10-K: Aris Water Solutions Reports Increased Volumes and Earnings in 2024 Annual Results

Aris Water Solutions saw a 4% increase in total water volumes and a 39% increase in net income for the year ended December 31, 2024, driven by growth in produced water handling and cost efficiencies.

Summary

• Aris Water Solutions, Inc. reported its annual results for the year ended December 31, 2024.
• Total water volumes handled or sold increased by 4% to 1,548 kbwpd.
• Produced Water Handling volumes grew by 7% to 1,120 kbwpd.
• Recycled produced water volumes sold increased 16% to 377 kbwpd.
• Groundwater volumes sold decreased 60% to 51 kbwpd.
• Direct operating costs per barrel decreased by 6% to $0.31.
• Gross margin per barrel increased by 24% to $0.31.
• Adjusted Operating Margin per Barrel increased by 15% to $0.45.
• Total revenue increased by 11% to $435.4 million.
• Net income increased by 39% to $60.2 million.
• Adjusted EBITDA increased by 21% to $211.9 million.
• The company declared dividends of $0.09 per share for Q1 2024 and $0.105 per share for each of Q2, Q3 and Q4 2024.
• Coterra joined the Joint Industry Project in July 2024.
• In November 2024, the company purchased approximately 45,000 surface acres and site improvements in New Mexico and Texas for $46.1 million to secure potential disposal capacity for long-term growth.
• In February 2025, the company acquired intellectual property rights and assets from Crosstek Membrane Technology LLC to help accelerate its entry into broader industrial markets, including industrial water and wastewater treatment.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with increased volumes, revenue, and earnings. Strategic acquisitions and a focus on sustainability further contribute to a favorable sentiment.

Positives

• The company experienced growth in both Produced Water Handling and Water Solutions volumes.
• Direct operating costs per barrel decreased, improving profitability.
• Gross margin per barrel and Adjusted Operating Margin per Barrel increased significantly.
• Total revenue, net income, and Adjusted EBITDA all showed substantial growth.
• The company is expanding its operations through strategic acquisitions.
• The company is committed to beneficial reuse of produced water through the Joint Industry Project.

Negatives

• Groundwater volumes sold decreased significantly, although this was offset by an increase in recycled water volumes.
• General and administrative expenses increased due to higher stock-based compensation and increased headcount.

Risks

• The company's business depends on capital spending by the oil and gas industry in the Permian Basin, which could be negatively impacted by industry and market conditions.
• Volatility or weakness in oil prices or natural gas prices could affect the spending patterns of the company's customers.
• The company operates in a highly competitive industry.
• The company's inability to acquire new pore space or loss of existing pore space may negatively impact its ability to service new and existing customers.
• The company may face opposition to the development or operation of its water pipelines and facilities from various groups.
• There is uncertainty related to the future of the oil and natural gas industry broadly.
• The ability to attract and retain key members of management, other key personnel and qualified Board members is critical to the success of the company's business.
• The growth of the company's business through acquisitions may expose it to various risks.
• The company's operations are subject to inherent risks in the oil and gas industry, some of which are beyond its control.
• A loss of one or more significant customers could materially or adversely affect the company's results of operations.
• Because a significant portion of the company's revenues is derived from ConocoPhillips and Chevron U.S.A. Inc., any development that materially and adversely affects ConocoPhillips and Chevron U.S.A. Inc.'s operations, financial condition or market reputation could have a material adverse impact on the company.
• The company's lack of diversification increases the risk of an investment in it and it is vulnerable to risks associated with operating primarily in one geographic area.
• Seasonal weather conditions and natural or man-made disasters could severely disrupt normal operations and have an adverse effect on the company's business, financial position and results of operations.
• The company engages in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on it.
• Defaults by customers and counterparties could adversely affect the company's business, financial condition, and results of operations.
• The company may not be able to keep pace with technological developments in its industry.
• The company's initiatives related to the development of technologies for the beneficial reuse of produced water require a substantial investment by it in research and development expenses and may not be successful or achieve market acceptance.
• The company may be required to take write-downs of the carrying values of its long-lived assets and finite-lived intangible assets.
• The company may be required to take a write-down of the carrying value of goodwill.
• Deficiencies in the company's internal control over financial reporting could prevent it from accurately and timely reporting its financial results.
• The company's debt instruments have restrictive covenants that could limit its financial flexibility.
• The company's leverage may limit its ability to borrow additional funds, comply with the terms of its indebtedness, compete in its industry or capitalize on business opportunities.
• Increases in interest rates could adversely impact the price of the company's shares, its ability to issue equity or incur debt for acquisitions or other purposes.
• A terrorist attack, armed conflict or unrest could harm the company's business.
• The company is subject to cybersecurity risks which could adversely affect its business.
• Restrictions on the ability to procure water or changes in water sourcing requirements could decrease the demand for the company's services.
• In the future the company may face increased obligations relating to the closing of its produced water handling facilities and may be required to provide an increased level of financial assurance to guarantee the appropriate closure activities occur for a produced water handling facility.
• The company's sales of groundwater and its gathering, handling and recycling of produced water expose it to potential regulatory risks.
• Unsatisfactory safety performance may negatively affect the company's customer relationships and, to the extent it fails to retain existing customers or attract new customers, adversely impact its revenues.
• Fuel conservation measures could reduce demand for oil and natural gas which would, in turn, reduce the demand for the company's services.
• The company is subject to environmental and occupational health and safety laws and regulations that may expose it to significant liabilities for penalties, damages or costs of remediation or compliance.
• Legislation or regulatory initiatives intended to address seismic activity could restrict the company's ability to recycle or handle produced water gathered from its E&P customers and, accordingly, could have a material adverse effect on its business.
• Climate change legislation, laws and regulations restricting GHG emissions, promoting the development of alternative sources of energy, prohibiting, restricting, or delaying oil and gas development on public lands, or legal or other action taken by public or private entities related to climate change could force the company's customers to incur increased capital and operating costs and could have a material adverse effect on the company's financial condition, results of operations and cash flows, as well as its reputation.
• A portion of the company's customers oil and gas leases are granted by the federal government. To the extent such leases are suspended or terminated, or the company or its customers are unable to obtain permits or right-of-way grants required for operations on such leases, the company's operations could be materially affected.
• Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing, as well as governmental reviews of such activities, could result in increased costs and additional operating restrictions, delays or cancellations in the drilling and completion of oil and gas wells that may reduce demand for the company's services and could have a material adverse effect on its liquidity, results of operations and financial condition.
• Restrictions on drilling and related activities intended to protect certain species of wildlife or their habitat may adversely affect the company's customers ability to conduct drilling and related activities in some of the areas where the company operates.
• Delays or restrictions in obtaining or renewing permits by the company for its operations or by its customers for their operations could impair the company's business.
• The company is a holding company. Its sole material asset is its equity interest in Solaris LLC and it is accordingly dependent upon distributions from Solaris LLC to pay taxes, make payments under the Tax Receivable Agreement and cover its corporate and other overhead expenses.
• For as long as the company is an emerging growth company, it will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about its executive compensation, that apply to other public companies.
• The company's principal stockholders collectively hold a substantial portion of the voting power of its common stock.
• Certain of the company's directors have significant duties with, and spend significant time serving, entities that may compete with it in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunities.
• Certain Designated Parties are not limited in their ability to compete with the company, and the corporate opportunity provisions in its amended and restated certificate of incorporation could enable such Designated Parties and their respective affiliates to benefit from corporate opportunities that might otherwise be available to it.
• The company's amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of its Class A common stock and could deprive its investors of the opportunity to receive a premium for their shares.
• The company may issue preferred stock whose terms could adversely affect the voting power or value of its Class A common stock.
• The company cannot assure that it will pay any future dividends on its Class A common stock. Its indebtedness could limit its ability to pay future dividends on its Class A common stock.
• Future sales of the company's Class A common stock in the public market, or the perception that such sales may occur, could reduce its stock price, and any additional capital raised by it through the sale of equity or convertible securities may dilute ownership in it.
• Aris Inc. will be required to make payments under the Tax Receivable Agreement for certain tax benefits that it may claim, and the amounts of such payments could be significant.
• In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, the company realizes in respect of the tax attributes subject to the Tax Receivable Agreement.
• The company will not be reimbursed for any payments made under the Tax Receivable Agreement in the event that any tax benefits are subsequently disallowed.
• The company may be required to pay additional taxes because of the U.S. federal partnership audit rules and potentially also state and local tax rules.
• If Solaris LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, Aris Inc. and Solaris LLC might be subject to potentially significant tax inefficiencies.
• Aris Inc. depends on distributions from Solaris LLC to pay any dividends, if declared, taxes and other expenses.
• In certain circumstances, Solaris LLC will be required to make distributions to the company and the other members of Solaris LLC, and the distributions that Solaris LLC will be required to make may be substantial.
• The company may be adversely affected by uncertainty in the global financial markets and a worldwide economic downturn.
• The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, could adversely affect the company's business, results of operations and financial condition.

Future Outlook

The company believes there are several industry trends that continue to provide meaningful support for its future growth, including key customers' capital allocation to the Permian Basin, Permian Basin oil and associated water production growth, and simultaneous multi-well operations and reuse applications of produced water.

Industry Context

The company operates in the water infrastructure industry, providing services to oil and gas operators in the Permian Basin. The increasing focus on sustainability and minimizing environmental impact in the energy industry is driving demand for the company's services.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• However, it highlights the company's relationships with large operators like ConocoPhillips and Chevron, suggesting a strong position in the Permian Basin.
• The company's commitment to recycling and sustainability is also emphasized as a competitive advantage.

Legal Proceedings

• Stateline Operating, LLC and Stateline Royalties, LP filed suit against Solaris Water Midstream, LLC and certain affiliates and Devon Energy Corporation and certain affiliates in Loving County, Texas, District Court.
• Stateline alleges that Aris and Devons operations have harmed Statelines oil and gas leasehold interests through the injection of disposed saltwater.
• Stateline is seeking monetary damages, asserting claims for negligence, waste, trespass and nuisance.
• Following a ruling on dispositive motions, the trial court stayed the lawsuit while the Defendants pursue an interlocutory appeal.

Related Party Transactions

• The company has entered into a water gathering and handling agreement with ConocoPhillips, which owned approximately 47% of the company's Class B common stock and a 22% interest in Solaris LLC as of December 31, 2024.
• The company has an administrative services arrangement with SEM, a company owned by William A. Zartler, the company's Founder and Executive Chairman, for the provision of administrative services at cost.
• There are certain de minimis general and administrative expenses that are paid on the company's behalf by Solaris Energy Capital, LLC, a company owned by William A. Zartler.
• There are general and administrative expenses that are paid on the company's behalf by Solaris Energy Infrastructure, Inc, a company owned by William A. Zartler.
• The company is a party to an aircraft dry lease arrangement with Blanco Air Services, LLC, a company owned by William A. Zartler, for the use of certain aircrafts billed at an hourly rate.
• The company purchases brackish water for use in its Water Solutions activities from Vision Resources, Inc, a Legacy Owner of Solaris LLC.

Stakeholder Impact

• Shareholders will benefit from increased earnings and potential future dividends.
• Employees may benefit from career development programs and equity incentive plans.
• Customers will benefit from reliable and sustainable water solutions.
• Local communities will benefit from reduced GHG emissions and traffic congestion due to the company's pipeline infrastructure.

Next Steps

• The company intends to continue to pursue accretive growth projects that meet its return thresholds and strategically improve the value of its assets.
• The company plans to evaluate and strategically pursue acquisitions that create synergies, strengthen its relationships with existing and prospective customers and meet its financial return thresholds while maintaining significant balance sheet flexibility.

Key Dates