Source: Nuverra Environmental Services
Nuverra Environmental Solutions Inc (NYSE:NES) – formerly known as Heckmann – is a tiny company trying to carve out lucrative niche in the U.S. energy industry. And with today’s announcement of a partnership with Halliburton Company (NYSE:HAL), that niche just became more solidified.
Let’s back up to 30,000 feet
As energy companies have recently been able to find vast deposits of previously unextractable oil and gas in North America, the demand for water has skyrocketed. That’s because – whether through fracking or other methods – water is a key ingredient in unlocking these commodities from the earth.
There are some important concerns that arise from this new trend. The first is that many people are concerned with the environmental consequences of fracking – especially since certain chemicals are mixed with water that is being injected into the earth. The second is simply that the industry will use up too much of America’s supply of fresh water.
This is where Nuverra Environmental Solutions Inc (NYSE:NES) comes in. The company has built out a vast network of pipelines, deposit wells, and treatment facilities to help meet the water and environmental needs of the energy industry.
Halliburton Company (NYSE:HAL), in an attempt to use less and less freshwater, has developed a program it calls the “H2O Forward Service”. The gist is that this service allows companies to reuse water many times over in the fracking process.
The problem is that in order for the water to be reused, it needs to be treated to take certain dissolved additives out of the water stream. Because this is an area where Nuverra Environmental Solutions Inc (NYSE:NES) has the experience and infrastructure necessary to do the job, Halliburton Company (NYSE:HAL) is contracting out for Nuverra Environmental Solutions Inc (NYSE:NES) to “provide the logistics, transportation, storage, and overall fluid management”. Specifically, Nuverra will be providing these services for Halliburton Company (NYSE:HAL) in the Bakken Shale of the northern United States and Canada.
What it means for investors
The fact that Nuverra will be working in the Bakken Shale is important, as increased exposure to the shale was one of the primary drivers behind the company acquiring Power Fuels in 2012.
Though energy companies extract 800,000 barrels of oil per day from Bakken, there is still a long runway for growth. Industry experts expect 50,000 future wells to be drilled, and each well will produce oil and/or gas for an average of 45 years. That means that Nuverra could be in the beginning stages of a long-term trend.
This is a very positive sign for investors. Earlier this year, Nuverra Environmental Solutions Inc (NYSE:NES) signaled that it would start reducing capital expenditures, as it believed it had created the type of infrastructure necessary to offer a serious value to energy extractors.
This deal is a sign that Nuverra does, indeed, have a network that offers value. Instead of building out its own water-treatment division, Halliburton Company (NYSE:HAL) – one of the 800-pound gorillas in the businesses – has found it more advantageous to simply pay Nuverra to help treat its water. Count that as a big win for Nuverra because Halliburton Company (NYSE:HAL) could have chosen to directly compete with Nuverra Environmental Solutions Inc (NYSE:NES) rather than align their respective interests.
If all goes well, this could just be the start of big announcements for the company, and underscores why I singled Nuverra out as a stock I was buying for my retirement portfolio this month.
The article Nuverra Signs Important Deal With Halliburton originally appeared on Fool.com and is written by Brian Stoffel.
Fool contributor Brian Stoffel owns shares of Nuverra Environmental Solutions. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: long January 01 2014 $4 calls on Nuverra Environmental Solutions and short January 01 2014 $3 puts on Nuverra Environmental Solutions.
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