaker Change: <unk> through a synthetic disposal application.
Speaker Change: Need to figure out how to deploy it via long distance out of basin disposal, which is effectively what our haynesville system does which is take that volume from Louisiana, Texas or you need to think about longer term the transition towards recycling application for beneficial reuse.
Speaker Change: When Youre limited in new disposal capacity I mean, those are really three options.
Speaker Change: Without impeding the ability to produce a barrel of oil.
Speaker Change: So if youre going to if youre going to keep the barrel of oil producing or produce more barrels you got to figure out how to solve it would be one of those avenues.
Speaker Change: Okay. Thank.
Speaker Change: Thank you for all the good color and congrats on the continued signing of new contracts.
Speaker Change: Thank you Sean.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as there are no further questions I would now have the conference over to John Schmidt for his closing comments.
John Schmidt: Yeah, Thanks to everybody for joining the call and for your interest in learning more about select water solutions and we look forward to speaking to you again next quarter. Thank you.
Speaker Change: Thank you Les.
Speaker Change: Ladies and gentlemen, the conference of select water solutions has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].