Select Energy sees growth in shale water sector

By Luke Geiver | March 05, 2019

Select Energy Services, an energy service firm that provides water management and chemical solutions to the North American Shale oil and gas industry, is navigating the fiscal rollercoaster of oil prices and activity levels. The company ended 2018 with a small acquisition in New Mexico, a modest share repurchase-effort and a reduction in borrowings while it generated more than $100 million in cash flow for Q4.

The outlook for 2019 is positive, according to Holli Ladhani, president and CEO. “The team executed on our commitment to deliver strong cash flow and manage operations through the anticipated, but challenging, activity decline as the year ended,” he said, adding that the activity outlook for 2019 remains somewhat uncertain. However, Ladhani is positive on the need for water in shale. In 2018, the company estimates the drilling and completion activities related to shale required the use of 5 billion barrels of water. The industry produced more than 20 billion barrels of produced water last year alone.

The company believes there is a possibility for growth opportunities in three areas of the services sector: margin enhancement, technological innovation and consolidation.

The sector could utilize automation and expand higher-capacity equipment. In the tech segment, equipment automation and data capture could streamline operations. And, the market is highly fragmented, making it ripe for consolidation, Select believes.

Select is working to expand its already large footprint in the Delaware Basin. The company recently started building a pre-frac water delivery pipeline in New Mexico. A major operator has signed a 5-year take-or-pay contract for the water. Proceeds of the operation will be used to fund Select’s wellsite services unit.

This year, Ladhani said Select will continue to evaluate investments in infrastructure along with other technologies like automation that support the team’s ability to operate more efficiently.

Select’s water solutions segment generates the most revenue for the firm, with nearly $250 million coming in Q4. The oilfield chemicals segment, operating as Rockwater Energy Solutions, comes in second with a revenue generation of almost $70 million. Following that sector, Select’s wellsite services group earned almost $50 million in Q4 2018. Select does plan to divest of its wellsite construction business as well as its Canadian water services business.