WaterBridge Resources LLC

WaterBridge Resources aims to be the premier pureplay midstream water business by growing its best-in-class water operations and assets.

Seven years ago, David Capobianco and his firm, Five Point Energy, foresaw both the need and opportunity to handle water using a midstream approach supported by long-term contracts. This vision was shared by Stephen Johnson, who had run the production completion services divisions for Nabors Well Services. In that capacity, Johnson oversaw an inefficient system of 1,500 water trucks in 15 different states, where logistics were getting in the way. Together with Five Point Energy, Johnson formed WaterBridge Resources in late 2015. Only three years later and WaterBridge has established itself as the largest private water midstream company in North America and a pioneer of the rapidly growing industry.

WaterBridge is now leading the emergence and evolution of the midstream water sector in the energy market. The company is succeeding in this venture by providing best-in-class, long-term water management solutions for the E&P industry through its integrated pipeline networks for produced water, transportation, disposal, supply and recycling. By maintaining socially and environmentally responsible operations, WaterBridge strives to deliver industry-leading reliability, safety and efficiency for its customers.

“Five Point and I realized that the water needs to be managed by an integrated network of permanent pipelines and water handling facilities” he explains. “We knew there was a better solution than what was happening, and thought the industry needed a pure-play midstream water company building these next-generation water management networks. While most folks were focused on gathering and processing for oil and gas, we set out to build a state of the art business focused exclusively on water. We would replace the trucks with pipes, and adopt the business model of a midstream company – with long-term contracts, dedicated customers, dedicated acreage and dedicated partners – instead of an energy services model. We only construct projects if underpinned by long-term contracts and through our strategy have amassed 630,000 dedicated acres from approximately 20 E&P customers to date, with an average tenor for those contracts of more than 12 years.”

Dramatic Growth
Over the last few years, the WaterBridge team has designed, constructed and implemented first-of-its-kind, large-scale infrastructure networks to handle water production from multiple E&Ps – with leading footprints in the southern part of the Delaware Basin (in west Texas) and southeast Oklahoma. The company’s in-ground pipelines connect producing wells with water-handling facilities. WaterBridge owns and operates more than 1.3 million barrels per day (bpd) of produced water disposal capacity that is connected via 600 miles of pipeline. Johnson estimates 50 percent of its assets have been acquired from E&P companies and the other half are greenfield assets. Acquired assets are typically proximate and complementary to WaterBridge’s existing pipeline systems, allowing WaterBridge to reconfigure, expand and seamlessly integrate those facilities into its networks.

“We’re doing the transportation, water handling and supply of water,” Johnson says, noting best-in-class operations are the team’s promise. “It all starts with people. We always try to hire the best-quality people we can find, and I have the finest management team in the office and in the field as there is in the business. Without a doubt, we are growing rapidly and strategically with a tremendous runway; we started with six partners and now we have 130 employees, and that is dramatic growth for being in business for only three years. We also benefit greatly from the support and guidance we receive from Five Point Energy. There is no private equity firm out there who better understands the value proposition of efficient midstream water services. To date, Five Point has invested over $1 billion of capital into water midstream infrastructure.”

It helps that Johnson and the principals of Five Point have extensive backgrounds in the midstream and E&P worlds and know how to speak that language. They know what it means to trust someone with your water and midstream infrastructure rights, and what all of that requires. Being chemically and environmentally viable are extremely important aspects of the work, but WaterBridge aims to bring even more to the table.

As Johnson noted, “WaterBridge and its founders have nearly 100 years in this business with really strong reputations, and that is a starting point, but in this business you are only as good as the job you did yesterday,” he says. “You have to focus on high-quality processes, the best facilities and top-quality materials. We use a lot of stainless steel so our operations are corrosion-resistant, which is very expensive but also very necessary. Additionally, we offer 24-hour coverage and a 24-hour operation, so we can monitor every well, running manually or automated.

“All of the wells we serve are interconnected on our full network,” he adds. “This gives our customers optionality and assurance that we can handle their water without shutting it in. This is very critical infrastructure to have in place and the flow certainty we provide is of the utmost importance to our customers.”

Executing a Strategy
A pure-play midstream water company is a new type of operation for the oil and gas markets. While other players exist and more may crop up eventually, WaterBridge is happy to have pioneered this venture and to have established an enviable leadership position with marquee partnerships and projects.

In January, the company entered into a long-term produced water management services agreement with and acquired the produced water assets of COG Operating LLC, a subsidiary of Concho Resources Inc. As a result, WaterBridge will manage all of Concho’s produced water transportation and disposal to the dedication of operated acres and any future acreage operated by Concho within an 800,000-acre area of mutual interest in the Reeves, Pecos and Ward counties of Texas. In recent months, WaterBridge has completed similar acquisitions of assets from Halcon Resources Corp., NGL Energy Partners LP, and Luxe Energy LLC.

These transactions are in addition to all the work WaterBridge did in 2018 to develop the largest integrated water management network in North America. The company designed and constructed [20] water handling facilities and nearly [200] miles of pipeline during the year, while also permitting and scoping over $200 million of organic projects scheduled for the first half of 2019.

David Capobianco of Five Point Energy noted, “Market dynamics are very much in WaterBridge’s favor. E&Ps have focused on cutting costs over the past few years due in large part to commodity pricing. Water handling is typically the greatest portion of an E&P’s cost structure to produce wells and public capital markets are now forcing producers to spend within their operating cash flow. As a result, E&P’s have constrained access to capital and must focus their budgets on drilling new wells. WaterBridge provides the perfect solution in this environment to construct capital-intensive water projects on behalf of the producers while allowing them to reduce operating costs. This is critically important as E&Ps are drilling longer lateral wells and using more water in their well completions than ever before. Over a short period of time, WaterBridge has become the trusted go-to for outsourcing water management.”

We are growing all the time,” Johnson says. “In 2018, we more than tripled our volume of water, more than tripled the number of assets in the ground and we do not plan on slowing down. There is a large market out there, and our goal is to be the No. 1 in any area in which we operate. If we are No. 2, we need a clear vision on how to be No. 1.”

Working to be the best pureplay water company in the sector, WaterBridge plans to remain focused on the water business, expanding to offer any service related to water that clients require. Johnson notes a lot of midstream companies are in five or six lines of business, but that’s not the plan for WaterBridge.

“We are a pioneer in this water midstream industry and it’s not a sideline business for us – it’s our only business,” he says. “We are building fully integrated water systems, and those systems are supported with long-term strategic relationships with E&P companies. We assembled the best team – many people who we’ve known for 20-plus years – and we systematically executed a strategy to be the largest and most effective midstream water company. As a pioneer, we will help the industry define operational norms and ultimately grow to be one of the top majors in the industry. The opportunity is that large.”