Select Water Solutions, Inc. EnerCom Denver – The Energy Investment Conference

Hey, everybody. First of all, I'm going to introduce myself. I'm John Schmitz. I'm the Chairman, CEO, and I was the founder of the company, Select Water Solutions. It's a publicly traded company on the New York Stock Exchange. See if we run this properly. Can y'all advance to the next page? Next. Being public, the disclaimer statement, I'm going to discuss the company as it is today. We actually had an announcement this morning. We had an announcement in our quarter a couple of weeks ago. But as we know it today is what I'm going to discuss with you. Could be different tomorrow. That's the disclaimer to the public. Next page, please. Yeah, a little bit about Select. We founded the company in January of 2007. It has always been around a water solutions company to the oil and gas industry.

That has evolved, especially with horizontal technology and then the amount of water the industry is using to complete wells as well as the amount of water that is being produced as we produce these oil and gas reserves. This water is life-of-well water. It's sizable. Upper Delaware water now is six barrels of water to a barrel of oil. So that 2,000 barrel oil well is a 12,000 barrel water well as we think of it. And we really have transitioned alongside the industry as we went forward. The three segments we report on under the highest growth one is the Water Infrastructure business. That is a contracted business. That's life of well because it's the produced water that comes out with the oil and gas. It is the fastest growing segment that we have, but also the industry. It is very much in transition.

This company introduced the first recycling application in the Permian Basin, and these are contracted high gross margin sectors for us as we put this capital to work. The second one is Water Services. That's where we really started at. This is a completion service-oriented segment for us. As you complete the well, you use large quantities of water. We provide the mechanism to get that water to the well site, to the frac crew, and frac the well. The third segment is our Chemical Technologies segment. We have technology that we use chemistry to treat water to make it usable to frac with, and then we use chemistry actually with the water to frac the well. And that's how we report under the three segments. You'll go to the next slide, please.

This is a very illustrated position of what Water Infrastructure looks like, especially in the Recycle First application. So we introduced Recycle First about six years ago in the Permian, north of Midland, Texas. It was a fixed facility with large containment that took produced water. Instead of disposing of that produced water, it treated the water and made it usable to frac with. This segment continues to grow. It's where all our capital has went in the last six years. The other two segments actually are really high free cash flow conversions, and we used a lot of that profit to invest in this segment. So you can see the growth in Water Infrastructure and the gross margin enhancement that it's bringing to the company. The volumes continue to increase. We're up to about 1.5 million barrels of produced water that we're managing daily now.

The Chemical Technologies, again, when you're using produced recycled water to frac with and you're not using fresh water, you're starting to put chemistry that's specialized chemistry instead of commoditized chemistry. We have a chemical plant in Big Spring, Texas, that we batch up chemistry matched to that water that's been recycled and needs to be reused to complete the well. The EBITDA growth of the company, our quarter that we just announced and had our earnings call around was $93 million. That's a high point for the company. We guided to a stronger quarter in the coming quarter, and then we've announced a project with the quarter, and then we had one this morning that we announced. It's a big project contracted.

There's a lot of growth behind these numbers that's still coming as we build these systems out, lay new pipelines, build new plants, and hook up more disposal. We're definitely on track to hit what we guided to as far as the Water Infrastructure growth. We'll get to the slide, but really, we pulled 2027 into 2026. We're where we thought we would be and where we guided to for next year. We've added a considerable amount of backlog now since that point in time. Next slide, please. The company, again, came from water completions. It's really the left side of the page. We sourced water back when the industry was using fresh water. We were the largest fresh water source across the U.S. for frac purposes. We move it, we contain it, we treat it, and we deliver it into the frac horsepower.

We deliver our chemistry with it into the frac horsepower. But we introduced about six years ago, really the right side of the page, which is Recycle First, dispose second. So we build recycling facilities, repurpose that water to the upside, and bring it back to the front of the frac job and complete new wells with recycled produced water. We do dispose of water. There's more water produced than water needed to frac with. So there is still a need to dispose. But whereas the industry was disposing only before, six years ago, we introduced this concept of repurposing the water, recycling it, completing new wells with it. But still, there is a need for disposal. You'll see on the top right-hand side of the page, beneficial reuse. So we put in large quantities of recycle facilities with large quantities of storage.

This water is treated to get ready to frac with it again. But we now have actually treating the water on pilot program. We did it last summer with a large E&P partner. We actually grew crops with it. So we're trying to take it to the next step of repurposing a portion of the water instead of disposing of it, to either use it in industrial uses or agriculture uses, instead of disposing of it. Next page, please. This is our journey. As I said, I started the company in 2007. It was always a call-out service business around completion activity in the Lower 48. But we really started to try to transition the company in 2019. Logically, 2020 gave us what the COVID gave us all, and it really ramped up in coming out of COVID, out of the pandemic, and started hitting its strides in 2023.

It has really transitioned the company from a heavily weighted 80% call-out service business that is 22%-23% gross margins all the way over to, it says future states, but if you look at the numbers I will show you, our quarter just hit those numbers. This company is now heavily weighted to Water Infrastructure, fully contracted. That gross margin went from the low to mid-20s up to 50%-60% gross margins. It is contracted in its life well because it is the produced water that comes out with the oil and gas. That is the road that we have now traveled. Next page, please. The road keeps getting bigger, really in the Upper Delaware, where I will show you our really number one asset within the company. Water Infrastructure revenue continues to grow. Gross profits continue to enhance themselves.

Produced water recycle volumes, how much we can repurpose to reuse, and then the disposal volumes, that is the excess water, continue to grow as well. So, a good growth profile to the business model. Next page, please. This is the size of the catch, if you will. So in that we go across all the U.S. We are in all the major unconventional bases. We have now recycling capacity of about 2.8 million barrels per day. We have mobile capacity about 500,000. We have 118 different disposal sites across the U.S., over 1,000 miles of pipe. Our storage capacity, which is a really important piece of it because you are always solving for water long and water shorts. Some customers could be long water, and they are disposing of that water right now.

If they take that water to a recycling company, they can take that water to recycle at about a 30% discount than it is going to cost them to dispose of it. Then you have the other side of that equation, which who is short water, who is completing wells, who needs water. If they get that water from a recycling facility, it is probably going to be way more logistically correct, but most importantly, it is about 30% cheaper than if they source a barrel that is not recycled. So that storage capacity and swing is very important. Our contracts are underwritten with dedication. We do not build projects unless we have a dedicated contract. Usually, we try to get a four-year cash on cash. We use about 50% of the capacity of the plant or the pipe, and then we try to commercialize the other one to improve our payback.

Again, that is about a 50%-60% gross margin segment for us. We now have about 2.5 million acres across the U.S. under dedication. If you look at the core asset that I will show you is the Northern Delaware asset. About 1.7 million of that 2.8 million in it, about 400 miles of the pipe is in it, about 1.5 million of the dedication acreage, which is very important in the 29 million barrels of storage that I described as abilities to actually balance water across the needs of the customers. Next page. Why the Upper Delaware? One, as the U.S. and the shale plays have been developed and continue to produce, but on a depleted basis.

A lot of the depletion in the barrels are water ratios that are one barrel of water to one barrel of oil or 3 barrels of water to one barrel of oil. Upper Delaware, which you can see on the left side of the upper right-hand chart, is where all the sticks of undrilled acreage is. That acreage is 6 barrels of water to one barrel of oil. In a way, even if you went into a decline in oil, water is still going to continue to grow. We also believe the Upper Delaware acreage, Eddy and Lea County, New Mexico, where those sticks are, our undrilled inventory is some of the best economics in the U.S. as far as return on capital for drilling and completing these wells. It is a growing problem because it is 6 barrels to one. It is where the inventory is.

It is where the drilling rigs are running. The opportunity or the solution needed fits us really well, and our position that we put together in the Upper Delaware is kind of unique. Next page, please. This is the problem. The dark blue and the light blue is disposal capacity and recycling capacity in the Upper Delaware. The green line is the water volumes. Right now, the delta is getting solved by moving water primarily into Texas. You read a lot about seismicity on the New Mexico-Texas state line. That is that wall of water that continues to try to find a home and a solution to it. We believe that our network and our concept of business being Recycle First is a very big solution to the producers to solving what is a pretty big water problem as they drill that acreage and develop those assets.