Aris Water Solutions: Small-Cap ESG Sleeper

ARIS provides full-cycle water management: gathering (pipeline collection from wellheads), transportation, treatment, recycling, and disposal (injection wells). The key insight: E&P companies are legally required to manage produced water — it's not optional spending. ARIS's long-term contracts (5-15 year terms, 85%+ take-or-pay) provide revenue visibility regardless of oil prices. The company earns $0.30-0.50 per barrel of water handled, with 60%+ EBITDA margins. Growth comes from two vectors: (1) Organic — as operators drill new wells in ARIS's acreage dedication areas, water volumes increase automatically. (2) Recycling — ARIS is building water recycling infrastructure that turns produced water into reusable frac water, commanding premium pricing.

TTM Revenue: $410M (+18% YoY). EBITDA: $255M (62% margin). FCF: $140M after maintenance capex. Dividend: $0.40/share (2.5% yield). Net debt/EBITDA: 1.8x (conservative). Growth capex: $80M/year (recycling facilities + pipeline extensions). Key metric: water volumes grew 15% YoY even as Permian rig count was flat — demonstrating the lag between drilling and water production. ARIS's volumes are driven by wells already drilled, not new drilling activity.

Produced water management in the Permian is an oligopoly: ARIS, WaterBridge (private, backed by Five Point Energy), and Solaris Water Midstream (private) control ~60% of Delaware Basin capacity. Barriers to entry are enormous: building pipeline infrastructure requires years of permitting, right-of-way acquisition, and capital investment. ARIS's 1,500+ mile pipeline network would cost $2B+ to replicate. E&P customers prefer large, connected systems (fewer truck miles, lower costs). The competitive risk is primarily from E&P companies insourcing water handling — but the trend is moving the opposite direction as operators focus capital on drilling.

Catalysts: (1) Water recycling regulations — as Permian Basin disposal well capacity tightens and seismicity concerns grow, recycled water becomes mandatory, not optional. ARIS is the recycling leader. (2) Dividend growth — management has guided to 10%+ annual dividend increases through 2028. (3) Valuation re-rating — midstream water assets trade at 10-12x EBITDA in private markets; ARIS trades at 8x publicly. (4) ESG fund inclusion — ARIS's water recycling story fits the sustainable infrastructure narrative. (5) M&A — either as acquirer of smaller systems or as a takeout target for infrastructure funds.

• Oil price collapse — while contracts are take-or-pay, a sustained oil downturn could lead to customer bankruptcies and contract renegotiations
• Seismicity regulation — if Texas/New Mexico restrict disposal well injection, ARIS would need to accelerate (costly) recycling infrastructure buildout
• Customer concentration — top 5 customers represent ~55% of revenue
• Growth capex execution risk — recycling facility construction could face cost overruns or delays
• Water recycling technology risk — if a disruptive new treatment technology emerges, ARIS's current infrastructure investments could be stranded