Hydraulic fracturing, also known as fraccing, has revolutionized the oil and gas industry. The process consists of freeing oil and gas from shale rock deposits by injecting water combined with additives under high pressure into the ground. A horizontal well is basically drilled into a geological formation and completed by multi-stage fracturing (fracking) in order to crack open the shale rocks.
This revolution gave birth to a multi-billion dollar market segment in oilfield services for fluid handling and treatment.
Fracking a well involves anywhere from 2 to 6 million gallons water. Prior to completing a well you need to transport and hold huge volumes of fresh water on the site. After fracking that same water flows back contaminated through the well with dissolved constituents such as minerals and brine waters.
The traditional approach for companies was to use lined pits for holding the water required to frack. This widely used method suffers from several drawbacks in terms of environmental protection and ground contamination. Tank farms has also been a solution but it’s expensive and suffers from a high carbon footprint.
The oil and gas industry is shifting its focus dramatically to unconventional resource plays. Horizontal drilling and fracturing services intensity is expanding.
The number of horizontal wells drilled in both the US and Canada has seen exponential growth in the past few years. More than 60% of all wells drilled in 2012 are horizontal wells completed with multi-stage fracking.
That can only translate into higher profits as the need for fluid handling solutions follows.
There’s a lot of water to treat and handle. Water requirements for the fracking industry have gone through the roof. As such a very profitable niche has emerged in the modular fluid handling. Poseidon Concepts came up with a unique solution by renting large above ground swimming pools.
No more lined pits or steel tank farms. Poseidon requires 2 trucks to deploy a similar capacity to 50 truckloads of tank farms. That’s up to 70% in winter or 40% in summer savings on fluid management per well site.
Poseidon Concepts PSN.TO $0.00 [N/A] enjoys an early mover advantage with a tank fleet of over 500 units anticipated by year end. This figure only represents a tiny portion of the fluid storage market.
The pie is huge and the profit margins are healthy so it’s only natural for other companies to enter the market.
…And this is where Strad Energy Services SDY.TO $3.51 [-0.13] comes in.
This profitable energy services company has designed and built fluid handling products of its own. The same renting model is being established with a first set of customers.
Nothing beats a visible recurring stream of cash flow.
Strad Energy Services is a company with a diversified revenue stream that offers investors a grass roots opportunity to capitalize on the evolving fluid handling market. The company is working hard to capture market share for its Ecopond new line of products. The potential upside in share price appreciation is considerable.
In the case of Poseidon, it already has an established market share. The company built a strong brand and reputation with customers. Contrary to Strad, it is working hard to diversify its service offering so as not to be perceived as a one trick pony. The company is making strides in the fluid management sector with new product offerings in the pipe and signing a first international customer.
Strad enjoys a healthy balance sheet and investors are rewarded with a sustainable dividend funded from internally generated cash flow. Both companies enjoy significant growth potential through further market penetration.
Drought conditions, tightening regulations and public concerns regarding intensive trucking operations are contributing to a growing adoption rate. Compared to traditional lined pits and steel tank farms, these rental above-ground pools are environmentally and regulatory friendly that can also save producers money on logistics and transportation.
Finally, Strad is not the only competitor in the game. A host of oilfield services companies are also emerging: Black Diamond, Mullen Group, Ridgeline Energy Services, Secure Energy Services and Total Energy Services are planning to enter or have entered the market.