WaterBridge, a Texas water infrastructure company that recently went public, earns about 78 cents a barrel handling produced water, with about 85% of revenue from water handling.
Davolos says oil-flat Permian output still means mid to high single-digit water growth, as water cuts rise on aging wells and lower-quality drilling, locking in durable demand.
Davolos argues WaterBridge's valuation undersells it, with midstream peers near 9 times forward EBITDA versus 14 to 18 times for waste companies like Casella, GFL and Waste Management.
WaterBridge Collects a Toll on Permian Oil's Salty Byproduct
WaterBridge collects a toll on the salty water that comes up with every barrel of Permian oil. Operators need guaranteed disposal, yet land, easements and pore space are scarce, and water volumes keep rising as wells age. Long fixed-fee contracts turn that into steady growth, but the market still prices it like midstream rather than infrastructure.
Takeaways
Produced water makes disposal the Permian bottleneck. Delaware Basin wells bring up roughly four barrels of salty water per barrel of oil and gas. Deep injection caused seismic events that drew Railroad Commission attention, so about 75% of disposal wells are now shallow and pore space is scarce.
Water volumes grow even when oil is flat. Water cuts rise as wells age and as drilling moves to lower-quality tiers, reaching 4-to-1, then 5-to-1 and 6-to-1. Flat Permian oil for 20 years would still mean mid to high single-digit water growth.
Long contracts and scarcity lock in customers. Contracts are fixed fee, favour acreage dedications, and run about 11 years on weighted average, with CPI escalators and minimum volume commitments. Davolos says switching providers is heading toward close to infeasible, and he expects consolidation.
Economics look like infrastructure but trade like midstream. WaterBridge earns about 78 cents a barrel, with run-rate EBITDA just shy of $400m at roughly a 51% margin. Davolos sees 15% or better organic growth. It trades near 9 times forward EBITDA, against 14 to 18 times for waste peers.
Land is the preferred capital-light asset. Davolos calls land perpetual, pure margin and full of optionality. Texas Pacific Land began as a liquidating trust from a railway bankruptcy. LandBridge leases acreage to WaterBridge and others, with power and data centers as next uses.
Five Point sponsors both the water and land companies. David Capobianco founded Five Point in 2012 to invest in water. Jason Long runs WaterBridge and LandBridge. Five Point bought the 70,000-acre Hanging H Ranch, sold Northwind to MPLX, and launched Powerbridge for data centers.
A hypothetical pipeline shows the growth potential. The Speedway pipeline from New Mexico into Texas is a case study, not guidance. About $3.5bn of capex, spread over five to 10 years, could yield about $1bn of EBITDA when fully used.
Davolos's closing lessons
Develop a core competency while watching for adjacent opportunities.
Favour capital-light business models.
Value land as the ultimate capital-light real asset.
Watch stable or growing Delaware Basin volume as the key indicator for WaterBridge.
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