10-K: Select Water Solutions Reports 2024 Results, Highlights Strategic Acquisitions and Sustainable Water Management Focus

Select Water Solutions' 2024 10-K filing reveals a focus on sustainable water management, strategic acquisitions, and navigating a complex energy landscape.

Summary

• Select Water Solutions, Inc. filed its 10-K report for the year ended December 31, 2024.
• The company focuses on providing sustainable water-management solutions to the energy industry.
• In 2024, Select executed strategic business combinations and asset acquisitions totaling approximately $163 million.
• These acquisitions expanded the company's water infrastructure and service capabilities in key regions like the Haynesville, Permian Basin, and Rockies.
• Despite volatility, oil prices remained relatively stable at around $77 per barrel for WTI crude, while natural gas prices averaged near $2 per MMBtu.
• The company is committed to a corporate strategy that supports the long-term viability of its business model, focusing on stakeholders, including people, customers, the environment, and communities.
• Select operates through three segments: Water Infrastructure, Water Services, and Chemical Technologies.
• The Water Infrastructure segment focuses on recycling, gathering, transferring, and disposal of water.
• The Water Services segment provides services needed to support new well completions and ongoing production.
• The Chemical Technologies segment develops, manufactures, and provides chemicals used in hydraulic fracturing and well completions.
• The company emphasizes water recycling and reuse to reduce reliance on freshwater and minimize wastewater disposal.
• Select is committed to environmental consciousness, health and safety, human capital management, and community outreach.
• The company maintains a culture of safety and has a Safety Recognition Program to acknowledge employees' commitment to safety.
• Select offers a competitive benefits package and the Select Family Fund to support employees' well-being.
• The company recognizes the importance of a diverse workforce and is committed to conducting business in a manner that respects all human rights.
• Select operates four landfill and solids treatment facilities strategically positioned to support customers' waste management needs in the Bakken and Northeast regions.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company highlights strategic acquisitions and a focus on sustainable water management, it also acknowledges challenges such as dependence on industry cycles, economic uncertainties, and regulatory risks. The financial results show a decrease in revenue and net income, but EBITDA and Adjusted EBITDA remained relatively stable.

Positives

• Strategic acquisitions expanded water infrastructure and service capabilities.
• Focus on long-term contractual agreements provides stable revenue streams.
• Emphasis on water recycling and reuse promotes environmental sustainability.
• Technology solutions enhance operational efficiency and reduce environmental footprint.
• Commitment to safety and employee well-being fosters a positive work environment.
• Expansion of solids management capabilities provides additional service offerings.
• The company has a strong company culture including commitments to all stakeholders, and we aim to create a work environment that fosters a diverse and inclusive company culture.

Negatives

• Dependence on capital spending by the oil and gas industry makes the company vulnerable to industry cycles.
• Geographic concentration in the Permian Basin exposes the company to regional risks.
• Restrictions on water procurement or changes in disposal requirements could increase costs.
• The IRA 2022 could accelerate the transition to new energy sources and impose new costs on customers.
• Cybersecurity risks could lead to information theft, data corruption, and operational disruption.
• The company may be unable to implement price increases or maintain existing prices on its core services.
• The company may be subject to claims for personal injury and property damage.

Risks

• Reductions in capital spending by the oil and gas industry could negatively impact liquidity and financial condition.
• Political instability or armed conflict in crude oil or natural gas producing regions could disrupt operations.
• OPEC+ policy decisions could impact oil prices and demand for services.
• Failure to successfully integrate acquired assets could hinder realization of anticipated benefits.
• Restrictions on water procurement or changes in disposal requirements could add costs or decrease demand.
• The IRA 2022 could accelerate the transition to new energy sources and impose new costs on customers.
• Cybersecurity risks could lead to information theft, data corruption, and operational disruption.
• Technology advancements in well completion could reduce demand for services.
• Uncertainty in global financial markets and economic downturns could negatively affect customers and operations.
• Seasonal weather conditions and natural disasters could disrupt operations.
• The company may be unable to implement price increases or maintain existing prices on its core services.
• The company may be subject to claims for personal injury and property damage.
• The company may be unable to finance future growth of its operations or future acquisitions.
• The growth of the company's business through acquisitions may expose it to various risks.
• The company may be required to take write-downs of the carrying values of its long-lived assets and finite-lived intangible assets as well as the carrying value of goodwill.
• The company may be unable to effectively compete if its competitors substantially increase the resources they devote to the development and marketing of the services that it offers, or substantially decrease the prices at which they offer their services.
• The company's operations involve risks that may increase its operating costs, which could reduce its profitability.
• Delays or restrictions in obtaining permits by the company for its operations or by its E&P customers for their operations could impair its business.
• The company is implementing a new enterprise resource planning system, and challenges with the implementation of the system may impact its business and operations.
• The company may be adversely affected by uncertainty in the global financial markets and a worldwide economic downturn.
• A significant increase in fuel prices may adversely affect the company's transportation costs.
• The company's industry typically experiences a high rate of employee turnover.
• Disruptions in production at the company's chemical manufacturing facilities may have a material adverse impact on its business, results of operations and/or financial condition.
• Unsatisfactory safety performance may negatively affect the company's E&P customer relationships and, to the extent it fails to retain existing customers or attract new customers, adversely impact its revenues.
• Constraints in the supply of equipment used in providing services to the company's customers and replacement parts for such could affect its ability to execute its growth strategies.
• Significant price volatility or interruptions in supply of the company's raw materials for its chemicals business may result in increased costs that it may be unable to pass on to its customers, which could reduce profitability.
• Laws, regulations, executive actions and other regulatory initiatives in the U.S. relating to hydraulic fracturing could increase the company's costs of doing business and result in additional operating restrictions, delays or cancellations in the drilling and completion of oil and gas wells, or possible restrictions on the performance of hydraulic fracturing that may reduce demand for its services and could have a material adverse effect on its liquidity, results of operations and financial condition.
• The company's and its E&P customers' operations are subject to a number of risks arising out of the threat of climate change, energy conservation measures or initiatives that stimulate demand for alternative forms of energy, which could result in increased operating and capital costs for its customers, restrictions on drilling for its customers and reduced demand for the products and services it provides.
• The company's chemical products are subject to stringent chemical control laws that could result in increased costs on its business.
• In the future, the company may face increased obligations relating to the closing of its wastewater disposal facilities and may be required to provide an increased level of financial assurance to guarantee that the appropriate closure activities will occur for a wastewater disposal facility.
• State and federal legislation and regulatory initiatives relating to the company's disposal operations and seismicity could harm its business.
• Changes in U.S. and international trade policies, such as the imposition of tariffs, particularly involving China, may adversely impact the company's business and operating results.
• Changes to applicable tax laws and regulations or exposure to additional tax liabilities could adversely affect the company's operating results and cash flows.
• 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.
• The Endangered Species Act and Migratory Bird Treaty Act govern both the company's and its E&P customers' operations and additional restrictions may be imposed in the future, which constraints could have an adverse impact on its ability to expand some of its existing operations or limit its customers ability to develop new oil and gas wells.
• Investor attention to ESG matters may impact the company's business.
• The company may not be able to continue to pay or maintain its cash dividends and the failure to do so may negatively affect its share price.
• If the company fails to maintain and enhance an effective system of internal controls, it may not be able to accurately report its financial results or prevent fraud.
• The company may incur indebtedness or issue additional equity securities to execute its long-term growth strategy, which may reduce its profitability or result in significant dilution to its stockholders.
• The company's Sustainability-Linked Credit Facility subjects it to various financial and other restrictive covenants.
• Future sales of the company's equity securities, or the perception that such sales may occur, may depress its share price, and any additional capital raised through the sale of equity or convertible securities may dilute your ownership in it.
• Provisions in the company's amended and restated certificate of incorporation and amended and restated bylaws and Delaware law may discourage a takeover attempt even if a takeover might be beneficial to its stockholders.
• The company's amended and restated certificate of incorporation contains a provision renouncing its interest and expectancy in certain corporate opportunities, which could adversely affect its business or prospects.
• The company may issue preferred stock whose terms could adversely affect the voting power or value of its Class A common stock.
• The company's amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could limit its stockholders ability to obtain a favorable judicial forum for disputes with it or its directors, officers, employees or agents.
• The company is a holding company. Its sole material asset consists of SES Holdings LLC Units, and accordingly, it is dependent upon distributions and payments from SES Holdings to pay taxes, pay dividends, make payments under the Tax Receivable Agreements and cover its corporate and other overhead expenses.
• The company will be required to make payments under the Tax Receivable Agreements for certain tax benefits it may claim, and the amounts of such payments could be significant.
• In certain cases, payments under the Tax Receivable Agreements may be accelerated and/or significantly exceed the actual benefits, if any, it realizes in respect of the tax attributes subject to the Tax Receivable Agreements.
• If SES Holdings were to become a publicly-traded partnership taxable as a corporation for U.S. federal income tax purposes, the company and SES Holdings might be subject to potentially significant tax inefficiencies, and it would not be able to recover payments previously made by it under the Tax Receivable Agreements even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
• The company's ability to use certain of its current and future net operating loss carryforwards may be limited and could adversely affect its operating results and cash flows.
• The company may not be able to finance future growth of its operations or future acquisitions, which could adversely affect its operations and financial position.
• The growth of the company's business through acquisitions may expose it to various risks, including those relating to difficulties in identifying suitable, accretive acquisition opportunities and integrating businesses, assets and personnel, as well as difficulties in obtaining financing for targeted acquisitions and the potential for increased leverage or debt service requirements.
• The company may be required to take write-downs of the carrying values of its long-lived assets and finite-lived intangible assets as well as the carrying value of goodwill.

Future Outlook

The company anticipates a continued emphasis from customers on sustainable production growth in 2025, with operators balancing output increases against market demand and environmental considerations.

Management Comments

• The company believes that the new presidential administration will provide regulatory tailwinds for the industry.
• Management believes that the new presidential administration will provide regulatory tailwinds for the industry.

Industry Context

The oil and gas industry in 2024 continued to navigate a complex landscape shaped by global economic factors, geopolitical tensions, and evolving energy policies.

Comparison to Industry Standards

• The document does not contain specific comparisons to industry standards or benchmarks.
• The document does not contain specific comparisons to industry standards or benchmarks.

Management Changes

Legal Proceedings

• The company is named defendants in certain lawsuits, investigations and claims arising in the ordinary course of conducting its business, including certain environmental claims and employee-related matters.

Related Party Transactions

• During the year ended December 31, 2024, sales to related parties were $0.7 million and purchases from related-party vendors were $24.7 million.
• The company has recognized a liability associated with the Tax Receivable Agreements as of December 31, 2024 and December 31, 2023 of $38.5 million and $38.2 million, respectively because the likelihood of a payment to be made under the Tax Receivable Agreements has been determined to be probable as of both December 31, 2024, and December 31, 2023.

Stakeholder Impact

• The company's performance and strategic decisions impact shareholders, employees, customers, suppliers, and communities in which it operates.
• The company's commitment to sustainability and responsible water management affects the environment and communities.
• The company's ability to adapt to regulatory changes and market conditions influences its long-term viability and stakeholder value.

Next Steps

• The company will continue to monitor the evolving regulatory landscapes, especially concerning emissions and water management.
• The company intends to finance most of its capital expenditures, contractual obligations and working capital needs with cash on hand, cash generated from operations and borrowings under its Sustainability-Linked Credit Facility.

Key Dates