For all of its benefits in energy production, hydraulic fracturing elicits controversy. For example, a recent geological study suggests not only hydraulic fracturing per se, but also the disposal of waste water created by hydraulic fracturing may cause earthquakes. This would include disposal of so called "flowback," water used during the hydraulic fracturing process, and "produced water," water that occurs naturally in shale or limestone and comes to the surface throughout the life of a well. The study's authors point out that more work is needed to establish a causal link between disposal of waste water and earthquakes, but their work does present an interesting opportunity for Nuverra Environmental Solutions (NYSE:NESC).  

Hydraulic fracturing requires water, and lots of it. Depending on what type of rock is being fractured, a half a million to five million gallons of water may be required per well. The flowback and produced water are removed and then disposed of. Nuverra offers drillers a portfolio of services including disposal of waste water. One aspect of Nuverra's water disposal is the recycling of waste water. By recycling waste water, Nuverra reduces the volume of water disposed of in a pit somewhere.

By using Nuverra's water recycling services, oil and gas exploration companies can deflect concerns their activities are causing earthquakes. Further, Nuverra recycles oil, oily water, oil filters and drilling mud generated at drilling sites. This allows Nuverra to offer drillers one-stop shopping for environmentally friendlier waste disposal services. Nuverra also provides fresh water to the drilling site, adding more convenience for its customers.

Compare Nuverra's approach to that of SandRidge Energy (NYSE: SD). SandRidge has invested $460 million in its own waste water disposal assets. In its March investor presentation, SandRidge claims having its own waste water disposal system helped the company save $2 a barrel over trucking the waste water to a disposal facility. This no doubt contributed to SandRidge's improved well costs.

Conspicuously absent was any mention of water recycling. Which means SandRidge may be vulnerable to charges its waste water disposal may contribute to earthquakes. Again, nothing has been proven regarding the connection between waste water disposal and earthquakes, but just floating the idea could cause some headaches for SandRidge.

To be sure, Nuverra needs all the business it can get. The company suffered declining revenues and earnings since 2012. The stock reflected this decline, dropping from $69 a share at the end of 2011 to a bottom of just under $14 a share in January 2014. The stock has recovered recently to almost $18 a share. Nuverra hopes to improve earnings through its comprehensive offering of water and waste related services.

One particular bright spot is Nuverra's partnership with Halliburton Corporation (NYSE:HAL). Specifically, both companies will be working together in the Bakken to provide waste water recycling services through Halliburton's H2O Forward (SM) program. Nuverra will provide logistical, transportation, storage, and overall fluid management services.

Halliburton's water recycling strategy is to clean waste water just enough for it to be used again in hydraulic fracturing. A combination of electrocoagulation and ultraviolet light removes enough solids and bacteria to render waste water suitable for reuse in fracking operations. This approach makes waste water recycling economical when traditionally recycling waste water was believed to be too expensive for large-scale use.

Halliburton needs logistical help in the Bakken, but not to the same degree as Nuverra needs Halliburton. Halliburton is a $53 billion company by market capitalization compared to Nuverra's $472 million. Halliburton stock has risen almost 50% over the past year on growing earnings. These earnings came despite difficult weather over the winter -- Nuverra's earnings suffered badly during the winter. Estimates are that Halliburton will see earnings growth for the upcoming year as well.

Final Foolish thoughts
While the jury's still out as to whether waste water disposal causes earthquakes, it is an opportunity for both Nuverra and Halliburton. Water is a scarce resource in many parts of the country where hydraulic fracturing is used and any reduction in fresh water use would be welcome. Preventing earthquakes would likely go over well, too.

Nuverra is clearly the high-risk turnaround stock. The company has struggled, undergone a reverse stock split in December of 2013, and in general seems to lack traction. If its joint venture with Halliburton works out, it would do wonders for the stock. Halliburton is the blue-chip stock. While its stock will not likely grow another 50% in the upcoming year, I suspect it will grow nonetheless. Put another way, buy Nuverra with money you can risk losing; buy Halliburton for your IRA.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.