Select Water Solutions, Inc. 17th Annual Midwest IDEAS Conference

Good afternoon. Thanks for returning after lunch. I am Sandy Martin with Three Part Advisors, and next up we have Select Water Solutions, NYSE traded, ticker WTTR, $2.7 billion market cap approximately. Today we have the pleasure of welcoming Garrett Williams, VP of Corporate Finance and Investor Relations. I will hand it off over to Garrett.

Thank you, Sandy. As Sandy mentioned, we will be talking about Select Water Solutions today. Some up-front disclaimers, there might be some forward-looking statements today that could be different tomorrow, especially in our business. Who is Water Solutions and what do we do? Simply put, Select Water Solutions is an all things water solution provider to the energy industry within an emerging platform in industrials and municipals. We operate out of three segments to deliver those solutions. One of those is the Water Infrastructure segment. This is our largest segment by profitability. Our Water Infrastructure segment is comprised of fixed assets and facilities that are contractually supported. The end consumer and customer of these services would be the E&P operators producing the oil and gas hydrocarbons. This segment is comprised of fixed pipelines, fixed disposal facilities, and recycling facilities.

We were really the pioneer in the industry of taking produced water that the industry produces in oil and gas production and reusing that. We will talk about that a little bit more in the slide deck here. Our legacy segment, and what built the business originally would be that middle segment there, Water Services in the darker blue. That is primarily a last-mile water transfer logistics business. About 60% of that business is that last-mile delivery of water to the frack site. If you think of a hub and spoke model, it is that spoke that takes that water delivery to the frack site for completion. The oil and gas industry is extremely water intensive, so these wells consume about 500,000 to 600,000 barrels of water, and we are the leading company at delivering that water to the wellhead.

Lastly, we have a large-scale chemical business in the portfolio too. That is our Chemical Technologies segment. It is a leading provider of friction reducers and surfactants to the well. These are completion chemistries that go into the proppant load when you are completing a well. It makes up about 16% of our profitability. Looking at these three segments I just referenced and talking about them in the life cycle of oil and gas and how they function, I will start at the top there and with completion. Most everyone here has probably heard about drilling a well or fracking a well to bring new production online. All of our service lines play a part in that completion and fracking phase. As I mentioned, it is a heavily water-intensive business. In a frack, the proppant load is comprised of water, sand, and chemicals.

We will be a leading provider of the water and chemical side. We do not participate in the sand side. We do not participate in pressure pumping itself. We are strictly a water solutions and chemicals provider. Once a well is producing, we will go to the bottom of the page there and focus on that production barrel. That is really where our Water Infrastructure business is focused. Our Water Infrastructure business is focused around produced water management and the management of that produced water waste stream that comes out of the oil and gas reservoir with the oil. Water coexists in the reservoir and often coexists at a higher rate in the reservoir than the oil itself. Ironically enough, in the Permian Basin, every oil well produces more produced water than it produces oil.

We are a leading company in handling that produced water waste stream, and we are the pioneer and leader in taking that waste stream, repurposing it, and finding a way to use it in the industry. Which brings us to the treatment, recycling, and back to completions bubbles here, where we take that water that was historically disposed down-hole, we repurpose it to be used in the energy industry for completing new wells. Looking at some recent highlights and a picture of one of our Water Infrastructure facilities here. The business does have a lot of momentum across all fronts here. Namely, our Water Infrastructure segment, that is our growth platform. That is where all of our growth capital is dedicated to. It is the segment of our company that is contractually supported and backed. As I mentioned earlier, it is about 50% of the company's profitability.

It also has a margin profile different than the other segments. It is about 55%-60% margin business, and it continues to see green shoots and adoption of our thesis and of that recycling platform and those services. We started the year guiding growth in that segment of 20%-25% up off of 2025. We increased that guidance to 25%-30%, and then on our most recent call, we adjusted that guidance once more to note that we expect to land on the high end of that guidance range. On the other end of the spectrum, our Chemical Technologies segment does continue to see green shoots as well, exhibited by 23% sequential growth we saw in Q2 and record high revenue of $96 million in the quarter for that segment.

All in all, that combined to provide record adjusted EBITDA for the company of $93 million in Q2, a number we think we can continue to build on as we look ahead. One thing I will just note here on that bottom right here, you see we have recycled over 1 billion barrels of produced water since 2021. As I mentioned earlier, it is a very water-intensive industry. You see an 18-wheeler going down the road. It is a fluid hauling truck. There is 140 barrels of water or fluid that can be retained in that business, and these wells that we are producing use 500,000 to 600,000 barrels of water. A 2,000-barrel oil well gives off about 12,000 barrels of produced water in the Permian Basin.

This is a scaled asset, a scaled problem, and a scaled solution that we bring to market that cannot be met with trucks and has to be met with scaled infrastructure that we'll talk about more. Quickly here, this slide is just to show water and chemistry find themselves on all sides and all aspects of oil and gas development, and we play a part in all of those roles. The one white one that we do not play is we are not a pressure pumping company. We don't wish to be. We just wish to do the water and chemicals that goes into that pressure pumping horsepower. The other thing I'll note on this slide is on the top right, you'll see a dotted line around beneficial reuse. I would consider that the next phase of development and in produced water management.

We'll talk about that one a little more, but that is taking water and treating it to a spec beyond what we do today and being able to take an industry-agnostic approach and application of that water barrel because it is a potable or distilled quality. Currently, when we treat a barrel, we get it to a spec that could be reused for oil and gas activity. It is still a heavy brine. That would take it to a true distilled quality and unlock future potential. Really, this is the main slide. If I could only do one slide for this entire deck. We are very much a company that has been in transition. We are a legacy service provider to the wellhead focused around Water Services.

We also had other business lines that were not water-related, that over a course of the last six to seven years, we have divested and purified the business around a water and chemistry thesis while also scaling that Water Infrastructure business. It's about 50% of the profitability today. We have near-term plans of getting that to 60% of the total profitability. We will do that most likely in the year 2027, and beyond that, we'd like that business to be 70% of the consolidated portfolio. As I mentioned, this business is a different margin profile business, but it also is a different business from a contractual nature. The infrastructure business is largely contracted.

The growth is driven by projects that have been contracted with operators with an average contract tenor of 11 years, and we continue to execute at a high level, add contracts, scale that business, and we've already messaged to further growth in 2027 with contracts in hand here. This just shows you that Water Infrastructure progression. We have been able to execute coming out of 2020 and really converting how the market views that produced barrel and its reuse in the energy industry.

The industry heavily used fresh water up until about the COVID timeframe. As you think of that era and moves to a more sustainable oil and gas industry, Select Water Solutions was a pioneer in taking that produced water and saying, "Could we use this barrel, treat it to a spec, add chemistry to it, and use a dirtier barrel from completions?" Over time, we were able to get that adoption with operators, E&P customers, so the Chevrons, Exxons of the world, and we were able to help them unlock the use of produced water for their completion needs, displace the use for fresh water, and also take a commercialized approach to water management in the basin. Historically, Chevron wouldn't use a produced water barrel from an Exxon. That is not the case today, and we take a commercial framework to our water recycling business.

We also have a scaled disposal business that we have alongside that's integrated together by dual pipeline systems. We've scaled this business. We will continue to scale it, and we continue to see great momentum, particularly in the Northern Delaware and Permian in general, with this recycling application. Looking at what the assets are that comprise infrastructure, as I mentioned earlier, it's a combination of fixed recycling facilities, disposal facilities, pipeline infrastructure, storage assets, and also solids management facilities. These are all integrated together, so your system will have recycling interconnected with disposal. We like to take that produced water barrel that comes from the operators, and our first thing we want to do is take that barrel and become a market maker for that barrel. We want to say, "Who's long producing water? Who needs completion water? Can we make a market across a broad swath of acreage to optimize water management in the industry?" If we can't do that, we send that barrel to disposal, so we have also a scaled disposal platform as well.