Heckmann Corporation (HEK): Why I Bought Shares of This Company

Every so often you’re introduced to a company that’s doing something unique. It’s blazing new trails to form an industry that’s solving a real problem. What’s even better is that the problem that’s being solved involves a multibillion dollar industry that’s still just getting started.

You see, the energy industry has an image problem because it has a water problem. The industry requires millions of gallons of water to frack one oil and gas well. Once produced, that water represents a fairly significant environmental risk, which is one reason why so many people are opposed to fracking in the first place.

Heckmann Corporation (NYSE:HEK) enters the equation as the environmental services company that offers a full-cycle solution for the management of water. It has the plan, and the assets to help mitigate many of the risks involved in fracking. As you take a look at the chart below, notice how Heckmann Corporation (NYSE:HEK) handles the water from delivery to disposal:

Source: Heckmann investor presentation

What differentiates Heckmann Corporation (NYSE:HEK), and is also the driving force behind my personal investment, is the company’s strength in recycling that leads to less disposal. Before we tackle the all-important recycling component of Heckmann Corporation (NYSE:HEK)’s solution, let’s drill down a bit into looking at disposal wells.

In the slide above you’ll notice that Heckmann Corporation (NYSE:HEK) owns 46 wastewater disposal wells. Disposal wells have come under increasing scrutiny of late because it’s suspected that they are behind increased seismic activity. That’s a real problem for the industry, and the evidence is compelling. For example, one area that’s seen increased seismic activity is Ohio which would seem to correspond to the increased activity of the Utica Shale.

While the data is by no means conclusive, it is a risk that bears watching. A variety of companies are drilling these disposal wells, with master limited partnerships like Crosstex Energy, L.P. (NASDAQ:XTEX) being one of the many to watch. The company owns an interest in seven disposal wells in Ohio and West Virginia with another well coming on line soon. These wells are designed to simply dispose of the wastewater. Even if the wells prove not to be the cause, the business of owning disposal wells could be tougher to grow because of the perceived risk.

Not only are there increased risks but this wastewater disposal infrastructure doesn’t come cheap. SandRidge Energy Inc. (NYSE:SD), for example, has spent more than $450 million to build out a disposal system in the Mississippian Lime formation. The company has constructed 700 miles of pipeline and has 116 active disposal wells.