Yet Another Value Podcast - Chadd Garcia breaks down WaterBridge's post-IPO value creation story $WBI

Episode Date: November 9, 2025

Chadd Garcia joins the five timers club and talks about his investment thesis for WaterBridge (WBI). WaterBridge is a recent IPO that manages water from oil drilling, largely in the Permian Basin. Chadd's spent a lot of time on oil services and infrastructure, and he breaks down how this investment relates to prior investments in LandBridge, Texas Pacific, and Secure. He also talks about the opportunity for growth and pricing power at WaterBridge.__________________________________________________________[00:00:00] Podcast intro and Chad returns[00:02:24] WaterBridge’s core operations explained[00:04:41] Pipelines and disposal network details[00:06:03] Missed waste parallels in analysis[00:10:52] Valuation setup and contract pricing[00:13:04] 2025 EBITDA forecast discussed[00:14:45] Scalability from current infrastructure[00:15:37] Infrastructure ROICs and economics[00:17:33] Land ownership and strategic value[00:19:05] WaterBridge vs. LandBridge relationship[00:22:25] Why Devon partners with WaterBridge[00:27:35] Sponsor structure and conflict resolution[00:29:30] Regulatory risk and permitting update[00:33:39] Permian basin long-term outlook[00:35:10] Increasing water cuts impact volumes[00:36:41] Oil price sensitivity and volume trends[00:38:03] Organic growth via MVC contracts[00:39:11] Maintenance capex benchmarking[00:41:40] Capital allocation and future returns[00:42:31] Waste comps and multiple discussion[00:45:49] Terminal value and ROIC comparisons[00:47:57] Key risks: spills and short reports[00:49:12] Environmental downside vs. oil spills[00:51:25] Short reports and perceived conflicts[00:52:21] Why WaterBridge and LandBridge are separate[00:53:08] Investor day importance and growth[00:54:10] Chad’s visibility helps spread thesis[00:56:54] Housing workers for Texas data center boomLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

you're about to listen to the yet another value podcast today's episode is my friend chad garcia is on for i think it's the fifth time he told me it's the fifth time so he's got a shirt coming his way but chat is awesome uh some of his pitches i mean look it's no surprise he comes on he pitches a stock and then six months later you see 15 generalists who've gone long the stock on the thesis that chad pitches does great detailed work he's done great work on this we're going to talk about water bridge ticker there's wBI it's a recent IPO uh look at see the full disclaimer at the end of this podcast, but nothing in the best advice. But Chad's done great work.

We have a really interesting conversation about a really interesting company because there really aren't a lot of public company parallels. And I think you'll see that's why maybe there's opportunity here. So we're going to get there in a second, but first, a word from our sponsors. This podcast is sponsored by try trotta.com. Look, I've been harping on it for months. If you like this podcast, you are going to like try trotta.com. It is interviews between two byisiders who are talking about stocks they know.

So it's very similar to this podcast. except, you know, in this podcast, one person, the guest knows the stock they're talking about, and I have nothing, no clue. And in the tri-trotta.com interviews, two people know what they're talking about. So twice as much fun. Look, I've been harbying them for months, and I will tell you, lots of you have gone, checked it out, listened to it, and the feedback has been fantastic. So it's not just me saying it. It's fellow yet another value podcast listeners saying it. So go to try trotta.com now and go check it out and see why I'm so excited about it and why I think you will be too. All right, hello, and welcome to the yet another value podcast.

podcast with me today. I'm happy to have. Chad, I can't remember if it's the third or fourth time, but one of the most popular guests on the podcast, Chad Garcia. Chad, how's it going? Good, good. I think it's, I think it's a fifth time. No way. That means you qualify for the shirt. I should have worn the shirt today. We'll talk about that after the podcast. Well, I have my hat in the background, so, you know. But both of our hairs are, both of our hair is on point today, though, so we can't mess that up with a hat. Super excited to talk today. This is actually one of the most interesting companies I've stumbled on this year. But before we get to it, just disclaimer, remind everyone, nothing on this podcast investing advice. You can see the full disclaimer at the end of

the podcast. So, Chad, the company we're going to talk about today is Waterbridge. The ticker is WBI. You have done fantastic work on this. So I read your Q3 letter. You and I had dinner like the night before this IPO and we were talking a bunch about it. So I'm just going to toss it over to you and let you cook. What is WBI and are they so interesting? Yeah, Waterbridge is the, leading processor, cleaner, and disposal company of produce water. They primarily operate in the Delaware Basin, in the Permian Basin. And so when oil is fracked, you know, some water comes up. Some of that's the water that's used in the fracking process.

But most of that is water that was sea water that was buried millions of years ago with the organic matter that turned into the oil and gas that they're extracting. in the fracking process. And that produced water, they call it, flows out with the oil for as long as the oil well flows. And so in the Delaware Basin, you get four barrels of produced water for one barrel of oil. So they call that the water cut. And then what they've noticed is that as a well ages, that water cut goes up over time.

And then in various areas, you know, some areas just have. higher water cut. So, you know, right now you're starting off with a with a four to one water cut. In 2030, you'll likely have a six to one water cut. And so water is the choke point for oil production. If you're axon and you're developing in the Permian Basin, if you don't have a place to put the water, your production shuts down. And so water bridge, which went public a couple months ago, has a vast network of pipelines, but they also have a relationship with Land Bridge, a sister company that went public about a year and a half ago that owns a lot of the land where the poor space is located. So the poor space is the geographic formation where

the water is deposited. And think of that as like a landfill. Perfect. That's a great overview. So just specifically, so you mentioned Water Bridge is handling the handling the handling the water cut from all of these from this oil and gas, you know, from the permeant from any well that's getting drilled out there. And then you mentioned land bridge is kind of where you take the water

and you actually inject the water and kind of store it. But I just want to do it. So what specifically does Waterbridge own in this process that they're kind of handling the water? They own the pipelines that transport it and then the cleaning facilities that separate the oil

because there's going to be oil that's mixed in with this. with the sludge and the solids and the produce water. And so you separate out the oil and you recover it. You can sell that. It's called skim oil. The solids get removed and deposited into an industrial landfill. So they own some industrial landfills as well.

And then the remaining liquids get deposited into the pore space. Perfect. So let's start here. You mentioned the IPO late September, I want to say. So, you know, like 45 days ago. They get picked up by, I think, 12 brokers pick them up with coverage. You know, I'm kind of looking, it looks like seven of them have buys and four of them have neutral, something like that.

And, you know, the stock IPO is at 20 and it's at $24 for sure right now. So I lay all that out to ask you, like, when I look at this, I say, hey, looks like it's relatively well covered. Looks like the IPO was pretty successful, you know, 20% in 45 days. This isn't, it's not core where you've going up 5x and 30 days. But, you know, that's a pretty nice IPO, particularly for like kind of a more state industry. So you just want to ask, company well-covered, well-regarded, successful IPO. What are you seeing that the market's missing that you think makes this kind of an alpha opportunity here?

Well, it was 11 times of subscribed. So for an oil company, I think that was pretty good. You know, it wasn't, you know, 20 times oversubscribed, like, you know, maybe a circle internet group or something. Last I counted, there was 11 cell side analysts that covered it. I've read eight of the reports. Not one report mentions the parallels of this business to waste. And, you know, you and I, we had a podcast last year on Secure. It was called Secure Energy Services at the time.

They've subsequently changed their name to Secure Waste Infrastructure Corp. You know, that's where I learned a lot about this business, you know, working with them. and then also my investments in the waste space with connections in GFL. But in a similar situation between the two companies, whereas secure was covered for many years by energy services firms, if you look at the economics of their businesses

and if you look at some of the boats surrounding the operations, they look like waste companies. I mean, they have landfills, they have some industrial landfills. That parallel doesn't get any more cleaner. And then the port space where you deposit it also has some very similar geographic and regulatory modes that landfill has. Secure made that connection. In the last year, they have converted most of the analysts that cover them to waste analysts or general industrial analysts. And so they've been beating on, you know, we're not an energy company.

We're a waste company for, you know, a couple of years now. but it's in Canada. It's a small cap. Nobody's paying any attention. Land bridge or water bridge goes public. They can't go public with something that's, you know, a story that people aren't ready for. So they hire JPMorgan's energy bankers.

They do a good job getting it public. The pitch kind of looks like a midstream pitch, whereas, you know, like a midstream pipeline. business might trade 9, 10, 11 times, you know, maybe this one has a little bit better economics to it, a little higher return, maybe if you go for a little bit of a premium, but, you know, nobody's yet making the waste parallels. And, you know, just like secure, you know, has been making that argument. Waterbridge management, they report in a couple weeks. They understand the parallels of their business to the waste industry. They are going to be beating the

to, and they're likely going to have a much bigger megaphone than the secure guys did because they're an American company and, you know, they'll get a little bit more exposure. But right now, all the analysts that cover it are our midstream analysts and they're looking at it with that view and not looking at it with the waste view. So if I was kind of summarizing what you're saying, you're saying, hey, look, this IPOed, and these guys knew it, right, they wanted to go public, this IPOed and people were taking, as you said, an MLP energy infrastructure viewpoint. And you think over time, and that got a defined multiple, right?

You can talk to multiple as trading, but like a low double-digit multiple right now, I think is kind of what. And what you're saying is, hey, this has one of the reasons this is an alpha opportunity is this has a lot more in common with the waste management industry. And the waste management industry probably trades for a mid-teens EBITDA. So you think there is a lot of kind of multiple expansion as the company delivers, people get to understand the story, all that sort of stuff. Am I kind of summarizing that correctly? Well, I think they're going to have ample growth just within their own, within their business. And so from my risk management perspective, I'm like, okay, on earnings growth by itself, this is, you know, call it a double in five years.

You know, I can underwrite that. But it's traded nine times ebada, waste companies trade it 15 times EBITA. You get the earnings growth plus the multiple expansion, and that's where things get really interesting. Well, let's talk about earnings growth. So why don't we lay out kind of, look, they just IPO in September in this podcast was a little bit different for it because there is the S1 and then there's nothing else public from these guys yet, right? They haven't done it.

They're in the post-IPO blackout period. We don't have an earnings call. We don't have a Q3 earnings. So, well, the post-IPO blackout period ended, but it ended right into the earnings blackout call also. Blackout's a blackout. I'm not going to say my college days, but, you know, maybe every now and then, my I've already brought days.

What are you kind of forecasting? Let's lay out, what does the valuation look like on a 2025 or a next 12 months number, whatever you want? Let's lay out that valuation and then we can use it to build to like kind of out years. Well, over 70% of the revenue is contracted. And a lot of the recent contracts they've been getting, they've announced like three large projects that they're spending capital on. And the three large projects are minimum volume contracts. And what's interesting is that the pricing of these contracts are well above kind of the spot rate. So the spot rate called 65 cents a barrel for processing.

The last contract that they signed was just over a dollar. And so that, and that was a 10, 10, 15 year contract. And so that does give you some indication that the EMP companies are, worried about having an outlet for the for their water in the future and if they can lock it up for a decade maybe a decade and a half then they'll pay a premium for that but on the minimum volume contracts alone their volume should increase you know call it low double digits so say like 10% but they can also pick up more business just within their existing network that that's not fully utilize nobody sets minimum value contracts minimum contracts at the level that they think they're going to do at the max level, they kind of set up below. So there's probably incremental volumes from those contracts that are going to flow in. And then, you know, they have, you know, three large contracts already disclosed that they're spending capital on. One of them is probably ripe for phase two expansion. I would, I would

imagine that that would be announced within the coming months. And so there's a lot of growth coming their way. So it's easy to get to a mid-teens to high-teens volume growth. And then, again, you get pricing that's going to be flowing through, you know, and with probably not much incremental costs to it. And so from an earnings growth perspective, it's going to be even, it should be even nicer. But if we could just kind of, next 12 months, what do you kind of think the near-term EBITL looks like? Yeah, so like that, so 25, 450, I think would be very conservative, and then you just compound that at, you know, 15 to 20 percent for the next three years. Yep.

So about 450 and EBDA, and you could be talking about, if I took it a little further, 900 million EBDA isn't out of the question by before 2030, if I'm kind of doing that math in my head. Oh, yeah, yeah, yeah. And then from an incremental horse-based perspective, they've got, you know, they'll probably do 2.8 million barrels a day. and 25, and they've got incremental pore space of 6 million barrels of day that they have access to, which is probably worth, depending upon pricing between a billion and a billion four of incremental EBDA. And so, you know, that's, you can see how they can get to a billion and a half, two billion of EBITDA just within, just with the poor space that they currently have.

And that's not including some, some four space that Landberg just bought. Landbridge's press release, they've bought some more pore space. They paid a little over $200 million for it. They haven't quantified how much incremental poor space it is yet, so hopefully we'll get that on their earnings call. But, you know, I think that there is going to be a need for the poor space in the Permian because the water cuts go up over time, the areas where they're going to be drilling in the near future are going to have higher initial water cuts. They have plenty of incremental force-based and pipeline to get it there. And so I think it's just a matter of speed rather, you know, as opposed to like how much growth

they end up with. So I don't, you know, it's a matter of how quickly it happens. I want to come back to the second, but just to quantify it. So the stock is you and I are talking about $24 per share. You can correct me if I'm wrong, but I've got the enterprise value around $4 billion at these prices. Yeah. Okay.

And we just said $4.50 in EBITDA. So people. Probably $4.3. So people can do that math. slightly under 10 times, around nine times EBDA on the near term numbers chat is talking about about. And then if you go out, you know, you quickly get to 5x EBDA if and when all this growth gets delivered. Let's talk about that growth. So, you know, these guys, the returns on invested capital here are, I don't want to say insane, but they're really effing good, right? You're talking about

multi-hundred million dollar projects, these pipelines, all the space and everything. And they're getting 20% plus returns on invested capital on levered, right? 25, 30 is not out of the question. Yeah, the billion, the billion to billion four of incremental poor space, incremental EBIT off and poor space that they have would probably cost them three to three and a half billion dollars to realize. And that's like, and that's if they're, it's like a platform. And so like, so, you know, you have Speedway project right now, which they're probably getting

like a three-year payback on that, you know, on a equal level, right? That is running right through a sourgrass region that's going to be developed shortly. There's already minimum volume contracts on processing of that sour gas. That's right for an expansion of the Speedway pipeline. I would imagine when you're expanding a pipeline as opposed to initially put one in, it's probably two-year payback. But that's what I want to ask, because these returns are phenomenal. These are phenomenal for infrastructure assets, right?

So I want to. But they're not paying for the poor space, like as you, you know, you would do like this. We'll talk about the poor space when we talk about Lambert in a second, but just the returns of their infrastructure projects are phenomenal. And, you know, I'll bring up this a couple times, but I've done a little bit of work on midstream pipelines, especially offshore oil and gas pipelines. And offshore, you know, those are some of the, those are pristine assets. And when these guys build, they build and they hit, there's lots of, you know, you're building things 3,000 miles under the sea. The returns there are like 20 to 25 percent.

So these guys are actually getting better returns. Now, as you said, there's no poor space. But I just went, why can they get these types of returns? Because in my mind, billions of capital, 30 percent returns, people try to compete that away, right? And we can talk all the ways people in, but just high level, why do they kind of have the rights to get such great returns on pretty significant amounts of capital? Well, I think it's their, I think it's the relationship with Lambridge. It's like, look at where a lot of this water is flowing.

A lot of this water is flowing out of New Mexico and into Texas. And if you're going from like the north-south part border, I mean, on, um, the Western part of that is TPL property, which Landbridge went and kind of a lot of the acres there are checkerboarded. And so TPL had a big area with checkerboard. Landbridge went and bought up the rest of the checkerboard and entered into an agreement with them. And so they've got that area locked up. There's a ranch just east of that that was one of the initial areas where they would put in shallow solar disposal walls. that's kind of over-pressurized,

and so there's not going to be any incremental pore space there. And then there's a ranch next to that where there's no wells on it currently, and then you're back to land bridge property, and then it starts to go up into the panhandle. And so anytime you want to cross land, a landowner is going to want to take a toll charge on the water that's kind of crossing over their land.

And so it's not only having a massive pipeline network, but it's having one that's kind of efficient where you can avoid having to cross property where you have to pay. Let me, so let's go to Landbridge right now, right? Because I think that's the first thing when I read this S1, when you and I first started talking about it, it's the first thing that jumps out to you. They have a sister company, Landbridge. And for those who don't know, and I know this because we've talked, I've read your letters. Chad was very early on the Land Bridge story, and the stock is up, even after a recent pullback, what, 150% since it IPOed. Yeah, I did it's 17, and it's at 60 maybe today. Yeah, so the reason I first started my ears perks up when you mentioned Waterbridge is I was like, oh, Chad pitched Landbridge.

This guy knows. But I think there is a question. Land Bridge is Waterbridge's sister company, right? They are sister companies. You can hear it in the bridge. They have the same controlling shareholder, all this sort of stuff. No, no, no, no. They have the same sponsor, but the shareholder.

are different. My fault. This is the same sponsor who does own a ton of both these, right? But I think the question, my first question when you see this is you said, hey, why can they charge this rates? And it's because they cross the land. And, you know, the corner store at the corner of a really great, you know, 86 and Lex, it gets a ton of foot traffic. It doesn't mean that it's going to make a lot of economic profit because guess what? The landlord keeps charging them every time the landlord is taking pricing. And they're going to keep charging kind of for the marginal customer. Here, I guess my first pushback would be, hey, yes, I know they've got a sister company in Landbridge, but why isn't Landbridge ultimately the one who's saying, hey, the poor

space and the land is the critical thing. We're going to keep charging you, keep charging, and we get all the economic profit, not you, the pipeline. I think it's having both the pipelines and a pipeline network that provides redundancy. So if you're any of your operator and you have one water company and they have one pipeline to one amount of four space, like that might work for a few years, but what happens if there's something that goes wrong with the salt water disposal wall, it loses this permit? In years, you know, five, six, seven, eight, nine, ten, they could have a force mature. So you want to have a vast network with multiple access points for salt water disposal walls. And so it's having the whole network, you know, plus the poor space,

that gives it its real value. And so, you know, both of these entities are creating value. And, you know, Landbridge is, you know, gets paid a nice royalty fee. You know, some would say it might be a little bit above market, but, you know, I think it's, I think it's within market now. But over time, you know, as poor space is used up, you know, the rates that water, that water bridge charges and the rates that Land Bridge charge should, you know, should both go up in tandem. But, you know, there is a, there is a risk that, that, um, Waterbridge could privilege Landbridge and some economics kind of squeak out there.

But keep in mind that, you know, Devin Energy owns 20% of Waterbridge and is a big customer. You know, I doubt Devin would like to see, you know, some of their. economics as a shareholder of Waterbridge squeak out to Land Bridge, and they're a big customer. And so there's a stick there, right? I'm going to come to Devin in a second. I actually, we'll get there in a second. I did look it up. Devin has mentioned 135 times in the S-O-N, so I really do want to talk about that.

But I want to ask one other question, right? So Land Bridge has the land. They are the landlord who owns the property at the corner. You kind of can't get around that land, right? You've got the land. That's a great spot. The other way returns here could get competed away is, yes, Waterbridge builds the pipe. but somebody else could come build the pipeline, right?

A lot of these are new builds or expansions and somebody else could come and say, or even Devin, ExxonMobil, these customers, they've got huge balance sheets. ExxonMobil owns and knows how to operate pipelines. They could say, hey, Water Bridge is about to spend $3 billion for a billion dollars in EBIT. Why don't we just do that ourselves? Or why don't we go to name your other water operator here and say, hey, why don't you guys spend $3 billion for $900 million in EBITDA? right, like take that return rate down

and start having people compete against each other. So my second question is, yeah, so Devin didn't enter into basically a call option on porous base of agreement with land bridge. And so they, you know, the history of this is the operator goes to the water company,

the water company goes and finds the landowner. That's the history of the industry. But, you know, Devin, who owns part of Waterbridge, is worried about access to core space in the future, and they went and forward-contracted core space with land bridge directly. So they went around Waterbridge. But in doing so, they did commit to use Waterbridge as the deliverer of it. But to your point, like, yeah, these companies can, you know, have balance sheets

and, like, have ran water businesses in the past. But the trend is for the large operators to divest of the water businesses because, you know, you want some scale, right? So you want to be able to handle the water of operators that surround your property, right? But if you're, you know, if Exxon is, you know, has a water asset and you're some small independent company and they say, hey, you can use our water asset,

if force base becomes tight, Who do you think is going to get squeezed out, right? The small operator. And so it just makes much more sense for these water companies to be independent. I mean, if you look at Diamondback had a water business called Rattler that they spun out. And, you know, it traded at a horrible multiple because, you know, they couldn't maximize the value because of that dilemma. And they ended up selling it to Five Point, which is a sponsor behind Waterbridge and Landbridge. and that assets is in the Midland Basin.

Now, I do think that that asset would work well in Waterbridge, and ultimately, you know, you may see it merge with Waterbridge. But to my point, you know, if Waterbridge is getting mistreated and Land Bridge is getting privileged, I mean, how happy do you think Diamondback, who owns a good chunk of D-Blue, that asset, would be in wait in line to kind of merge these assets together, you know, I think that there's, I think that there's plenty of people within the Waterbridge shareholder base that are also customers with big sticks,

just to make sure that everybody's treated fairly. Let me ask this question, the Devon deal. We mentioned that multiple times. And now, I think we can all understand why they would go with Landbridge, right? Again, Landbridge has the land. You need to go with them. But you said they went behind Waterbridge's back, did Landbridge, and then decided to do it all through Waterbridge. Devin had, I believe they had an internal operation that they could have done this. They could have tried to find a third party. Why does Devin choose to go with Waterbridge here? Why?

Because they have the space. I mean, why do they choose not to contract with Waterbridge? Why does Devin choose to use Waterbridge for the pipelines, right? Because Devin could, I think Devin had internal operations. They could have tried to do it themselves. They had to deal with Landbridge. They could have tried to give. They chose Waterbridge.

So why do they choose Waterbridge? And they take equity. Right, right. Well, you know, probably because they own 20% of it. and have a vested in the scene to do well. But they got the 20% from choosing Waterbridge, right? So they did still have to choose. I think it was probably committed, committed assets at one point in the history.

Okay, that's good. Let's go to something else. Just elephant in the room, we mentioned the Lambridge deal a little bit, right? You mentioned how, hey, there's a lot of customers who are in Waterbridge stock. So if Lambert is getting favored, they're going to have a big problem and you don't want But I think people are going to read the S-1, and they're going to quickly jump and say, hey, there's the Landberg relationship. I've got where he's there.

Five-point is the sponsor here. There's the tax receivable agreement. The Five-Point has other assets in the industry. Just like there's a lot of potential for conflicts of interest here. So that is kind of the elephant in the room when you look at this business. How do you think about all of that? Well, I mean, it's Five-Point is the controlling sponsor, but the funds were different funds. in Water Bridge and Land Bridge.

And so they've been managing this conflict for a long time. And the way they've done it is first by setting up policies where if it's a low level conflict, here are the policies. And then if it's a higher level conflict, they set up independent conflict committees made up by the shareholders of each of the funds to get together and work them out.

And so they've been managing this for a long time and they've done it well and I think they'll continue to do it in the future. Plus you have, Devon in Water Bridge and maybe, you know, Diamondback at some point if they ever merge deep blue into Water Bridge. So weird risk here. When you read the S-1, and you mentioned it earlier as well,

a lot of the business is taking water from New Mexico, where it is difficult to permit, permit water assets, taking it from New Mexico and bringing it across the lines into Texas, where it's easy to get permits, right? That's a ton of the business. and read the S-1, and there's all these arrows going from, like, the middle of New Mexico right into Texas. Right.

Is there a regulatory risk here in one of two ways? Either, hey, New Mexico gets a lot easier on permitting. So a lot of this infrastructure that's designed to take water out of New Mexico into Texas is kind of excess capacity. Or the other way, Texas says, oh, my gosh, we're having, you know, early in the fracking and disposing of water, people are putting water. into fault lines and causing many earthquakes and stuff, Texas starts saying, oh, my gosh, we need to regulate this. We're having risks of earthquakes. We're having environmental risk.

Is there any risk in that regulatory, because they're almost regulatory arbitraging, if that makes sense. Is there any risk in one coming down, one coming up? Well, Texas is, so the initial saltwater disposal walls, when the fact in industry was created, they would put it into deep water wells, which is basically old vertical walls that were kind of empty. And so they put the water in kind of deep formations. And that caused a lot of the seismic activity that fracking is known for. And so they stopped doing that.

And then they put them into shallow disposal wells that are slightly above the mineral formations. And a lot of the industry would use four disposal walls per section where Land Bridge or Waterbridge throughout their history has used one. And Waterbridge's philosophy is that if you under-pressurize your disposal well, it can last almost forever, or they have some that are over a decade old, and you run less risk of having an environmental issue

where it blows out a well and comes out on the surface, or if you interfere with surrounding neighbors, E&P operations. So that's been like their practice. The rest of the, but it's expensive practice because it requires you to have four times the amount of forest base than the industry was using, okay? Some of those issues have come up. You know, they've blown out some disposal walls

and it's caused some environmental damage, not water bridge, but the industry. Some of the wells have been over-pressurized to the point where they've interfered with oil and gas production of surrounding neighbors, and there's some lawsuits going on there. The state of Texas got involved in 24 and changed the regulations, so not only they permit the volume of water that can go into a disposal wall, but they also permit the pressure of it. And Water Ridge claims that they've helped write those regulations. And so basically they've increased the regulations to bring the rest of the industry up where Waterbridge was already at. Okay. So I don't think you're going to see any more regulation from the Texas side because they already made a very big change.

By the way, I totally believe Waterbridge when they say that because one of the things that jumped out to me, the S-1, is Waterbridge notes that they are responsible for roughly 40% of the water injection permits in Texas and New Mexico. And that just blew my mind. Like, that's so much of it by one company. So I totally believe they have a big hand in any regulation that's happening there. And they have the goods. They do it better if you see them in person, which I hope they have an analyst. They can get to that. But there is a slide where they have the poor space.

And it's like in red where it's like over the overpressurized areas. With the four red. Yeah, I know exactly what you're talking about. When they, if you see in the IPO process, you know, they were able to do that like a time laps one. It was pretty amazing to see. And so if they ever do an analyst day, which I hope, hopefully they do, it'd be nice to see that. But with respect to New Mexico, New Mexico, you have federal land, you have private land, and you have state land. And, you know, and it's, and they're all kind of intermixed. And so, you know, you've got like three levels of regulations there to deal

with. And so it may, you know, it may be difficult, even if they wanted to make a change to actually get stuff done. And even if they did make a change, I don't know if the operators would trust it because, you know, changes have been made in the past. And then two years later, you have a new administration and they revert back to it. And these guys, you know, the EMP operators, they want to, you know, they have an oil wall. It's going to go for a decade, decade, a half. You know, they want the problem to be gone. So, you know, even if people start making noise about soft and regulations in New Mexico. A, it's probably very hard to do and B, I don't know if anybody would trust it. Perfect. You know, one thing that when I started looking at this company,

you will hear energy bowls a lot. We'll talk about how the Permian is getting gaseer. The Tier 1 stuff has been kind of tapped out. It basically calling for Permian oil output to decline. Even if money invested goes up there, they're saying, hey, Permian oil, is going to climb. And look, all of this is Texas and New Mexico water assets for the most part, right? So I just want to ask you, like, if the energy bulls are right, if the Permian is not the growth engine for the world's oil anymore, how does that kind of play into Waterbridge's hands or not play into it, I guess? Well, the Permian's large. It's not just, it's not just the Delaware basin. And so I think that within the Delaware basin, there's going to be oil output for a long time.

it's the lowest cost part of the Permian. And so, you know, you can definitely see how other basins in the U.S., you know, if the U.S. is going to decline in its oil production volume, it's definitely going to happen in other places. It can happen in parts of the Permian, but the Delaware is going to be the last place for it to decline. Well, you can also correct me, but I think one of the reasons it's decline is because the easiest stuff has gotten tapped. So the newer stuff is gassier.

It is, have your water cuts. So even if you're seeing the overall volume of oil going down, there's the chance for these guys that they're going to actually see water production go up. Now, you can correct. You won't be water production go up. I mean, it's right now in it, the water, the water production of a well goes up as a well ages. So you have that. But I was, you know, I was reading today that they expect the water cuts initially,

be at a six in by 2030 whereas right now it's at a four so like yeah that's four barrels of water for every one barrel of oil and going up to six barrels of water for every one barrel of oil correct I mean some areas in the Delaware basin are our 10x if speaking of energy bulls and bears you know this is kintin all of this water is coming off because oil is getting produced for the most part, right? Where do oil has gone from, you know, if we were doing this podcast two-ish years ago, oil's in the 80 per range. If we're doing it three years ago, oils in the 90 per range. Today, it's in the 60s, the forward curve for in backwardation. It's in the mid-50s, if you go out a year. Where do oil prices needs to go where, hey, you start seeing some shut-ins or wells

decline and you start saying, hey, even if the cuts are getting waterier, the volumes just aren't there. Now, we do have the MVCs, but there's just not going to be any growth, so it's starting to impact Water Bridge. You know, oil is that 100 doesn't matter. Or is that 90? Doesn't matter. Actually, great for them. But there's got to be some price where you start seeing volumes really decline. Where does that really kick in? Well, I think that ongoing production, I don't think you'll see shut-ins unless you have like a COVID situation where demand stops. Like the ongoing production will keep going. It's the new drilling that slows down. And you're already seeing a lot of new drawings slow down.

So, you know, that's happening, but the produced water volume is still holding up. So if you look at, I mean, again, we don't have Water Bridges first report, but if you look at Secure, for example, their rig count was down 15% last quarter, and their produce water volumes were down 3%. And there was a lot of facility shutdowns that may have affected that. So, you know, it could have just as easily been flat. If we, earlier we talked about, hey, near-term EBITDA, let's call it $450 million. Three to five-year-old EBITDA, let's call it $900 million.

The path to basically doubling EBITDA over the next couple years, how much of that is organic in terms of pricing and volumes versus organic? in terms of building out, you know, that billion plus in Capax. We talked about at 30% on leverage versus in our gap. They got 10-year contracts with minimum volume commitments, you know, probably growing volumes at 10%, you know, and then pricing in the layers in. So I think you're pretty well covered. And then the gassy region that, you know, the sour gas region that hasn't been developed yet, I heard that if there's capital being committed to that and, you know, get oil prices in the 40s, it's still going to go because people have already started signing that for, you know, minimum volume, you commit mix and processing the sour gas.

And, you know, that would be, you know, another project that that Water Ridge will do to service the water needs of that area, which, you know, should be coming, you know, should be announced pretty shortly. and I can see that generating cash flow by 28. If we're talking 28, it's probably more a 29 or 30 thing, but let's say 900 million in EBITA, right? Right. Can you break down? What's the, I mean, there are pipelines, there are real physical assets here. What is kind of the maintenance capax required for that 900 million? Yeah, it's good.

I kind of look at secure as a comp, just because we don't have as much data on this one. And, you know, secure, keep in mind. at 30% of their business is pipelines. And so they do have some pipelines in their business too, which is like oil take away pipelines, and that pipelines is much affiliated with the water business, although some of their newer growth contracts, you know, do you have some pipelines.

And then they have to pay for, for space, and their maintenance capax has increment, you know, replacement of four space within it. And they're about, you know, 15% of their EBIT goes, to sustaining CAP-X. So I think that would be a pretty good comp here as well. Yeah, so, I mean, on the $900 million,

and obviously there's interest and other things, but this is a pretty... 140, maybe, so 140 of maintenance cap-x on that? This is a very, you know, I think people here, oh, I said they think there's a lot of maintenance cap-x. This is a very cash-low-rich business, as you would expect from a, as you would expect from a pipeline.

Like all the pipeline businesses, you put it in the ground and they last 30 years and there's, you know, just... I mean, you look at secure and they're doing the same type of RICs. I mean, of course, they have the pipeline, you know, the gathering and transportation pipeline in their business. But if you look at what they're talking about when they deploy capital, they're deploying at in the waste business. They're deploying capital at kind of 25% unlevered IRAs initially with the ability to put more

volume through that as those businesses grow. And so, you know, they can work those up in the upper 20s and low 30s IRAs. Let's use 900 million in EBITDA, 140 million. And let's make the math really easy and just say 750 million in unlevered free cash flow four to five years out. Obviously, there's a lot of growth projects here in the next. couple of years that's going to consume a lot of EPA. But at some point, the great thing about a high EBDA business that's growing a lot with not a lot of CAPEX is you're generating just a ton of

cash flow. What does capital allocation look like kind of as the growth projects, as the cash flow kind of starts to exceed even what they can put into growth projects? Well, I think it depends upon the valuation at the time. And I think obviously they would do a, you know, some nominal dividend in order to check the box for investors that have to have a dividend paying stock in order to invest in it. I would hope that they don't go too crazy. Like my favorite dividend is like the de minimis but growing ones to check those two boxes. And if you need to pay a big one because your stocks over value, you can do a special one. But, you know, these guys are, you know, they're very commercial savvy and they're very financial savvy.

So I think, you know, if there's stocks under value, they're going to be peripheral share repurchases. And if on that 900 million in EBITA that we kind of said, hey, you know, this goes right, all these growth prices, they get a couple of years out, how do you think about multiple evaluation at that point just so people kind of know what they're playing for four years, five years out? I mean, I think that you look at one of the waste companies that reported in the last couple weeks, and they have an oil recycling business that they're putting. money into pretty significant. It was like $4 or $500 million. And they're talking about a seven-year payback. You know, that business trades at a much higher multiple than what Waterbridge trades at. And Waterbridge says, what, three-year paybacks.

Yeah. So, you know, I think people are going to be making the connection. And, you know, you know where the waste multiples are out there in the mid-teens. I mean, don't take my word for it or don't take secure's words for it who's been beating that drum for a long time. take waste connections work for it. Waste Connections is one of the highest quality municipal waste operators in the country. And they invested in R360, you know, over a decade ago. They paid, I think they paid like seven and a half times EBIT off for it when their multiples was at like maybe 7.8 times. So it wasn't, you know, both their multiples were low. And then in 24, they bought 20% of the industry's capacity in Western Canada,

buying the secure assets that the competition tribunal forced secure to sell. And rumor is they bought a small EMP asset in the Permian that was sold by a sponsor in Q1. And so the waste companies definitely see that the attributes of these businesses are similar to theirs, if not better than theirs. And they're putting money into this business as well. So if I'm just doing that in my head, so you're saying, look, five years out, 900 million in EBTA, let's assume that all the free cash flow between now and then goes to growth cap X, though I think that's kind of an aggressive assumption.

So, 900 million EBDA, 15x multiple, if it's kind of the waste multiple. So you're getting to 13.5 billion of EV. They've got, what is it right now? Like, two billion of debt. So you'd get 11.5 market cap. And you get 11.5 market cap. I think they're around three is the market cap post IPO. So you're kind of looking at a three to four bagger on that math.

Am I kind of doing that right in my head? Yeah, yeah. Okay. Let me ask just two pushbacks on the multiple, right? And I don't think it super matters because you could do the same math that I just did on a 10x. And you would still get a pretty solid return over the next two years, but over the next few years. But let me just do some pushback on the multiple. I mean, I do hear you on the 15x, right?

Like these are quality businesses. But I guess the two things I'd point to is waste connections. You mentioned they bought some stuff. But, you know, when I think waste, I guess it's permanency of the assets is what I think. Like, people are going to come, AGR or whatever, 100 years from now, people are going to be, you know, their trash needs to be taken out. I don't know if the Permian is going to be getting drilled in the same way, call it 30 years from now. So, I mean, maybe, but are we, is the difference between this at 10x and the 15x that waste connection should get? Is it kind of the questionability of the terminal value of the.

assets. Does that make sense? I think that, well, the walls are going to produce for a long time. So over a decade. So even if you drill, if you're drilling 10 years from now, you know, those walls will still be gone. But, yeah, say it deserves a slight discount because you have a little bit more terminal value risk there. or maybe there's the perception that the revenue is a little less resilience because it's tied to oil and gas.

Yeah, look, I don't think it's matter. I don't think it like crazy matters, but. Yeah, let me finish. But, okay, so say, say you, it deserves a little bit of a discount. But then I would say, well, what premium would you give to it that it doesn't have to pay for the trucks? I mean, look at the ROIC of a municipal waste company. I mean, they're horrible. I mean, 10%, 11%, they're growing, they're growing,

but they always have to replace the trucks. Like, you don't have the collection assets that the municipal waste sets. And so, yeah, I mean, are there some attributes of the municipal waste companies that I'd like to see in this business? Yes, maybe, you know, you should get knocked it a little bit. Yes. But on the other hand, you got to, you know, with respect to the maintenance cap-ex that you don't have here, I mean, that's a big premium.

Great point. Let me ask you, if I put oil prices to the side, because we mentioned oil prices, you know, Permian is going to be producing a 50. Permian is going to be producing. If you said oil prices are going to 10, this probably isn't the investment for you. But if I put like just dramatic collapse in oil prices to the side, what keeps you up at night about water bridge? Or alternatively, you know, we talked about a lot of this growth is built in. It's MDCs. It's contract pressing all this sort of stuff. Again, what breaks this? What keeps this? What keeps you up at night? What could stop that inevitable March to the 900 we talked about where, you know, if we're recording this on your 10th broadcast appearance, three years

from now, we say, hey, this didn't work out for X, Y, Z reason? Yeah, I think that, you know, some environmental disaster or something like that, a pipeline breaks, you know, you have some, yeah, some expensive lawsuit, you know, some, some, uh, remediation work that's real expensive. I mean, that would be, that would be a, that would be worrisome. You know, I think that, you know, I don't think it's a long-term risk, but anytime you have something that's complicated with respect to like this, where you have the sister company of Landbridge and Waterbridge,

it's always going to be ripe for short reports to attack it. And so, yeah, you may wake up one day and it'd be down 20% because some short report came out, you know. I don't think that is like a long-term, issue for the business, but, you know, it doesn't make it fun in the short term. This is completely off the cuff, so forgive me for this, but on the remediation and pipeline spill, I mean, I've been involved with pipeline spills before and on the oil side. And it's a disaster, right? It's generally pipeline spills in the ocean, but even on the ground, it's a disaster.

Oil kills everything, it coats, everything kills everything. If you had a pipeline spill here, I mean, I understand this water is not potable, right? You and I aren't going to go drink this water or something. But if you got to be like that. Yeah, it's corrosive. It's nasty. stuff. But would it be as big a disaster as oil or because it's, I mean, at its base, it's water, would it be like, hey, you know, eventually it evaporates and it kind of goes away and it's not as bad. Like, you know, an oil spill, we're talking hundreds of millions of clean up here. If there's a spill, is it tens of millions? Is it single digit millions? Yeah, I don't know. Probably drive a lot of business to their landfill.

So if it was their customer that, if it was a customer that caused this bill, it would be fantastic. It could be business generative for them. But that is true. I was just curious because, you know, sometimes it does help when you quantify the actual downside. You know, I do merger arms. Merger arm, you're always worried about the breaking the downside. But every now and then, you'll have something where it's like, hey, in between the deal announcement and the deal closed, they announced four new contracts for 100 million. in each, guess what? The downside used to be 40, now the downside's 50, and that completely

changed the calculus. If the downside here is oil spill a la Exxon Valdez, and you know, we're talking billions of cleanup costs, that's one thing. If a spill here is, hey, we need to go, I don't know, take hair dryers and evaporate all this water. I think the environmental damage of the Exxon, you know, Valdez in the ocean is probably much more dramatic than it is in the middle of the desert and the most desolate part of the country, too. That's exactly one of the many things I was driving to, right? Like, it is very desolate pieces of the desert, so maybe a spill can be remediated in a lot of cheaper ways than kind of we think about spill. I mean, oil prices are obviously like the, you know, the big risk that you want to keep an eye on. I think that it could be

a good thing to have the oil prices in the short term just to prove out the resilience of the thesis, but, you know, definitely inside of oil. And then, you know, the, you know, the, the land bridge, water bridge, you know, common management dual stock kind of structure just makes them acceptable to, I mean, they have to manage the conflicts. Well, they've done it in the past. I think they'll do it in the future. But, you know, you'll have short reports coming out where they, you know, make some claims. Yeah. So I've probably asked four questions on the potential for conflicts of interest. And I think you've had good answers and they've managed this for years. But you've said it is there. A short report will probably come out at some point highlighting the

conflicts of intro, so on one side or the other? They already have. Oh, really? I hadn't seen any. There's one that came out before Waterbridge went public, but yeah. Okay, I will go find that, but why you can have these as different businesses? I understand, like, it just, it strikes me that just the integration would make a lot of sense here.

Well, the integration operationally makes a lot of sense, which is why they do it. But then, you know, you look at land royalty companies like Texas, specific and land bridge can trade 25 to 40 times EBDA, that is not going to get appropriately valued within a water bridge. And so it makes sense to have that separate. I think I hear you though, you know, if you, I guess at the same time, if you put these under the same roof and you start, you did segment earnings and started breaking them out, everybody would just say, oh, you're, you know, how are you doing segment pricing? So they probably have the same issues and you'd never get the multiple, but it does strike me that it just seems like these businesses

belong together. Well, as a shareholder of both, I'm kind of like having them separate. And, you know, if it makes people more comfortable, you know, I'm a larger shareholder of Waterbridge, so. That's great. I think we've covered everything I wanted to cover. Anything else you want to talk about or anything listeners should kind of go away thinking about?

I think we're pretty good. I mean, you know, the thesis is pretty simple. There's a lot of organic growth within the next few years. It wouldn't surprise me if they do an analyst day, which I really think is needed because, you know, right now, most of the people that are looking at this are energy investors or midstream investors. You want to get the waste guys looking at it. You want to get the generalists looking at it. The concept of force base is tough initially to get your arms around. I mean, it worked out for me because, you know, I was invested for years in TPL.

I would see the royalties that they would get paid for their produce water business. You know, I owned some waste companies. I sat down with the secure guys at a conference and they explained the business to me. And so for me, it was a little easier to get because I've had so much exposure to it. But I think Land Bridge and Water Bridge, like you really need to have it, Investor Day. And, you know, now that they're both public, I would see it. I can see them doing that in the next, you know, two, three, four months. Forget the Investor Day. You know what they needed. They needed you to come on this podcast because I know you came on this podcast for Secure,

what, 12, 15 months ago or whatever. And then all of a sudden the trail, you mentioned the generous. How many journalists do you see having, having, they write their letters. They say, hey, new position, secure it used to be secure energy. Now it's secure water solutions. Yeah, yeah. Secure's got a nice cadre of fans on on Substack and Twitter that, you know, Canadian companies are a little bit different there where you don't have to report you being a shareholder unless you're over like 10%. And so there are some pretty clever funds that I do know that are within the secure shareholder base that I wish they would disclose their positions because it would help get a lot more exposure to that company.

But you brought up Lambridge on the secure call that we did, and Lambridge got inbound calls because of that. And so that helped me get closer to the management team and probably secure a larger allocation of the Waterbridge IPO. So I have you to thank for that. Good for you, man. That's awesome. Cool.

Well, hey, Chad, this is great. I'm going to go count up the podcast because if this is the fifth one, we're losing the time for the next one. You've got the exclusive yet another value podcast shirt. coming in the mail. But this is great. Looking forward to chatting soon and looking forward to the next podcast. All right, man. Have a good day. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

Thanks.