Oil-field services company Halliburton (NYSE:HAL) has inked an important deal with environmental solution provider Nuverra Environmental Solutions (NYSE:NES) to advance its water treatment and recycling solution. The service, which is called H2O Forward, has the potential to be a real game-changer for the industry, as well as pose a significant competitive risk to Nuverra. But, with these two now joining forces, everyone wins.
Water usage is a well-documented problem for the oil and gas industry; each well that's fracked requires millions of gallons of water. One of the biggest issues with the process is that some of the water that is pumped down in the well eventually comes back up, along with harmful chemicals. That water then needs to be disposed of in an environmentally responsible manner, which typically involves it being trucked away so that it can be pumped down into a disposal well. It's not an ideal solution, which is compounded by the fact that oil and gas producers still need access to fresh water to frack the next well.
These are some of the many reasons why the fracking process has so many enemies, which has led to its outright ban in places like New York state and France. Further, the millions of gallons of water required to frack each well makes it difficult to use the process in more arid climates. If the team of Halliburton and Nuverra can find success with this project, it could make fracking a more palpable option for many opposed to the process.
With H2O Forward, the produced water is recycled on site, which enables oil and gas producers to use substantially less fresh water. That's a real game-changer for the industry, but it also poses a competitive threat to Nuverra, which is building a business around treating and recycling fracked water offsite.
In the deal, both companies will work together to offer the H2O Forward Service to oil and gas companies working to develop the Bakken. Once a customer signs on to the service, Halliburton will conduct the fracking operations while Nuverra will provide the logistics, transportation, storage, and overall fluids management. If successful, the project could provide additional opportunities for both companies as H2O Forward moves to additional shale plays.
In addition, the process could really vault Halliburton past industry peers Schlumberger(NYSE:SLB) and Baker Hughes (NYSE:BHI). All three companies have been looking overseas for growth as rig counts in the U.S. have been on the decline. Just last quarter, U.S. rig counts dropped by 3%, which helped cause Halliburton's revenue to dip by 1%. However, if H2O Forward works as planned it could help Halliburton take additional market share from its competitors in the U.S., enabling it to do well even if rig counts continue to drop. Also, the company could begin to offer the solution overseas, which would help maintain its industry-leading growth.
There is good reason to be optimistic that this venture will be a success because early tests looked great. In a 94-well test program using Halliburton's full service system with recycling, the company saved 94,752,000 gallons of fresh water, which also removed the effect of 125,000 round-trips for trucks. The test saved producers about $3.26 million, which shows that going green can be a money-saving venture.
This is why partnering with Halliburton makes a lot of sense for Nuverra -- it helps to mitigate the risk of this lost business. Together, these two should be able to deliver the net economic benefit that oil and gas producers are looking for to satisfy investors. Additionally, both companies are moving forward with what should be a significant benefit to the environment because the service will cut down on truck traffic as well as the industry's freshwater usage. Widespread adoption of the service should go a long way in helping to make fracking a more palpable solution for those that worry about its environmental risks.
Fool contributor Matt DiLallo owns shares of Nuverra Environmental Solutions. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: long January 01 2014 $4 calls on Nuverra Environmental Solutions and short January 01 2014 $3 puts on Nuverra Environmental Solutions. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.