Last week was a banner one for Heckmann (NYSE: HEK). The company -- a water and environmental services outfit with a focus on the water used in the fracking process -- ended the week up 50% from where it stood before Labor Day. Find out why there was such a jump, and what it means for the company.
A big money merger
Before the market opened last Tuesday, Heckmann announced it was acquiring Power Fuels from Badlands Energy for roughly $381 million. That's big cash for a company that only had a market cap of about $400 million before this week.
Make no mistake about it, Heckmann, which ended last quarter with $5 million in cash versus $265 million in long-term debt, is making a bold move here. The company will have to continue to obtain favorable financing and execute on its plans to make the debt worth it.
Then again, revenue grew by 154% last quarter, and net income was up over 1,000% -- though that's somewhat misleading since the company just became profitable last year.
Let's dig into this opportunity
It's no secret that several Fools believe natural gas is the fuel of the future. That has led many to laud the potential of even ill-run natural gas drillers like Chesapeake Energy (NYSE: CHK). Others have focused on periphery plays like Westport Innovations (Nasdaq: WPRT), which designs engines for cars, trucks, and heavy machinery that can run on natural gas alone.
But, like all methods of extracting energy from the earth, there are pitfalls. Chief among them are concerns with how the fracking process is damaging the water supply for communities, and wasting millions of gallons of water in the extraction process itself.
Enter Heckmann, a company that's attempting to become a one-stop-shop for all of the water needs of hydraulic fracturing companies. The company has built out pipeline systems that run directly to drilling sites in an effort to cut down on transportation costs, time, and environmental damage from excessive trucking.
At the same time, it has focused more recently on treating the water after it's been used in the fracking process. Heckmann is also getting involved in meeting the needs of both both wet gas drillers and oil recovery companies as well.
Which brings us back to the acquisition of Power Fuels. This gives Heckmann further exposure to the potentially oil-rich Bakken Shale -- a move that potentially could be lucrative.
As it stands now, the cautious investor still needs to wait to see how things play out. I've made a bullish CAPScall on my All-Star profile for the company, and I own shares. But, realizing that this is still a very young field, only 1.3% of my real portfolio is devoted to it.
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