John Schmitz: Yes. As far as the asset base and the systems that would be adding contracts and new extensions to existing systems. So you buy assets that are a good fit but not necessarily hooked up to the system yet. You contract around those assets. You have to put some infrastructure in to get them part of the system itself, and that creates a new contract of the length as far as the margin is concerned. I think we’ve been clear we have a certain return value in the contracts, whether they’re both new contracts for recycling or existing things that we’ve closed on M&A or even putting just pipelines into hook up disposal wells into long haul pipeline systems into different areas of disposal. Those are all underwritten very similar to each other and that underwriting delivers that 50% gross margins that Michael’s talking about.
It’s also important to say again, in the sense of what creates the backlog once the value is being able to be recognized by our customers, those inbounds or looking for the value that we’re creating to their LOE or their AFE as well as the return profile that we’re getting. So it’s very value add to our customer.
Jeff Robertson : John, is the customer willing to contract services for longer periods of time as you build out more solutions in these systems?
John Schmitz: Yes. I mean, when you got various issues that are attractive to you, the repeatable, predictable, it’s not just in the earnings power of this company, but it’s also in the operational power of our customers. They know they got stability in a very important part of their LOE and their AFE. The flexibility of the systems itself, whether you’re taking the water back to a new developed well, or stacking the water up into reserves for the next newly developed well, or taking it to disposal, that is a very big value add to our customer base. And so it’s in that optionality as well as just the repeatable, predictable and then then the actual cost to their LOE or extension of their economic values.
Michael Skarke: It’s the infrastructure service model so that you provide the certainty and the cost efficiency of fixed infrastructure with the flexibility of service. And by providing that together, you have a higher certainty of execution and just better communication. So it gets back to kind of the one-stop shop model. And so to John’s point, we have and think we will continue to see benefit to water services through the success in water infrastructure.
Jeff Robertson : And Michael, on the beneficial reuse you touched on, have any of the issues around injection and seismicity, is that accelerated any of the work that you’re seeing done on to try to overcome some of the economic challenges of beneficial reuse? Or is it just kind of a steady state march toward what the industry hopes will be a solution?
Michael Skarke: I think it’s accelerating interest among our customers in those solutions and in our progress in evaluating companies and technologies and success of pilot programs for sure. I mean, it’s something that the industry is aware of and in order to protect the oil coming out of the ground in the Permian Basin, the operators have to secure a place for that water and its formation’s pressure up, or the regulatory railroad commission reduces injectivity. You’re going to have a harder and harder challenge of getting rid of that water and beneficial reuse could be one of the answers.
Operator: Our next question is from John Daniel with Daniel Energy Partners.
John Daniel : I know you mentioned in the back half you’re going to sort of shift more towards organic versus acquisition, but I’m curious, when you look at sort of the turmoil in the broader market out there, if you might actually see some opportunistic opportunities pop up. Are you seeing any signs that that might potentially play out where the strategy might pivot a little bit from back to M&A versus organic?
John Schmitz: Yes. John, this is John Schmitz. We believe that that is a very possible outcome as we travel through the next 6 to 9 months that whether it’s market conditions or whether it’s systems that belong together to bring value both to the investor base of this company or the other company as well as our customer base. We do believe that what you’re describing could develop over the same time that we’re executing a large amount of this backlog that Michael and Chris and I are talking about. So something we keep our minds open, our phones available, and I do believe it could happen, John.
John Daniel : Okay. And then you’ve done, I guess the 5 deals this year have closed them. How many deals do you see that you turn down and is it typically is when you turn them down, is it a function of either — is it more valuation or is it you do the digging and you see some environmental concerns? Like what causes the deal not to happen?
John Schmitz: Yes, I would say first that if you look at the deals that we’ve done, especially as Chris said, the first ones we were doing were really companies. And the companies were the companies that you know John, that we like bought whole companies. What we’re buying now is really assets that fit those systems in that, and they’re very identified before we go into really trying to either evaluate or buy the asset base. So we don’t go through a lot of deals to come up with the one deal that fits us well. We really can identify the deals that fit us real well and spend time on them. As far as the environmental and logically the due diligence, yes, we’ve had a few things that we looked at that we just couldn’t stomach, or we found that they didn’t fit and it was things that we thought were strategic and we had to turn them away for various reasons.
