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Heckmann Corporation (HEK): The Dawn of a New Era in Oil-Field Services

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This week marks the beginning of trading for Nuverra Environmental Solutions, which was formerly known as Heckmann Corporation (NYSE:HEK). The name change is an important next step for a company that is hoping to lead the way in providing an environmentally responsible solution to the fracking issue. With that as a backdrop, let’s take deeper look at what the future holds for the company.

A little bit of history
For those of you who are not familiar with the story, Heckmann Corporation (NYSE:HEK) was taken public by Richard Heckmann as a special purpose acquisition company in 2008. Since that time, the company has been building a company to provide solutions to the oil and gas industry surrounding the water used in fracking. Through a number of strategic acquisitions over the years, the company has built up an impressive asset base to meet the growing environmentally sensitive needs of the energy industry as you can see below:

Source: Heckmann Corporation (NYSE:HEK) Investor Presentation

The name change not only consolidates its many acquired assets but the idea behind the new name is to build a brand that represents a cohesive environmental solutions provider. The Nuverra name contains references to new, green, earth, and time, and according to the company it speaks of its “fundamental dedication to supporting sustainable energy generation and America’s energy independence.” Now that it has the assets in place, the company is ready to take this approach to the next level.

What does the future hold?
The first thing you can expect from Nuverra is that it will continue to consolidate its smaller rivals under this new banner. In fact, on its last quarterly conference call, CFO Jay Parkinson said that:

Turning now to the M&A front, we’re very focused on transactions that allows to expand our treatment, recycling, and disposal network. This is really consistent with our strategy of leveraging our transportation network and providing an end-to-end solution to our customers. We believe this is a highly differentiating value proposition, and will serve us well in meeting our strategy.

The other point I’d say is, we think there may be some consolidating transactions that can occur as well. Having a national footprint, as we’ve talked about before is very key to our strategy, our customers operate nationally and need solutions, in every basin they operate in, so there may be some opportunities on that front. We are in very active dialog in total now in four smaller deals, all of which I believe could potentially close this quarter.

In addition to that, look for Nuverra to become a bigger portion of its customers’ capital spending plans. The company sees approximately 8%-10% of upstream capex spending in the future to be on environmental waste solutions. Part of this is due to other drilling and completion costs going down but the bulk of this will be due to the increased regulations and the solutions that Nuverra is providing to meet more of its customer needs.

In addition to capturing a greater portion of this capital spending, by having a national footprint Nuverra is in a great position to leverage and extend its customer relationships to additional basins. As you can see in the map below, Nuverra has operations in most major shale basins:

Source: Heckmann Corporation (NYSE:HEK) Investor Presenation

Across these basins the company serves a variety of customers and at of the end of last year Chesapeake Energy Corporation (NYSE:CHK) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) represented its top two customers as each contributed 15% of its revenue. Further, when it acquired its Bakken operations it also acquired key customer relationships with Hess Corp. (NYSE:HES) and Whiting Petroleum Corp (NYSE:WLL). Now that the company has built a solid foundation with these customers it’s looking to become an increasingly important partner to each.

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