This latest acquisition, Ideal Oilfield Disposal, is a greenfield oil-field disposal landfill located in North Dakota. Nuverra Environmental Solutions Inc (NYSE:NES) has always said that it sees solid waste disposal as the next logical step for the company as it grows is portfolio of full-cycle environmental solutions for the oil and gas industry. While no financial terms were disclosed, the deal is expected to be accretive to earnings and add about $18 million-$20 million in annual revenue.
Currently, the site isn’t operational and the company anticipates that it will need to spend an additional $6 million-$8 million in capital this year to bring the facility on line. Once it is operational, the 60-acre site has a permitted capacity of over 1.7 million cubic yards of airspace which Nuverra Environmental Solutions Inc (NYSE:NES) believes can be expanded to 5.8 million cubic yards in the future.
What you might be wondering is why Nuverra Environmental Solutions Inc (NYSE:NES) is buying a landfill. You can’t think of this facility as something akin to a Waste Management, Inc. (NYSE:WM) residential waste facility. This is a specialized facility to be a permanent solution for the drill cuttings from drilling an oil and gas well.
You don’t hear too much about drill cuttings; there are currently a variety of disposal methods such as burial pits or land farming that are used to dispose of these cuttings. However, because these cuttings can contain naturally occurring radioactive material, salt, and other harmful substances, energy companies need to handle these materials with care. Further, because of the radiation levels that can be emitted by these cuttings, a traditional landfill like those of Waste Management, Inc. (NYSE:WM) won’t work because the levels can be high enough to trigger a landfill’s radiation sensor.
Nuverra Environmental Solutions Inc (NYSE:NES)’s disposal solution takes the risk of handling these cuttings out of the hands of drillers; it can offer this solution as part of its full-cycle, closed-loop, environmental solution. Further, as environmental regulations surrounding solid waste from drill sites change, Nuverra will be at the forefront of providing solutions to its customers. This first facility, which is located in the Bakken, gives Nuverra an important additional service to offer its customers in the region.
Last year Hess Corp. (NYSE:HES) and Whiting Petroleum Corp (NYSE:WLL) represented 33% and 25%, respectively, of Bakken-based Power Fuel’s revenue before it merged with Nuverra. Both companies represent big future opportunities, as Hess Corp. (NYSE:HES) expects to drill 175 wells this year and has plans to double its daily production by 2015, while Whiting Petroleum Corp (NYSE:WLL) sees the potential for more than 4,000 future wells on its Northern Rockies acreage. If Nuverra can continue to work with both companies to capture that growth and up-sell value-added services like solid waste, then it speaks to a bright future for the company.
Those are just some of the reasons why this looks like a very solid acquisition for Nuverra Environmental Solutions Inc (NYSE:NES). While I’d liked to have seen more financial disclosure, I’ll take the company at its word that the deal is accretive to earnings. The big bonus here is that the site is located in the Bakken, a play which is likely just 10% developed, which means that there’s the potential for decades of growth ahead.
The article Nuverra’s Solid Acquisition Extends Its Bakken Dominance originally appeared on Fool.com and is written by Matt DiLallo.
Motley Fool contributor Matt DiLallo owns shares of Nuverra Environmental Solutions and has the following options: Short Jul 2013 $35 Puts on Waste Management and Short Jun 2013 $4 Puts on Nuverra Environmental Solutions. The Motley Fool recommends Waste Management. The Motley Fool owns shares of Nuverra Environmental Solutions and Waste Management and has the following options: Long Jan 2014 $4 Calls on Nuverra Environmental Solutions and Short Jan 2014 $3 Puts on Nuverra Environmental Solutions.
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