Natural gas has recently emerged as a relatively clean energy source. This has dramatically changed the U.S. energy and environmental markets. Some of the most interesting investment opportunities in the shale gas revolution are in the suppliers helping the industry to operate more efficiently and reduce pollution. In this article I will present five companies that have already been great investments but could be even greater going forward.
Horizontal drilling and hydraulic fracturing make the extraction of tightly bound natural gas from shale formations economically feasible. These technologies are not free from environmental risks, however, especially those related to regional water quality, such as gas migration, contaminant transport through induced and natural fractures, wastewater discharge, and accidental spills.
According to an article in Science, water management for unconventional shale gas extraction is one of the key issues that will dominate the environmental debate surrounding the gas industry. Reuse of produced water for hydraulic fracturing is currently addressing the concerns regarding the vast quantities of contaminants that are brought to the surface. As these well fields mature and the opportunities for wastewater reuse diminish, the need to find alternative management strategies for this wastewater will likely intensify.
Stricter regulation should lead to more treatment, more controlled disposal and improved disclosure over chemicals used.
Watts Water (WTS) is a global manufacturer of products and systems for the control, conservation and quality of water. Its principal product lines are flow control, HVAC, water reuse, and water quality. The company aggressively reduced its cost base during the downturn and is now a beneficiary of U.S. housing market and continues to grow through acquisitions.
Clean Harbors (CLH) is North America's leading provider of environmental and hazardous waste management services. The company continues to profit from the gradual closure of industrial consumers' in-house disposal facilities, which are becoming uneconomical due to their inability to comply with increasingly stringent environmental regulations. The substantial acquisition of SafetyKleen in Q4 2012 positions the company well for future growth.
Pall (PLL) is a filtration and fluid management specialist. It is the largest participant in the filtration/separations industry by revenue, focusing on high value-added niche markets. The company is executing its current strategic plan to increase margins successfully and has an attractive defensive business model with currently 75% of its sales from consumable filters that need to be replaced regularly. In addition, Pall is a potential M&A target among the U.S. industrial peer group.
Franklin Electric Co., Inc. (FELE), designs, manufactures, and distributes water and fuel pumping systems worldwide. It operates in two segments, Water Systems and Fueling Systems. The Water Systems segment offers submersible motors, pumps, drives, electronic controls, monitoring devices, and related parts and equipment primarily for use in groundwater, wastewater, and fuel transfer applications. It offers wastewater pumps, including residential sump, sewage, and effluent pumps; and engine-driven centrifugal pumps for dewatering in oil and gas, municipal, construction, and mining applications.
Tetra Tech Inc. (TTEK) provides consulting, engineering, program management, construction management, and technical services for water, environment, energy, infrastructure, and natural resources sectors.
The company is going to continue to expand its services in oil and gas through a combination of organic and inquisitive investments. Tetra expects oil and gas revenues to double from 2012, exceeding the $300 million mark. Its projection is even that it will achieve more than $ 1 billion in the next three to five years.
Improved understanding of the fate and transport of contaminants of concern and increased long-term monitoring and data dissemination will help effectively manage water-quality risks associated with the unconventional gas industry today and in the future.
The continuing favorable outlook for the water sector will drive the revenues of several companies benefiting from this trend.
In particular, demand for water-related goods and services to support the attraction of shale gas has continued to expand rapidly. Hydraulic fracturing ("fracking"), is highly dependent on both the availability of a plentiful supply of water and on effective processes to remove water-borne chemicals post fracking.