Less than two (2) years ago, more than 1,800 rigs were running in the United States. More than half were turning to the right in Texas alone. This large number of rigs meant a plethora of waste water was generated for disposal. This level of activity provided a steady supply of oil-rich flowback water for nearby saltwater disposal (SWD) wells. As the level of new well completions rose, so did the number of available disposal wells. All competing for precious market share. The demand was high and cash-flow hungry investors like private equity groups were acquiring saltwater disposal wells by the droves. Historically, SWD’s were trading as high as six and even ten times earnings. Disposals which cost three to five million ($3-5M) to build sold for as much as twenty million ($20M) or sometimes more providing impressive return on investment. Today, with oil prices at or below $30 per barrel, disposal operators have been forced to reduce tipping fees plus there simply isn’t enough water to go around causing a significant decrease in profitability. The pain caused by the current recession is shared across the entire energy spectrum. Many disposal companies are currently operating in the red and do not have sufficient resources to cover operating expenses for the next 12-24 months. Each of these factors combined create an opportunity for buyers/investors to acquire SWD assets for less than replacement value. If buyers are patient, they will be in a strong financial position when commodity prices rise to $50 or $60 per barrel. When this happens, rig activity will resume and investors will reap the rewards.
