Select Water Solutions (NYSE:WTTR) FY Conference Transcript

Select Water Solutions (NYSE: WTTR) FY Conference Summary Company Overview - Company: Select Water Solutions - Ticker: WTTR - Industry: Water solutions for oil and gas, primarily focused on the Permian Basin - Founded: 2007 - Segments: - Water Infrastructure (largest segment) - Water Services (temporary solutions) - Chemical Technologies (smallest segment) Core Points and Arguments - Water's Importance: Water management in oil and gas is critical, especially in the Permian Basin, which is a growing concern for the industry [2][4] - Business Transition: The company has shifted from a service-based model (80% income from water services in 2018) to a focus on water infrastructure, aiming for 60% of income from infrastructure in the future [4][5] - Growth Rates: Water recycling and produced water disposal have seen compound annual growth rates of 75-80% since 2020 [5] - Recycling Focus: Select Water Solutions is the leading recycling provider in New Mexico, currently recycling about 50% of completion water, with a goal to increase this to 85-90% [9][11] - Economic Advantage of Recycling: Recycling costs approximately $0.50 per barrel compared to $1 for local disposal and $1.25 for distant disposal, making it the most cost-effective solution [11][12] - Long-term Contracts: The company has secured nearly 1 million acres of dedicated and right of first refusal acres in New Mexico, with an average contract duration of 11 years, providing stability and cash flow [15][16] Industry Dynamics - Regulatory Challenges: New Mexico is not permitting significant disposal capacity, necessitating new solutions for distant disposal [9][10] - Competitors: Major competitors include WaterBridge, WBI, and Aeris, which are primarily disposal-focused, while Select Water Solutions emphasizes recycling [34][35] - Future Opportunities: The company is exploring municipal, agricultural, and industrial markets, with plans to secure long-term contracts for water rights [25][40] Financial Insights - CapEx Expectations: Expected net CapEx for the current year is $250 million-$275 million, with a decrease anticipated next year [37] - Debt Management: The company maintains a conservative debt-to-EBITDA ratio of around 1 to 1.25 times, funding infrastructure build-out primarily through free cash flow [29][30] - Shareholder Returns: The company has instituted a dividend and has increased it twice since 2022, indicating a commitment to shareholder returns as infrastructure spending stabilizes [30][31] Additional Considerations - Infrastructure Build-out: The company is focused on building a robust pipeline network in Lea County, New Mexico, to enhance water management efficiency [18][19] - Beneficial Reuse Initiatives: Select Water Solutions is conducting trials for using distilled produced water for crop irrigation, aiming to educate regulators on beneficial reuse [14][39] - Market Positioning: The company positions itself as a leader in water solutions, with a strong emphasis on recycling and long-term contracts to mitigate cyclicality in the oil and gas sector [24][28] This summary encapsulates the key points discussed during the conference, highlighting the company's strategic focus, market dynamics, and financial outlook.