Future Looks Good for Freestone
Those wishing for expansive numbers and details from the new 10-Q to guide their perspectives on the present and future viability and profitability of Freestone Resources should be disappointed. But those of us who closely follow the company and conduct extensive and detailed diligence regarding all matters that presently and will in the future affect corporate earnings, take no concerns. We are encouraged.
As clearly stated by company management, Freestone, with its one-third share of the Aqueous Solutions joint venture, already (a) has access to a large, deep water well in the Eagle Ford drilling area, (b) (more importantly), has state extraction rights for massive amounts of freshwater from this well, (c) has a giant water-demanding market close at hand, with many dozens of new Eagle Ford wells on the boards, each requiring an average of over 4 million gallons of frack water (hard to acquire in this dry part of Texas), and (d) has pumps, pipes, and tanks in construction for a soon-to-be-completed water “load out facility.”
Operation costs of the new load out facility will be minimal; just fuel costs to run the pumps and personnel to attach fill pipes and collect fees.
Others should do their own projections on the range of revenues that will come to Freesone from these initial water sales. Factors to include in your projections include, (a) number of gallons or barrels to be purchased for each new Eagle Ford well, and (b), Aqueous Solutions’ sales price. I’ve personally done my own calculations using these, and other factors, and even at the very lowest sales volumes, at the lowest anticipated prices, Freestone very quickly (in a month or so) becomes a profitable concern.
But every detailed examination of each water sales production scenario leans strongly to very high-end and profitable outcomes. I do not discount any of these controlling factors: (a) massive numbers of new Eagle Ford wells to be drilled in the next year within a 100-mile radius of the Aqueous Solutions load out facility, (b) essentially unlimited amounts of withdrawn water for sale, and (c) increasing local water prices as local frackwater sources are limited and exploited by an expanding water demand market.
Those factors, alone (even before the release of the 10-Q), point to Freestone’s imminent and significant profitability.
But I certainly do not discount the company’s goal to be a complete water resources service, to include, as mentioned in the 10-Q, “a designated location for the recycling [of] frac water and produced water.”
With that, Aqueous Solutions’ revenues will be greatly enhanced. Aqueous Solutions’ customers will be charged “coming (with returned water for processing and/or disposal) and going (for water taken in trucks out the gate).” Charges for water leaving the facility. Charges for water coming back for recycling or disposal. Those who have done their homework on horizontal fracturing are aware of the magnitude of the water acquisition, recycling, and disposal problems of this oil and gas production method.
Freestone and Aqueous Solutions are in the right spot (the Eagle Ford), at the right time (with dozens of new wells to be drilled), with the right services (supply water and recycling and disposal).
Check around. See what other firms will be offering to Eagle Ford drillers what Aqueous Solutions will be providing. Not much competition, in the middle of a giant market. Access to sufficient frack water is the major limiting factor for exploitation of the hydrocarbon resources of the Eagle Ford. Freestone has those resources, in abundance, and will be selling increasing volumes, at increasing prices.
Lastly, there is the still hazy prospect of new Aqueous Solutions load out and reprocessing centers at other locations in the Eagle Ford, or elsewhere.
Again I’ve punched my projected numbers for each of these scenarios. They are extremely rewarding, especially in later quarters and next year, when everything will be in full operation.
–Falconer66a
