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| Statement |
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| The results have been promising, and a lot of lessons learned as we focus on cost and treatment technologies that can operate consistently at scale |
| Our compelling outlook for this year is a testament to our keen focus on margins and the hard work and consistent results of our team delivered in ‘23, and we’re excited by our continued momentum into the first quarter of 2024 |
| We will also see some pricing power and rate increase over time in our disposal business as volumes just over the basin continue to increase |
| There is greater demand for water infrastructure in the Northern Delaware Basin than there are existing assets, and we have the opportunity to participate in further growth at attractive rates of return |
| It’s just very fluid, and we are well positioned with geographic reach and the number of recycling locations we have to actually win additional spot business |
| As we have previously discussed, we have allocated additional resources to skim oil recovery and averaged approximately 1,360 barrels per day in the fourth quarter, ahead of expectations due primarily to higher volumes from flowbacks and operational improvements |
| We reported adjusted EBITDA for the fourth quarter of $49.3 million, up 37% from the fourth quarter of 2022 and up 10% sequentially from the third quarter of 2023, again, exceeding expectations for the quarter |
| We will benefit from our prior capital investments and anticipate being able to better leverage the system to improve capital efficiency going forward |
| Combined with continued operational and commercial improvements, we anticipate sustained positive free cash flow for the year, which will improve our options for capital allocation, which can include increasing our shareholder returns |
| Our large scale infrastructure and proven ability to deliver treated water in large quantities, again, allowed us to win additional spot business, driving higher-than-anticipated water solutions volumes in the fourth quarter |
| We had an outstanding year delivering great results quarter-over-quarter and we enter 2024 with significant positive momentum |
| Steve will expand on the details, but sustainable volume growth, our anticipated continued expansion of operating margins and significantly reduced capital spending, sets up 2024 as a pivotal year for Aris as we anticipate sustained positive free cash flow |
| I am immensely proud of our collective achievements |
| In addition to the sustainable growth rate, we expect to benefit from improved profitability from the positive momentum on margins coming out of last year, additional operating cost reductions in chemicals, filtration and waste disposal as well as further contractual revenue escalation |
| While there is still work to do, we exceeded our annual goals, expanding margins by more than 10% and improving operational and financial efficiency |
| We maintained a strong rate of growth |
| We increased produced water volumes 19% and water solutions volumes 9% year-over-year, which combined with our expanded margins, culminated in adjusted EBITDA of $175 million, up 17% for the year and exceeding the upper end of our guidance range |
| In our produced water business, we averaged 1.1 million barrels per day for the fourth quarter, ahead of our expectations and continued our sequential growth for the ninth consecutive quarter |
| We’ve made great progress, and our business today is more efficient, more profitable and more predictable, which is evident in our 2023 results |
| So, with that, I want to especially thank our employees who work so hard to deliver the great year we had in ‘23 and provided us with this positive momentum into ‘24 |
| In terms of revenue, the largest of our annual CPI escalations took effect at the beginning of the third quarter; and combined with the success of our electrification projects and rental expense reductions, drove significant margin expansion of $0.05 per barrel since our cost peaked in the middle of 2022 |
| We are extremely proud of this growth and our success in managing costs and logistics while optimizing the use of our infrastructure and enhancing water sustainability in the Permian Basin |
| We still see opportunity for margin expansion in our core business, working with our customers on additional growth opportunities adjacent to our core system |
| Our reduced capital spending will allow us to achieve greater free cash flow and provide us the opportunity to increase shareholder returns |
| 2023 was a fantastic year for the Aris business |
| So, well over the halfway mark, but we will see some incremental margin improvement this year from those |
| Our team is focused on continuing the strong execution we demonstrated in 2023, operating safely and reliably for our employees and customers while enhancing water sustainability in the Permian Basin |
| Taken together, our operational performance, lower capital investment and working capital improvements delivered $14 million in positive free cash flow in 2023 |
| To close, I want to again highlight the success of 2023, our consistent execution across the year and the momentum it provides us looking forward into 2024 |
| For the year, ongoing process improvements delivered an almost 41% decrease in net working capital and a period which saw revenue grow more than 22%, driving a $43 million working capital benefit |
| Statement |
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| Repurchases would exacerbate some of the issues we see from the low float that’s out there |
| As operators limit their use of groundwater, the growth of produced water recycling in the Permian Basin has been unprecedented |
| The challenges around the Delaware Basin versus the Midland Basin and landowners and their ability to extract value in these complex systems or at least integrated systems makes it more challenging, but we are in the middle and constantly evaluating all of the opportunities to consolidate what we think should be, over time, consolidated |
| Volumes were up 16% for the year and we recaptured margins, which had been eroded by inflation and cost challenges driven by our rapid growth in late 2022 |
| The buffer pumps are there, the pumps are there, the massive amounts of their water plus other people’s water that we can blend and treat and redeliver for these big trucks is just impossible to replicate |
| And so we do see some lumpiness in those skim volumes |
| As we’ve previously seen, the water solutions business can be lumpy, and higher water volumes in the fourth quarter were also a function of a pull forward of activity originally scheduled for the first quarter of 2024 |
| We will have some continued electrification, which will continue to drive costs down |
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