OIL & GAS SECTOR WATCH FROM STOCKORANGE.COM: Increased Demand for Saltwater Disposal Opens Doors for Public Companies
(EMAILWIRE.COM, March 16, 2012 ) Dallas, TX -- Hydraulic-fracturing, or fracing, has literally changed the landscape of oil and gas in America. Once deemed uNRecoverable, advances in technology have opened the door to extracting massive deposits of oil and gas buried deep beneath the surface. Many experts believe that domestic formations may actually surpass that of anywhere in the world, including the Middle East.
As oil and gas
exploration and production achieves unprecedented momentum, an often overlooked aspect of this process is the servicing of that industry. Previously dominated by mom-and-pop operators that conduct business out of the back of their pockets with little sophistication, oilfield service companies are experiencing growth that often exceeds their limited capacity.
One key component of the oilfield service industry is saltwater disposal, commonly referred to as SWD. The saltwater disposal industry could present a tremendous opportunity for investors in small-cap companies, as highlighted below. Operators are responsible for the disposal of flowback water, produced water and hydraulic fracturing fluid (frac fluid) creating vast potential liabilities for the fast-moving majors in the industry. In layman terms, the saltwater produced from the drilling and expansion of wells has to go somewhere. If it is improperly disposed of, the responsibility lies upon the producer of said water.
As consolidation has hit every other business since the beginning of industrialization in America, expect the same in the oilfield service space it is quite attractive fundamentally. Proper safety, financial, and logistical protocols are found to be severely lacking in small saltwater disposal well companies, opening the doors for enterprising entities who wish to build a scalable and intrinsically valuable enterprise with huge margins. Minimal risk combined with limited competition means that shareholders of some companies will reap the rewards of this industry, which is soon to be on every investors radar as we decrease our dependence on foreign oil through the development of shale formations throughout the United States. Take note of the market caps of these companies, too.
Frontier Oilfield Services, Inc. (OTCQB: FOSI)
With operations focused primarily in the Haynseville shale area in East Texas, where Frontier believes an astounding 35,000+ wells will be in production by 2023 this early stage opportunity looks to employ a roll-up strategy by acquiring smaller saltwater disposal and adjunct oilfield service operations. Their initial acquisition target (Trinity Disposal and Trucking) already boasts an impressive roster of clients, including Devon Energy (NYSE: DVN), GMX Resources (NYSE: GMXR), Wagner & Brown, Ltd., Matador Oil, NFR, Vernon Faulkner, and XTO Energy. Frontier Oilfield Services (OTCQB: FOSI) market cap currently sits under $10 million, which could present a value play for investors looking for an early entry. Upon the successful acquisition of Trinity Disposal and Trucking, Frontier Oilfield Services (OTCQB: FOSI) should boast an impressive enterprise value.
Heckmann Corporation (NYSE: HEK)
What started out as a mere blank-check company which was formed in 2007, they focus on water and wastewater solutions for the E&P business. In that brief span of time, the company has grown to operate about 600 trucks, and expanded beyond the Haynesville shale to the Eagle Ford, the Tuscaloosa Marine in Louisiana, the Eagle Ford, and the Marcellus shales. HEK currently boasts a market cap of more than half a billion dollars. A favorite of Jim Cramer, CEO Richard Heckmann is also credited with a turnaround of K2 Sporting Goods, and the founding and expansion of USFilter. At USFilter, Heckmann conducted around 150 acquisitions, and then sold to Vivendi for $8.2 billion.
Newpark Resources, Inc. (NYSE: NR)
Newparks model stems from three business segments related to the oil and gas industry, including various well site services to E&P customers. They diversify domestically in the US Gulf Coast, West Texas, East Texas, Oklahoma, North Louisiana, the Rocky Mountains, and the Northeast regions and even certain areas of Europe, North Africa, Brazil, Canada, and Mexico. Newparks market cap currently sits above $700 million.
Investors interested in learning more about the hydraulic fracturing process in the Haynesville Shale can view this report by Chesapeake Energy (NYSE: CHK): Haynesville Hydraulic Fracturing Fact Sheet.
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Disclosure: StockOrange.com has been compensated two thousand dollars eight hundred dollars by a non-controlling third party (DMCC) for advertising and promotional services of FOSI. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled company. Additional disclosures here.
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