Fresh off its initial public offering, WaterBridge Infrastructure is upbeat about long-term prospects for the Permian's Delaware sub-basin even if the shale sector shows signs of fatigue elsewhere.
The Houston, Texas-based company handles water produced alongside crude on behalf of upstream customers including Chevron and BPX Energy, the US onshore subsidiary of BP. It operates mostly in the Delaware, one of the two main sections of the top-performing Permian basin of west Texas and southeastern New Mexico.
"There are, for sure, areas that will flatten out and decline, but the Permian basin in total, and the Delaware basin specifically, have a long run of inventory at current prices," according to founder and chairman David Capobianco.
As prices rise over time, more inventory will become economic. "And then there's a dynamic that has not even started in the Permian Basin, which is re-fracking," Capobianco said in a recent interview, referring to the process of returning to old wells to squeeze more out of them using the latest technology.
While the macro environment could have been more supportive for the WaterBridge offering, Capobianco sees that improving over the long term, bolstered by a stable US production profile for oil that will require growth from the Delaware.
Backed by private equity firm Five Point Infrastructure, WaterBridge's oversubscribed public offering earlier this month priced at the top end of the $17-$20/shr marketed range, yielding total net proceeds to $677mn. That was in contrast to other recent energy stock sales that have struggled.
Oil companies have been paying ever more attention to the increasing amounts of water produced alongside crude as basins mature, which threaten to act as a constraint on drilling if long-term solutions are not found.
WaterBridge operates the largest produced water infrastructure network in the US, with more than 2,500 miles of pipelines, 197 produced water handling facilities, and more than 4.5mn b/d of capacity.
The company provides gathering, transporting, recycling and handling services for produced water under long-term and fixed-fee contracts. It also has close ties to LandBridge, a land management company that went public a year ago, which has around 280,000 surface acres across Texas and New Mexico with vast amounts of virgin pore space, and offers preferential rights to WaterBridge.
Given thre;e to five barrels of water are produced for each barrel of crude, that shows the scale of the challenge. While only a limited amount of the produced water can be recycled for hydraulic fracturing (fracking), the rest has to be moved elsewhere to be injected underground.
"You can only recycle as much as the drilling process demands, so the remainder needs to be managed in a sustainable way, by utilizing this pore space," said Capobianco.
The unique relationship with LandBridge gives WaterBridge a built-in advantage with an operating model that is not dissimilar to that of a waste management business.
"Because of both the proximity to that demand and the vast amounts and the approach that WaterBridge and LandBridge are taking, it creates a barrier to entry that does not exist for other infrastructure companies," Capobianco added.
