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Aris Water Solutions (ARIS) 5 Nov 24 2024 Q3 Earnings call transcript

AInvestWednesday, Nov 6, 2024 12:42 pm ET
2min read

In the third quarter earnings call of 2024, Aris Water Solutions showcased a robust performance, demonstrating steady growth and improved operational efficiency. The call, led by President and CEO, Amanda Brock, Founder and Executive Chairman, William Zartler, and CFO, Stephan Tompsett, highlighted key themes and trends that underscore the company's financial health and growth prospects.

Operational Excellence and Efficient Capital Investment

Aris Water Solutions has consistently grown alongside its premier contracted customers, driving a 2% sequential and 6% year-over-year increase in produced water volumes. This growth is coupled with increased completion activity, leading to a 25% sequential and 16% year-over-year increase in recycled water volumes. The company's operational improvements have resulted in strong margins, with the third quarter operating margins reaching $0.45 per barrel, up 13% from the third quarter of 2023. This operational excellence is also evident in the company's efficient capital investment, which has led to excess cash generation, allowing for increased flexibility to both reinvest in the growth of the business and enhance shareholder returns.

Margins and Capital Efficiency

Amanda Brock, Aris's President, highlighted the company's commitment to improving margins and capital efficiency. This focus has resulted in a significant increase in skim oil recoveries, which have improved the company's process for recovering skim oil, a trend that is expected to be sustainable over time. The company's capital efficiency initiatives have also led to a reduction in operating costs and a strengthened balance sheet, with a net debt of $422 million and a debt to adjusted EBITDA ratio of 2.0x.

Future Growth Opportunities

Aris Water Solutions is well-positioned for future growth, with a focus on evaluating adjacent assets in its core operating area where it can drive incremental value and enhance its systems' capabilities. The company is actively exploring opportunities to increase the scale of promising desalination technologies for the treatment of high salinity Delaware Basin produced water, with the potential to lower energy consumption and operational costs. Additionally, the company is exploring opportunities for iodine extraction and mineral extraction, including magnesium, ammonia, and lithium.

Regulatory Updates and Market Outlook

The call also touched on regulatory updates, with Amanda Brock noting the company's active engagement with regulators in Texas to explore the possibility of disposing of produced water into surface systems like the Pecos River. This could potentially lead to a less costly disposal method for Aris, as opposed to injecting water into the ground. The company remains optimistic about the market outlook, anticipating sustained strong investment on and around its asset footprint, particularly in the Permian and New Mexico regions, where it expects to see continued growth in produced water volumes in 2025.

Investor Interactions

During the call, analysts probed the company on various topics, including growth prospects, dividend payouts, and capital allocation strategies. Aris Water Solutions' management team provided clear and comprehensive responses, demonstrating their deep understanding of the company's financial health and growth opportunities. The company's commitment to operational excellence, capital efficiency, and strategic investments in growth projects position it well for future success.

In conclusion, Aris Water Solutions' third-quarter earnings call painted a picture of a company that is not only performing well but also poised for future growth. With a focus on operational improvements, efficient capital investment, and strategic expansion opportunities, Aris Water Solutions is well on its way to enhancing water sustainability and supporting the industry with innovative, long-term water infrastructure solutions.

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