Midland energy resources case solution cost of capital

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Midland energy resources case solution cost of capital

If you are invested in fracking or Permian-related stocks, this is a must-read article.

Midland Energy Resources Inc Cost of Capital | TopCaseSolutions

This is a franchise company with a wide moat and it boasts a vastly superior business model. Select is growing rapidly and has a pristine balance sheet. Demand for its services is rapidly growing and its platform is now virtually impossible to replicate.

Yet, the stock is selling at just I expect the stock to earn significantly more than current estimates. Select Energy Services WTTR is a rapidly growing, high quality franchise company that provides water sourcing and water management services to companies engaged in the shale drilling and hydraulic fracturing "fracking" business.

But that is not true. It is a franchise company with a highly protected competitive position. If you want to participate in the growth of U.

Investors who own either pressure pumping or frac sand companies should read this article carefully. WTTR is a high quality company that offers far greater upside at a fraction of the commodity exposure. I also expect significant revenue, cash flow and earnings growth that will further increase the intrinsic value of the company.

The economic and geopolitical significance of this cannot be understated. What was in a marginal economic proposition dependent upon a sustained high price of oil, is today a winning economic proposition with a substantial margin of safety even at moderate oil prices.

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The optimal fracking techniques, as well, can vary significantly from basin to basin and even within the same basin.

Given the favorable economics, abundance of drilling opportunities and the increasingly favorable oil supply backdrop, it is difficult to imagine any scenario in which fracking activity does not increase significantly over the next five years. XOMwho can drill anywhere in the world, have now made U.

While these capital programs are not literally set in stone, they are the result of many years of planning and they are unlikely to change except at the margins. The three critical ingredients in fracking are sand, pressure pumping horsepower, and water.

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Most investors are familiar with the first two, and instinctively assume the business of water must be similar. That is a mistake.

WTTR is primarily in the business of providing water and water management solutions to the fracking industry and is appropriately associated with those two businesses. But there are critical differences which are not yet understood by investors broadly and that has created an extraordinary opportunity for investors.

While the demand drivers for water are essentially identical to those for sand and horsepower, the supply side drivers are entirely different. Sand and horsepower are both commodity businesses with capital the only really meaningful barrier to entry.

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But the water business is not at all a commodity business. Water sourcing and management is a logistical business that requires permits and access rights to disparate sources of water, including lakes, rivers and groundwater.

Currently, WTTR has permits or long-term access rights to approximately 1. Its franchise was cobbled together over many years and is now virtually impossible to replicate. Many of those water and easement rights are exclusive.

Midland energy resources case solution cost of capital

This water from Lake Sakakawea cannot be obtained without a permit and it has been decided that no new permits will be granted within 25 miles of an intake location associated with an existing permit. There are five permits and WTTR owns three of those permits. Because of its protected long-term water position, the company has also been able to invest in an in-ground pipeline infrastructure system to make full use of its water rights.

As a result, WTTR has a truly enviable and probably impossible to replicate competitive position.The main selection, Midland Energy Resources, Inc: Cost of Capital, which can, with some trimming, be taught in one class, introduces students to the basic steps and calculations required to estimate the weighted average cost of capital (WACC) for a multi-division corporation.

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Midland energy resources case solution cost of capital

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Midland Energy Resources, Inc.: Cost of Capital (Brief Case) Case Solution