There are lots, I mean lots, of reasons to be down if you are a shareholder in Nuverra Environmental Solutions (NESC). I know, I'm one of them. The company has tried my patience on a number of occasions, and each day that passes there are more doubts that Nuverra will be able to execute its business plan to address what is one of the greatest issues facing the future of hydraulic fracturing in the U.S.: water use. 

Yet despite all of the bad news and underperformance, there is one thing that gives some promise that Nuverra can turn things around: Insider ownership has been on the upswing for the past several months. Let's see what management has been up to and whether its moves are enough to put Nuverra back on the right track.

Taking ownership
For a company that has struggled as much as Nuverra has over the past year or so, it is rather encouraging to see management pick up as many shares at it has in the past several months. Since August 2013, CEO Mark Johnsrud has acquired an additional 126,000 shares on the open market valued today at $2.3 million. In total, he now has ownership of over 34% of common shares outstanding. Also, five members of the board and the executive management team have made open market acquisitions Nuverra's shares over that same time period with no dispositions.

In total, the executive management team and the board of directors have ownership of over 39% of the company. This is by far the most highest percentage of shares management has held in the company. A cynical approach to this would say that management is simply doing this to prop up shares to secure financing. It's a possibility, but the efforts the company are undertaking might suggest that the company is actually starting to turn things around. 

Getting focused
It seemed ambitious and promising at the time, but when both Heckmann and Power Fuels merged to create Nuverra, the combined company had a presence in every major shale region across the U.S. On the surface this sounds great, it would in theory allow the company to cross sell its service to customers with presence in multiple shale formations. In reality, though, the company was simply spread too thin and could not provide adequate service to its clients. To make matters worse, the company also had some ancillary business segments such as the used oil recycling business with Thermo Fluids.

Nuverra's management has since acknowledged these issues and is working to streamline the business. It recently unloaded the Thermo Fluids business for $175 million and is concentrating its water recycling business on four regions where it has significant assets in place: the Bakken, Haynesville, Eagle Ford, and Marcellus/Utica shales.

Also, the company is making significant investments in water pipelines, especially in the Bakken. With the advancement of pad drilling in the region where exploration and production companies drilling 20 or more wells per pad, it is much more economical to use pipelines to move water rather trucks. The company expects to spend about $20-$30 million on water pipeline infrastructure to better connect its water treatment facilities with wells.

Source: Nuverra Investor Relations Presentation

There is no guarantee that these efforts are the silver bullet to completely turn the business around, but the chances of success with this model do appear to be much better than the path it was previously on.

Cleaning up the finances
On Nuverra's most recent conference call, management stated that it would take the $165 million in cash it has received for the Thermo Fluids sale and put it toward paying down debt. It sounds a bit odd to see a company of this size use that money to pay down debt rather than grow the business, but there has been growing concerns from investors regarding its debt situation.

By using this cash to exclusively pay down debt, it will certainly help to clear up some of these issues. By eliminating $165 million of its 9.875% senior notes, it will save the company $16.2 million annually in debt payments. Also, from an investor standpoint, it will certainly make the debt situation look much less dire.

  Today Pro-forma using sale to pay down debt
Debt-to-capital 46.28% 37.3%
Debt-to-EBITDA 5.9x 4.07x

Source: S&P Capital IQ, authors calculations

What a Fool believes
Nuverra's shares have disappointed for quite a while, and it's hard to fault anyone who has sold their shares recently. But between the recent uptick in insider ownership, the moves to cut out out ancillary business segments, and the company's joint venture with Halliburton (HAL -1.22%) coming online in the first half of this year there are small signs of life that management can drag this company out of its funk and actually execute on its great idea. As someone who still owns shares in the company, I'm going to give the company the benefit of the doubt to see if these moves pan out, but it is on a pretty short leash.