Why I'm Pouring More Money Into the Company That Cleans up Frack Water

Photo Credit: Flickr/Laszlo Ilyes

The combination of hydraulic fracturing and horizontal drilling has unlocked more oil and gas than ever dreamed. It has some dreaming about a future where America is energy independent. However, there is just one problem, no one really likes hydraulic fracturing, which is the cornerstone of the current oil and gas boom.

The problem is water. Fracking uses too much of it and worse yet, that water is first laced with harmful chemicals before it's pumped into the ground to fracture the shale in order to unlock oil and gas. The story doesn't end there as the water eventually makes its way back up the well and needs to be disposed of before it causes any harm. Let's just say that concerns about the process haven't won all that many fans.

The industry is going to great lengths to clean up its act, and leading the charge is Nuverra Environmental Solutions (NYSE: NES  ) . The company's business model is dedicated to the protection, enhancement, and advancement of environmental solutions for the removal, treatment, recycling, and disposal of the fluids used in the process. The key here is the treatment and recycling aspect, which will go a long way toward cleaning up the process, and should provide excellent long-term economic returns for investors.

Unfortunately, the company has gotten off to a rocky start. This past quarter it really couldn't catch a break: Its business in the Bakken was foiled by Mother Nature, while it was caught flat-footed as business picked up in the Marcellus and it had to subcontract a lot of work. However, there are enough positive signs that it can clean up its act that have me interested in buying more shares.

Topping the list of positive signs is its recent deal with Halliburton (NYSE: HAL  ) for its H2O Forward service in the Bakken. Honestly, when I first learned about what Halliburton was doing I thought it would be a big competitive threat to Nuverra. To see the two companies now collaborating on the project eliminates that threat, and really bodes well for Nuverra's future. Halliburton obviously saw greater value in working with Nuverra than in competing directly against it.

The other positive aspect I see is that the company is making the changes necessary to fix the issues it can control. The bad weather in the Bakken has been well documented this year and Nuverra just needs to wait for business there to pick up. On the other hand, Nuverra's missteps in the Marcellus and Utica are something it can address more directly. That is exactly what the company is doing by aggressively hiring drivers, and it has also recently made an acquisition in the region to increase its scale.

The other area of concern, its decline in the Eagle Ford, also points to a problem that it can solve. It has hired new management to lead that division -- if turned around, it will be an important driver for Nuverra in the future. Top Nuverra customers, such as Chesapeake Energy (NYSE: CHK  ) , are investing heavily in this liquids rich play. While the company has already drilled 900 wells in the play, it still sees a decade of growth ahead there. Nuverra needs to be better positioned to capture the growth of Chesapeake and its peers, so the hope is that the new management can get the job done.

While I'm not thrilled with the performance I've seen from Nuverra since I first bought my shares, its future is just too compelling. That's why I plan on taking advantage of its recent weakness to buy more shares. While I expect the ride to be bumpy, I think that its position to clean up all the water used in fracking will pay off over the long term, which is why I'm pouring more of my own money into its stock.

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  • Report this Comment On August 06, 2013, at 12:09 PM, Thinkerbus wrote:

    Won't the technological advances by Halliburton

    have a significant negative impact on Nuverra Environmental Solutions (NES), which has huge investments in fluid transmission equipment, that should not be needed if fracking water is not impacted by harmful chemicals and does not need to be carried away for processing, storage or disposal. Maybe this is why Haliburton partnered with NES rather than competing with their fluid

    movement operations. Anyone with good insight on this topic? Will this eliminate the need for NEs and its transmission equipment????

  • Report this Comment On August 07, 2013, at 10:04 AM, tmd1973 wrote:

    Why would you not include a small company like Ecosphere Technologies, Inc. (ESPH) in your article??

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