The combination of hydraulic fracturing and horizontal drilling has unlocked more oil and gas than ever dreamed. It has some dreaming about a future where America is energy independent. However, there is just one problem, no one really likes hydraulic fracturing, which is the cornerstone of the current oil and gas boom.
The problem is water. Fracking uses too much of it and worse yet, that water is first laced with harmful chemicals before it’s pumped into the ground to fracture the shale in order to unlock oil and gas. The story doesn’t end there as the water eventually makes its way back up the well and needs to be disposed of before it causes any harm. Let’s just say that concerns about the process haven’t won all that many fans.
The industry is going to great lengths to clean up its act, and leading the charge is Nuverra Environmental Solutions Inc (NYSE:NES). The company’s business model is dedicated to the protection, enhancement, and advancement of environmental solutions for the removal, treatment, recycling, and disposal of the fluids used in the process. The key here is the treatment and recycling aspect, which will go a long way toward cleaning up the process, and should provide excellent long-term economic returns for investors.
Unfortunately, the company has gotten off to a rocky start. This past quarter it really couldn’t catch a break: Its business in the Bakken was foiled by Mother Nature, while it was caught flat-footed as business picked up in the Marcellus and it had to subcontract a lot of work. However, there are enough positive signs that it can clean up its act that have me interested in buying more shares.
Topping the list of positive signs is its recent deal with Halliburton Company (NYSE:HAL) for its H2O Forward service in the Bakken. Honestly, when I first learned about what Halliburton Company (NYSE:HAL) was doing I thought it would be a big competitive threat to Nuverra. To see the two companies now collaborating on the project eliminates that threat, and really bodes well for Nuverra’s future. NYSE:HAL) obviously saw greater value in working with Nuverra Environmental Solutions Inc (NYSE:NES) than in competing directly against it.
The other positive aspect I see is that the company is making the changes necessary to fix the issues it can control. The bad weather in the Bakken has been well documented this year and Nuverra Environmental Solutions Inc (NYSE:NES) just needs to wait for business there to pick up. On the other hand, Nuverra’s missteps in the Marcellus and Utica are something it can address more directly. That is exactly what the company is doing by aggressively hiring drivers, and it has also recently made an acquisition in the region to increase its scale.