Freestone Shareholders Blog New Entry:
Aqueous Solutions Announcement
Posted on November 20, 2012 by freestoneshareholders11
We are pleased with Freestone’s recently-announced joint venture, the forming of Aqueous Solutions, LLC, along with Freestone’s one-third interest in the new company.
(Announcement here: freestoneresourcesinc.com )
The potential impact of this development is likely to remain obscured to those who do not understand the critical importance of frack water feed sources and frack water reprocessing and disposal markets as horizontal drilling and hydraulic fracturing become the dominant oil and gas production methods in North America. For most, it’s “just water,” equated with inexpensive domestic water that is literally flushed down the toilet. But such a perspective on the costs and roles that water will play in the American oil and gas future obscures the realities that the new Freestone joint venture will operate under. Those who think the new LLC is but a valueless “water play” are advised to flee any present or future interests in Freestone Resources, Inc.
On the contrary, we have done a good deal of detailed investigation into this generally obscured subject, and are certain that Freestone has intelligently entered this LLC, with a profitable future not far ahead.
Recent articles have projected North American oil and gas production—all to be a result of horizontal drilling and hydro-fracking—to soon exceed the production of Saudi Arabia. In time (and not in decades, but years—2020 or so), North America will be the majority oil and gas production area of the world. The oil and gas reserves of the US already exceed those of the Middle East, but will become available only with new horizontal drilling and hydro-fracking in “tight” shale formations. All of that will require ample water sources and frack water processing and recycling services; exactly what Aqueous Solutions, LLC will be providing.
(http://www.iea.org/newsroomandevents/pressreleases/2012/november/name,33015,en.html)
We have pondered and investigated several relevant topics of interest regarding the new LLC joint venture, laid out below.
1. Aqueous Solutions To Be Ample Frack Water Source in the Expanding Eagle Ford Drilling Area.
The announcement states that the new company will produce and provide water “from an existing equipped and permitted freshwater well on the Pajarito Ranch. The Water Right’s Agreement allows Aqueous Services the right to produce up to 1,500 acre-feet (the equivalent of 11,637,535 barrels) of fresh water per year.”
A number of cogent facts should then be understood.
First, the location of this freshwater source is favorable. The Pajarito Ranch is in Wilson County, at the heart of the Eagle Ford play, stretching across arid south Texas (http://eaglefordshale.com/news/new-eagle-ford-well-map-from-the-tx-rrc-july-2012/attachment/eagle-ford-shale-well-map-4/).
Each new hydro-fracked well requires an average of 3.5 million gallons of water (http://www.naturalgas.org/shale/waterrequirements.asp). In some areas where horizontal drilling and hydro-fracking occur, as in the high-rainfall Marcellus/Utica areas of Pennsylvania, Ohio, and New York, water is amply available. But clearly this is not the case in arid south Texas.
At a withdrawal rate of up to 11.6 million barrels per year (478 million gallons), Aqueous Solutions can provide enough initial frack water for 139 new wells. There will be many hundreds or thousands of new wells in the Eagle Ford in coming years. Water to frack them will be critical, and not cheaply or amply available. The market for Aqueous Solutions’ initial frack water product is gigantic. Premium pricing will occur. The new wells, all requiring an average of 3.5 million gallons of water at startup, are in a dry region of the country with no open streams or lakes for such supply. (http://eaglefordshaleblog.com/category/new-eagle-ford-shale-wells/)
2. Aqueous Solutions Anticipates Frack Water Recycling Services in the Eagle Ford.
The sale of ample raw water for the initial hydro-fracturing of hundreds of new Eagle Ford wells each year will be rewarding. But obtaining initial hydro-fracking water is not the only water problem drillers face—it’s just the first. After the bore is fractured with the new water, a large fraction of it is returned to the surface, as “flow back” water, opening the bore for oil and gas production.
But the flow back water is no longer “fresh.” It now has salts and minerals dissolved from the bored-through strata, along with the chemicals added to the injected frack water that facilitate oil and gas release and recovery from the now micro-fractured strata. The hundreds of thousands or millions of gallons of new flowback water from each well must be, somehow, disposed of or recycled. In most cases, this is more costly than the initial water purchase. Getting the start-water is a costly proposition in the arid Eagle Ford play. But disposing of it as flowback water is even more problematic. As announced, Aqueous Solutions intends for their clients to “promote the recycling of their produced and flowback water to advance sustainable environmental stewardship.”
Not a bad proposition: sell the pure water at the start, then charge to clean, reprocess, or environmentally dispose of it after such sales. Dollars are to be made with frack water, coming and going. Aqueous Solutions—and Freestone—will be favorably positioned in Wilson County. Lots of horizontal wells to be drilled, all needing water and recycling, in an area with little available water. (http://texasalliance.org/admin/assets/Water_and_Disposal_Issues_in_the_Eagle_Ford_by_Ivey.pdf ).
3. Aqueous Solutions Intends to Expand Services Across Continent.
The announcement’s indication of future continent-wide operations expand all of the above (centered on the Eagle Ford) to the other two gigantic new-oil plays in the US, the Bakken in North Dakota and the Marcellus/Utica in Pennsylvania and Ohio; along with potential others such as the Haynesville, Fayetteville, and Woodford plays, etc., shown here: en.wikipedia.org .
The Bakken Formation phenomenon is very similar to the Eagle Ford, existing in a dry climate. Water access and conservation use are critical in both areas. If Aqueous Solutions is able to set up frack water reprocessing stations in North Dakota, revenues will be substantial.
Over the Marcellus and Utica Formations in Ohio and Pennsylvania, as mentioned, acquiring sufficient raw start-water for hydro fracking is not a significant problem. But safely and legally getting rid of it, or reprocessing it, is. In fact, the safe disposal or recycling of flowback and process frack water is the primary concern and objection to expanded exploitation of the remarkable hydrocarbon resources in the Marcellus and Utica Formations. The “make-news” press or media prefer to claim that the greatest environmental problem with fracking in Ohio and Pennsylvania is pollution of groundwater by frack water around bore holes. But new drilling regs in Ohio, and closer scrutiny of drilling operations in Pennsylvania, obviate frack water escapes into aquifers. Groundwater pollution by escaped frack water is simply a non-problem. But disposal or recycling of flowback and process frack water is a continuing problem in those states. It’s not minor or incidental. It’s critical to the exploitation of tight shale hydrocarbon resources.
Current solutions are expensive. In most cases, flowback and process water is disposed of by hauling it away from the well head and disposing of it by pumping it down many thousands of feet in distant, regulated (and expensive) injection wells. In Ohio, there is a giant porous sandstone formation at depth that can permanently sequester hundreds of millions of gallons of polluted frack (and other) water. In fact, there are viable existing solutions to frack water disposal in Ohio and Pennsylvania. But they are very expensive, because of both charged injection well rates and from the great expense of trucking tankloads of water to the distant injection wells. If Aqueous Solutions has a frack water recycling or processing process that undercuts hauling and injection costs, with central processing facilities near wellheads, the market is theirs.
We can see Aqueous Solutions playing major roles in frack water processing and disposal in all three American tight shale plays, the Eagle Ford (very, very soon), the Bakken, and the Marcellus/Utica plays (a bit further in the future).
Again, the perspective that all of this would be equivalent to owning a series of oil change garages for automobiles, where there would be a massive but highly competitive market (with only moderate corporate revenues or profits) is incorrect. The entire American energy future depends upon horizontal drilling and hydraulic fracturing. Hydraulic fracturing requires initial start-water, and then, continuing recycling and reprocessing and disposal services.
And be aware that virtually all hydro-fracked horizontal wells in each of the tight shales must, sooner or later, be re-fracked; with brand new water injections, just as at the start. Hydro-fracking is seldom a just-once-at-the-start thing. After a few years, after production declines (which can be rapid, compared to conventional vertical wells), the entire hydraulic fracturing process must be done again in the original bore hole. As long as horizontal drilling occurs in the tight shales, lots of water will be required, on a continuing, not just startup basis.
The market for such water services is gigantic and will continue to grow. Aqueous Solutions is positioning themselves well.
4. Freestone Outstanding Share Count is 62 Million.
One important factor in profitability, at least in regards to common share holders, is the number of outstanding corporate shares—how widely any dividends must be distributed. Many penney stock companies the size of Freestone Resources have many hundreds of millions of outstanding shares, across which any meager income would be calculated or distributed. We are pleased to note that in the most recent SEC filing, Freestone has only a bit more than 62 million outstanding shares. This is very favorable for retail shareholders in the company.
And presently, we believe that the vast majority of these shares are held, as they are by us, by “strong hands.” We believe strongly in the company’s future, in its technologies, in its management, and both in its near- and long-term future. None of us will be selling any substantial number of shares any time soon; and we think that to be the case with the vast majority of other share holders.
Lastly, it appears that overhead costs for Freestone as an owning-member of Aqueous Solutions, LLC should be primarily administrative, with net profit margins likely to be a high percentage of total revenues. This is a clear and clean business model: collaborating in joint ventures (JVs) and collaborating as LLCs. Profits will come back to the LLC’s K-1s, filed to the LLC members, the three collaborating companies.
5. We Anticipate Future Corporate Collaborations and Developments.
We don’t believe Freestone’s entire future is predicated or based on the frack water matters discussed above. Yes, they should prove rewarding to both share holders and the company. But the company’s other oil service technologies, particularly its innovative oil recovery techs, will eventually come into production and play even larger roles than frack water supply and processing. We can see that early revenues from frack water operations would be devoted to the full, commercial development of Freestone’s proprietary oil recovery technologies. But that’s another story, which we hope an be soon told by the company.
****************************
Lastly, we eagerly await new corporate announcements and information concerning this new JV and all that it portends; and even more importantly for future technological advancements and implementations.
We anticipate hearing in the near future that Aqueous Solutions has acquired fresh water sales contracts for fracking operations in the giant Eagle Ford formation, followed by subsequent contracts for the recycling of flowback water for re-sale to the same clients—contracts for water coming and going. The aridity, regulations, and water costs of south Texas, along with Aqueous Solutions’ solutions, will bring all of this to pass, we believe.
We are impressed with Freestone’s management, and likewise with the managers of the other JV companies. They are all professionals, with demonstrated histories of accomplishment. Technologies and corporate resources seldom avail themselves to anyone’s benefit in the absence of intelligent and productive management. Freestone has that. We will eagerly watch the company’s developing future.
Blog link:
freestoneshareholders.wordpress.com |
