3 Things to Watch When Heckmann Reports
May 7th 2013 3:17PM
Updated May 7th 2013 4:30PM
Environmental solutions provider Heckmann is set to report earnings on May 8. This could very well be the company's last report under the Heckmann name, as the company is planning to transform its brand into Nuverra Environmental Solutions pending a shareholder vote. While the name might be changing, the business of providing a full-cycle water solution to oil and gas producers is still in its early stages of growth. With that as a context, let's take a look at what to expect from the company this quarter.
Inside the numbers
Analysts expect Heckmann to lose a penny a share in the quarter on revenue of $166.9 million. While that would represent positive momentum from the $0.03 loss in the year-ago quarter it would be taking a step back from the surprise gain the company reported last quarter. While hitting these numbers will be important to keep shares from slipping, forward guidance and future growth are what investors really need to watch.
Updates on its growth plan
Heckmann made a big splash last year by merging with Power Fuels to gain access to the Bakken. Not only did the deal expand the company's footprint to cover nearly all the major shale plays, but it enabled founder Richard Heckmann to transition out of the CEO role and focus his attention on growing the business. It will be important to see what the company plans on doing next as it continues to expand its business. The company has a bold goal to deliver a billion dollars in annual revenue and its Richard Heckmann's job to deliver on that promise.
Heckmann and his namesake company face a number of challenges as he looks to grow the business. Topping the list are financially strapped production companies that don't want to spend extra for Heckmann's premium services. Many operators are turning to drilling disposal wells instead of having produced water treated and recycled. SandRidge Energy for example has spent more than half a billion to drill disposal wells to cut its costs in developing the Mississippi Lime formation. This has cut the company's lease operating expense by $2 per produced barrel of water; it's cut its trucked volumes from 6% to less than 2%.
Another area to watch is in competition from oil-field service companies like Halliburton . The company's new CleanWave water treatment service trucks could be game changing in that it is simply reusing produced water at other wells without trucking it away for treatment. If this technology is as good as Halliburton thinks it could be, it could cause big problems for Heckmann's growth aspirations.
Heckmann's ability to promote its full-cycle environmental solution will be a key to its ability to grow. The company will need to continue to expand the services that it provides producers to meet growing environmental needs, as well as make its services more more than just commodity offerings. It will be interesting to see if Heckmann announces any plans about what its doing next to continue its growth trajectory.
Any adjustments on its outlook?
In its last quarterly conference call Heckmann CFO Jay Parkinson noted that the company expects its business this year to be back-half weighed. Look to see if the company still believes that drilling activity will still steadily ramp up throughout the year. Any negative change to its forecast that suggests drillers are being more cautious could really hit shares hard. Meanwhile, any talk that drillers are considering dry natural gas drilling projects now that prices are higher could provide a big boost to Heckmann's share price.
Foolish bottom line
Heckmann is a great company to follow because it's in the trenches, so to speak. It works hand in hand will drilling companies, so it will see changes to the industry before the rest of the market picks up on them. Finally, Heckmann's unique full-cycle environmental solution is an important one for the industry to embrace as it takes steps to "green" the fracking process to make it more acceptable to the general public.
Along with Heckmann, oil-field service giant Halliburton is also making great strides in making the fracking process more environmentally friendly. Investors would be wise to consider digging deeper into Halliburton, one of the top companies in the business, and getting to know more about this service provider. To access The Motley Fool's new premium research report on this industry stalwart, simply click here now and learn everything you need to know about how Halliburton is positioning itself both at home and abroad.
The article 3 Things to Watch When Heckmann Reports originally appeared on Fool.com.Motley Fool contributor Matt DiLallo owns shares of Heckmann. Matt DiLallo has the following options: Short Jun 2013 $4 Puts on Heckmann. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Heckmann and has the following options: Long Jan 2014 $4 Calls on Heckmann and Short Jan 2014 $3 Puts on Heckmann. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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