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Select Water Solutions, Inc. (WTTR)

Q4 2013 Earnings Call· Mon, Mar 10, 2014

$16.87

+2.12%

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Transcript

Operator

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Nuverra Fourth Quarter and Full Year 2013 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Monday, March 10, 2014. I would now like to turn the call over to Ms. Liz Merritt, Vice President of Investor Relations and Corporate Communications for Nuverra. Please go ahead.

Liz Merritt

President

Thank you, George, and good afternoon, everyone. Welcome to the Nuverra Environmental Solutions fourth quarter and full year 2013 financial and operating results conference call and webcast. With me here today are Mark Johnsrud, Chief Executive Officer; and Jay Parkinson, Chief Financial Officer. Before getting started, let me quickly cover the Safe Harbor. Today’s presentation will contain forward-looking statements about our expected financial operational performance, including revenue growth, the expected performance of our businesses and our strategies, products, cost controls and related matters. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from our projection and include a variety of factors, some of which are beyond our control. Potential risk factors that could cause these differences are described in our SEC filings, including our Form 10-K filed with the SEC today, our current reports on Form 8-K and our earnings release posted on the Nuverra website. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website at www.nuverra.com. All information provided on this call today is of today, March 10, 2014, and Nuverra undertake no duty to update or revise this information based on new information, subsequent events or otherwise. Today’s discussion will also include certain non-GAAP financial measures including adjusted EBITDA. Reconciliation of our non-GAAP results to the GAAP results we consider most comparable can be found in our press release. With that, I would now like to turn the call over to Mark Johnsrud, Nuverra’s Chief Executive Officer. Go ahead, Mark.

Mark Johnsrud

Chief Executive Officer

Thanks, Liz, and thank you, everyone, for joining us today. 2013 was a transformative for Nuverra. We took decisive actions to enhance long-term value for our stakeholders and clear the path fully and effectively focus on enhancing our one-stop shop model for environmental solutions to Shale oil and natural gas industry. During the fourth quarter, we executed on key initiatives that we spoke about on our third quarter conference call, making significant strides further strengthen our business model enhance the value proportion for customers. First, we advanced the process to divest the TFI business. I am very pleased to say that we have executed a definitive agreement with VeroLube to sell TFI for $175 million, comprised of $165 million in cash and $10 million in VeroLube’s stock. As we said last quarter, the sale enables us to concentrate exclusively on growing the Shale Solutions business. We anticipate closing the transaction in the second quarter and using the proceeds to pay down debt. Second, we amended our revolving credit facility to enhance liquidity, improve our financial flexibility. We also have preliminary commitments to further upsize the facility to $245 million. The newly revised facility supports our organic growth plans and the development of our new solutions for the environment and logistical needs of our customers. The facility further enhances us to fund future growth projects, such as our new pipeline in thermal treatment initiative which we will discuss in more detail in a few minutes. Lastly, we made investments to expand our comprehensive suite of solutions to proactively meet the rapidly changing needs of our customers. In future, we see regulatory shift towards stricter environmental standards around the consumptive use of fresh water for drilling and completion activity. These activities support our philosophy that it’s preferable to take a leading role…

Jay Parkinson

Chief Financial Officer

Thank you Mark and thank you everyone for joining our call today. Results for the fourth quarter 2013 came in ahead of our internal expectations which called for a flat and sequentially down quarter from the third quarter with our increased activity level particularly in the Bakken Shale area, as operators begin ramp for what appears to be a more robust 2014. Jumping to the fourth quarter results, please note that for comparative purposes I'm going to discuss our financial results inclusive of Thermo Fluids which was moved to discontinued operations during the quarter. This should give investors as a better understanding of the sequential results and allow a better comparison to previous quarter. Revenues for the fourth quarter were $154.5 million which compares to $162.6 million in the third quarter and $113.2 million in the fourth quarter of 2012. Adjusted EBITDA for the fourth quarter was $25.7 million which compares to $25.1 million in the third quarter and $14.7 million in the fourth quarter of 2012. Our reported net loss for diluted share in the fourth quarter was $0.53 which compares to a loss of $7.80 in the third quarter and net income for diluted share of $0.25 in the fourth quarter of 2012. Reported net loss was inclusive of several non-cash and non-recurring items, which I will discuss later. Actual reported results reflecting TFI as a discontinued operations produced fourth quarter revenues of $128.4 million and adjusted EBITDA of $23.3 million. In the Shale Solutions segment, revenues in total were down approximately 2.6% but there was variability by basin. We did see some uptick in specific basin particularly in the Bakken. Before I get into detail on each basin and include commentary on outlook for each one, I want to emphasize that we expect first quarter 2014 activity…

Operator

Operator

(Operator Instructions) Our first question is from Michael Hoffman with Wunderlich Securities. Please go ahead.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Hey, congrats on a quarter that was going to be tough and it came true. TFI in the press release from VeroLube itself, they make a reference to the cash portion of the transaction is subject to adjustments based on actual working capital at the date of closing. Can you help us understand what their concerns are?

Jay Parkinson

Chief Financial Officer

Well, Michael, it’s Jay. Basically you agree to leave -- agreed upon level of working capital of the business based on historical norms and to the extent the working capital was above that, it’s an adjustment of cash to us. And if it’s below it, it’s an adjustment of cash to them.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. So you don’t see any issues there with regards to working capital?

Jay Parkinson

Chief Financial Officer

No.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

All right. And then the shares, do they have a lockup?

Jay Parkinson

Chief Financial Officer

They do. It’s going to be a minimum period, but they will be able to probably distribute those.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. And then on the Haynesville, what are the issues there, you talked about in the past the legacy company underpriced the pipeline, what’s your opportunity to be aggressive about repricing that pipeline?

Mark Johnsrud

Chief Executive Officer

Michael, this is Mark. Part of the pipeline is under contract and part of it is. And what we will address first is the part that’s not under contract, and so that as there becomes more and more rig activity, we will start to speak with customers, work with customers, and start to increase our pricing first what’s delivered by a truck. And then secondly, we are going to take a look and we are reviewing contracts as we speak to take a look at what our plans are, as we look at repricing our services.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

So how should we think about the pace of that as we go through ’14 into’15?

Mark Johnsrud

Chief Executive Officer

I think within a quarter we are going to be able to give you a lot more granularity about that.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. And then, Jay, you made references to the K and I didn’t notice, is it out today already?

Jay Parkinson

Chief Financial Officer

Yes, just got filed.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. So did you -- you reached to organize the business around three segments, Rocky Mountain, Southern and Easter, is there segmental revenue data and EBITDA data that’s going to be…

Jay Parkinson

Chief Financial Officer

Not in this one. That’s something that we would look to do in fiscal year ’14.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

So can you give us some framing of what that segment breakout looked like in the fourth quarter and kind of how to think about that?

Jay Parkinson

Chief Financial Officer

Not beyond what we have disclosed Michael which is we kind of breakout the oil and the gas basin and it’s hovered pretty closely around 70:30 on the oil. Now the majority of the oil based revenues is Bakken related revenues.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. All right. I will stop and let somebody else ask and then maybe I will come back in the queue.

Jay Parkinson

Chief Financial Officer

Okay. Thanks.

Operator

Operator

Thank you. Next is Joe Giordano with Cowen. Joe Giordano - Cowen & Company: Hi, guys, how are you doing? Thanks for taking my call. I guess my first question would be more on M&A and how you see the landscape now. And do you think that that’s --how do you see M&A and how do you reconcile that with you best way to may be gain critical mass in other basins and stuff like that?

Mark Johnsrud

Chief Executive Officer

I think what we are looking at today is we want to make sure that we are adding new business segments that complement what we’re already doing. As we break this down into drilling, completion, and production I want to make sure that we are filling in, in basements that we do not have critical mass in and then yet, but we are trying to make sure that we are complementary so we can provide the one-stop shop in each basin. Joe Giordano - Cowen & Company: I guess is it something like can you get there via bolt-on or are we thinking more or something a bigger splash entry into the market that kind of thing?

Mark Johnsrud

Chief Executive Officer

It’s always very hard to comment on that. I think we’re opportunistic looking at both. I mean, clearly, we talked a fair bit historically about the fact that we do think that this is a industry where consolidation would be healthy. At the same time, we also look pretty regularly at bolt-ons. We did some last year to gain presence in certain basins. We did some in the Utica. So I’d be very reticent to make a blanket statement, but I think that we wouldn’t rule it out. I will say that our M&A strategy tends to be very focused on what we’re doing right now. I don’t think we’re at this point looking at any type of acquisition that would be a real step-out. It’d be really continuing to build up what we’re doing right now. Joe Giordano - Cowen & Company: Okay. And if I could follow on with margins. So shale at 21.6%, in the first half of 2013 you guys were at just below 24%, but remember there was a lot going on internally in terms of moving some assets around. So what would you say, once we’re past the weather and things kind of normalize there? What has to happen to get to those kind of margins that we saw in the first half of 2013? And how would you categorize that as? How does that fit now that you done that work in terms of the reorganization? How should we think of margins potential in that room -- in that light?

Mark Johnsrud

Chief Executive Officer

Yeah, I think that’s something that we think achievable, given kind of the pickup levels we start to see. I mean, we did see sequentially 4Q over 3Q. We did see a pretty good pickup, which is particularly pronounced in some other areas, like the Bakken. And then we think there is some more opportunity in the Haynesville on the margin front as well. So I think getting back to the 1Q, 2Q levels or something that we think is achievable given the scale or the ramp we see probably in 2014, particularly in the back half of 2014. Joe Giordano - Cowen & Company: Great. All right. Thanks, guys.

Operator

Operator

Thank you. Next is Scott Graham with Jefferies and Company. Please go ahead.

Scott Graham - Jefferies and Company

Analyst

Hey, good afternoon, Mark and Jay.

Mark Johnsrud

Chief Executive Officer

Hey, Scott.

Jay Parkinson

Chief Financial Officer

Hey, Scott.

Scott Graham - Jefferies and Company

Analyst

I was wondering just sort of on a housekeeping basis. Jay, you guys were kind enough to give us the revenue and EBITDA of the separate discontinued ops. Could you give us because our models are based on inclusive of TFI? Do you have a cost of sales and G&A numbers inclusive of TFI, like what the P&L level look like?

Jay Parkinson

Chief Financial Officer

Do you want the number inclusive of TFI?

Scott Graham - Jefferies and Company

Analyst

Yes, just couple more usually.

Jay Parkinson

Chief Financial Officer

On the general administrative side, you probably had in the range of the $1 million at TFI.

Scott Graham - Jefferies and Company

Analyst

Okay.

Jay Parkinson

Chief Financial Officer

So we had about [1.8] (ph) amortization this fourth quarter, about 1.8 of amortization at TFI.

Scott Graham - Jefferies and Company

Analyst

And cost of sales, what the…

Jay Parkinson

Chief Financial Officer

Cost of sales at TFI in the range of call with depreciation, call it 23.

Scott Graham - Jefferies and Company

Analyst

That’s great. I heard you Mark talked about having to change out leadership in the Haynesville. We did the same last year in the Eagle Ford. Where are you with your base in leadership right now?

Mark Johnsrud

Chief Executive Officer

I think what we’re really doing is we changed out some in the Eagle Ford, but really in Haynesville what we did is we’ve just added to that. There is a really good crew that we have down there, but we wanted to bring in some more experience just because we think we can -- there is more business that we have down there. So, we brought in somebody that had a lot of knowledge of the area. Now overall, I think we’re actually pretty good. We are really excited about Cary Longie joining us in the Bakken. We still plan on hiring two more presidents, one in the south and one in the east. But as we’re visiting with people, as we’re looking at other opportunities, we’re just trying to be very selective on who we bring into the fold. With that been said, the guys that we have in place right now are doing a very nice job. So we’re just trying to make whoever we had just a very additive to the team.

Scott Graham - Jefferies and Company

Analyst

Got it. Okay. As you sold TFI, one of the marketing pictures, I’m sure you had to your customers was the handling of their cuttings and using TFI, it’s a sort of leverage that as a solution. Is this disruptive to that in any way?

Mark Johnsrud

Chief Executive Officer

No, it’s not disruptive at all. What we’re finding right now is that there are certain processes in place and we really kind of stop where the existing process goes in place and we manage it from the well side through the rest of the process. That’s what we’re doing in the Bakken. In other locations, we’re providing services around it, but we do not see any disruption at all from not having TFI part of that process.

Scott Graham - Jefferies and Company

Analyst

Understood. Thank you. And last question is more along the lines of kind of still what you need, gets back to an earlier question about acquisitions, I guess. In the Bakken, you largely have an end-to-end solution for your customers. Your customers may have different needs in Marcellus, Eagle Ford and Haynesville, but I can’t imagine that they will be substantially different needs. What are you missing in each of those three the non-Bakken shales to really be able to kind of add to work to this model?

Mark Johnsrud

Chief Executive Officer

Scott, as we’re progressing and as the maturity of each region changes, there is also the environmental piece that is very different in each one of the basins. For example, we think in the Bakken, the pipeline is going to be a very nice complement to what we’re already doing. But if we look in the Utica and the Marcellus, I’m not sure water pipeline long term is going to be part of that solution package or not. So I think that each area will be really uniquely different. So I guess what are we looking to add, let’s say in the Bakken today? We are going to be looking at adding pipeline through our solution base. We are really excited about thermal absorption process, and we see that will fit very nicely also in the Marcellus and Utica. And then I think other thing that we want to do in the Marcellus and Utica is just grow our overall presence. We have a really strong presence, but I think we can make a much stronger presence. And definitely, we want to spend some more time with the solids and the cutting. As we look into the Haynesville and Texas, the Haynesville, we have a very nice position. We get into the Eagle Ford, I think that's an area that we’re still expanding what we want to do down there. That's been just a little bit tougher price basin right now.

Scott Graham - Jefferies and Company

Analyst

Understood. That’s helpful. That’s all I had. Thank you both.

Mark Johnsrud

Chief Executive Officer

Thank you.

Operator

Operator

Thank you. Next we have Gerry Sweeney with Boenning. Please go ahead. Gerry Sweeney - Boenning & Scattergood: Good afternoon guys.

Mark Johnsrud

Chief Executive Officer

Hey, Gerry. Gerry Sweeney - Boenning & Scattergood: Couple of quick questions. In the past, you talked about utilization, given some indication where some of that assets -- are you able to do that? And a sub-question to that is, would you be able to do that on and give us any indication on utilization by region?

Mark Johnsrud

Chief Executive Officer

No, that’s something that’s hard given kind of how we manage and bid some of the services. I would say kind of what we talked about from a broad brush is we think there are opportunities to increase utilization with the current fleet. You would probably kind of broad brush, you kind of in the probably 60% to 70% effective utilization, essentially against the fleet. So I think there is room to get that up. There is more room in certain basins and less room in others but that’s kind of where we stand today. Gerry Sweeney - Boenning & Scattergood: And then switching gears a little bit to the thermal disruption, most of the driver behind us, I know there’s is a regulatory front towards the environmental side. But I mean, if there is some key legislation in any of the states that are pending or are you working with the states that we can actually see something at the time catalyst for this or is this going to be a gradual process where some of the larger players come in and just think it’s a better environmental footprint and better for the industry?

Mark Johnsrud

Chief Executive Officer

I think its going to be -- it’s going to be better from an environmental standpoint and then as we get into the pad drilling, where in the past, in the Bakken for example, that the cuttings were left at the well pad. There’s just going to be too much concentration from what we see and that’s going to have to be moved off-site managed, otherwise there is kind of potential for some environmental problems. In other basins, where it’s all being moved to landfill, we think that there is an economic benefit to using this process and of the same time we think some of the by-product coming from the cutting, both have the margin for us in it but also we think that there's a recycling process that really have some value for both us and the customer. Gerry Sweeney - Boenning & Scattergood: Okay. Thanks, that’s helpful, I appreciate it.

Operator

Operator

Thank you. And next is Sean Hannan with Needham & Company. Please go ahead. David Rold - Needham & Company: Hi there. This is David Rold on for Sean Hannan. Hey, first question is housekeeping item on TFI. Were you able give out total gallons collected in 2013?

Mark Johnsrud

Chief Executive Officer

No, it’s pretty close to kind of that, that 50 million gallon mark. David Rold - Needham & Company: Okay. Thank you. Switching gears to gas, some industry reports that active rig counts industrywide are down, somewhere in the range of 20%. Can you talk about your presence though active rigs you sharing at 20% decline? Where is your exposure there?

Jay Parkinson

Chief Financial Officer

Yeah -- we don’t totally agree with -- I don’t know what report that is but we haven’t seen that the magnitude of that decline in terms of rigs. We’re actually probably seeing increases right now. David Rold - Needham & Company: Okay. That’s helpful. Moving on the oil, some speculation regarding customers building their water pipelines and potential negative impact to you guys. Can you talk about the puts and takes from revenue perspective helping them do so, potential hit to margins? Any color you could add there?

Jay Parkinson

Chief Financial Officer

I would say for the most part, the discussions we have around that are our customers coming to us and asking us to build some of the pipeline systems which is what we’re referencing in our remark. So we think it’s very complementary to what we’re doing and pretty exciting. I think, certainly as you see the basins mature and you see the ratio of productions increase as a percentage, kind of, total locations. It’s something that will become a bigger and bigger issue. We’re not seeing a massive trend at least among our customer base to in source all that. David Rold - Needham & Company: Okay. And finally just on interest cost going forward, what you be modeling?

Jay Parkinson

Chief Financial Officer

You can back in. I don’t think I’m going to -- we'll probably adjust that once we done with the TFI sale. But we released the rates on the new facility. We don’t think those will change with the upsize of it. David Rold - Needham & Company: Okay. That’s it. Thank you.

Jay Parkinson

Chief Financial Officer

Thanks.

Mark Johnsrud

Chief Executive Officer

Thank you.

Operator

Operator

Thank you. And next we have Eric Stine with Craig Hallum. Please go ahead.

Eric Stine - Craig Hallum

Analyst

Hi guys, thanks for taking the questions.

Mark Johnsrud

Chief Executive Officer

Eric, how are you doing?

Eric Stine - Craig Hallum

Analyst

Fine. Maybe just a few quick ones from me, just in the Eagle Ford, I know you’ve had the operational challenges you’ve referenced those have persisted for a while. But it sounds like confidence that you’ve reached the bottom there. Is it the change in our leadership that gives you that confidence or there are some additional steps that you need to do. And then in addition just talk about some lessons learnt there, how you avoid some of the issues you’ve had there as you expand into other basins?

Mark Johnsrud

Chief Executive Officer

I would say kind of where we are in that basin, today as we really spend some of the decline. I think a lot of that has been around cost control, getting a better handle on some of those costs. I think as it relates to maybe a look back on that, that’s certainly something that will probably highlight the benefits of having scale in a basin. And then as we think about it from a strategy position, having a subscale position presents us challenges. It can be great in an up market. It can be more challenging in a flattish to down market. And so it really highlights how we really want to built leading position in each of the basin.

Eric Stine - Craig Hallum

Analyst

Got it but you feel like, you are cutting those cost but you will have the scale going forward, I mean even with those cost cut?

Mark Johnsrud

Chief Executive Officer

I think its something that's very strategic for us. It’s obviously a great basin from the operator standpoint and probably something we look -- now you think you got it contained probably something that we’re going to look to continue to grow in the future.

Eric Stine - Craig Hallum

Analyst

Okay. Thanks for that and then may be just all the commentary on the weather, thoughts on weather that causes some pent-up demand. I mean how do you envision 2Q to 4Q and may be just indications in March, any tangible signs of pick up or is this more just based on conversations with people out in the field?

Jay Parkinson

Chief Financial Officer

No what we’ve seen is December, it just kind of start in December. December was -- especially the Bakken was very cold and we just saw less operating days. In January and February we’ve seen some of the same thing. So far in March it looks like where activities are kind of trending to what will be more normal. When it’s really cold and it’s extended at 10, 20, 30 below, things just don’t move as fast and that does become problems and companies just quit fracking. They shut down because it was -- it became very dangerous. I guess what we also have seen is in the drilling side, we have seen more on tracked wells at the end of February and that has been for quite some time. So what will see as we will see more activity as the weather gets nice. We look now in the Bakken anyway. The weather is back towards very descent and I think activity will rebound very nicely.

Eric Stine - Craig Hallum

Analyst

Okay, so you are expecting Q2 to actually be a pretty nice sequential increase from Q1, I mean that rather than just a modest increase throughout the year.

Mark Johnsrud

Chief Executive Officer

Yes, what I can say is that is more than just a trend of what we would anticipate. We are seeing our customers, all talk about it as they put capital into the basin. We are seeing a lot of activity.

Eric Stine - Craig Hallum

Analyst

Okay. Thank you very much.

Operator

Operator

Thank you. And our next question is from David Rose with Wedbush. Please go ahead.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Hi, good afternoon. I have a few follow up questions if you don’t mind. I was wondering if you could provide a little bit more specifics in terms of what drove the Bakken revenues for you, was it more rental equipment, more trucking, combination, mix of assets and -- or is there something else that you might want to add, please fill us in. And then on the landfill, I think you were targeting about $2 million in EBITDA for the fourth quarter that was third quarter commentary. I am not sure how much of that you got in the fourth quarter then you can shed some light on that as well then I have a couple of follow-ups?

Jay Parkinson

Chief Financial Officer

Hi, David. This is Jay. So I would say in the Bakken, we saw, pretty much improvement across the board. We did see for the first time in a while, we saw the rental obviously had some challenges there. That turnaround in the quarter, we saw that pickup but then really I think across the board you saw an improvement there.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay and then my...

Jay Parkinson

Chief Financial Officer

And I guess, again I would say part of what drove that is we incurred some expenses in the third quarter that we try to ramp up and I think you also saw some benefits from that as well.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay, that's helpful and then landfill?

Jay Parkinson

Chief Financial Officer

Landfill we have said on a run rate basis, we thought it would get to about $2 million a quarter, I would say in the fourth quarter, we were not yet at run rate. You are probably about half way there may be a little more.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay. And then if you could, walk us through a little bit more on some of the initiatives that in terms of the Eagle Ford and Haynesville, in terms of cost containment, maybe provide us some buckets of cost containment, was it headcount reduction or certain thing from logistics?

Jay Parkinson

Chief Financial Officer

Right. One of the, couple of things we were doing, well, I think probably the biggest thing in the Eagle Ford, what we were doing there was the utilization we are getting on our drivers in terms of the percentage of their time that was, that we were bearing the cost versus what they were actually producing revenue, wasn’t where it needed to be, so we had some downtime there, that was probably a function just a logistical challenge in the basin, having to move people in different areas to other areas. I said that was probably the biggest issue in the Eagle Ford.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

And then in Haynesville?

Jay Parkinson

Chief Financial Officer

Haynesville, what we have benefited from there by and large is then just improvement in overall activity which offset some of the fixed cost. We did take some headcount out of the Haynesville, more on the back office side on the revenue generating side and that's probably a function of as we -- we just started some synergy through a bigger platform so accounting and some of the back office stuff, we are able to take some cost out from that standpoint.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay. That’s helpful. And then one last one if I may, on the pipeline, your expectations of building up the pipeline in Bakken? Can you be a little bit clear on that? I mean you are talking about fresh water pipeline and there are competitors in the space right now. So I understand many people had challenges in permitting. So if this is mostly fresh water, can you talk about timing, what you have to do from a permitting perspective and how far you are in the process of building out a water pipeline?

Mark Johnsrud

Chief Executive Officer

This is Mark, David. What we are really looking at more production water pipelines, not freshwater pipeline. A wash project up there does, I think an adequate job of delivering water to the largest percentage of the basin. We really see is as companies are coming in and they are looking at drilling 12 wells in the mile. We think that it’s start to have enough core competency or core amount of volume that needs to be moved everyday, that's where it starts to become economic for pipelines to make sense. We know there is one well every mile that really didn’t make economic sense but as you start to change that and now we start talking look at the length of the time and its going to be move, we really seeing managing. We are not just putting the pipeline in but also managing that for the next 20, 30, 40 years, it is also very-very important. One of the other things I would like to make sure that you are aware of is that we are working very closely with the state to make sure that we are putting pipeline in that also has all the controls and all the mechanisms and kind of the bells and whistles that is start-of-the art, so that we don’t have problems at some companies and experienced to this point. There is a task force and the state putting a regulatory process to make sure that there are minimal standards as to the way they are being put in and we think we really support that.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay. So these sounds like something that we are not going to see any materials benefits for a couple of years? Is that fair?

Mark Johnsrud

Chief Executive Officer

No. I think that its going to be toward the tail-end of this year would be the earliest.

David Rose - Wedbush

Analyst · Wedbush. Please go ahead

Okay. Thank you very much. I appreciate the help.

Jay Parkinson

Chief Financial Officer

Thanks.

Operator

Operator

Thank you. And next is Scott Levine with Imperial Capital. Please go ahead.

Scott Levine - Imperial Capital

Analyst

Hey. Good afternoon, guys.

Mark Johnsrud

Chief Executive Officer

Hey, Scott.

Scott Levine - Imperial Capital

Analyst

So, just to clarify on the outlook for ’14, on the last call you’d indicated that you saw qualitatively mid-teen type growth in 2014 and it sounds like you are encouraged by what you saw in the fourth quarter from the business, outperforming internal expectations, heard what you said, I think, Jay, down 10, 20 sequentially in Q1 with the weather, but anecdotally is there any reason to believe your outlook for the market, is any different than it was, when, at the time of your 3Q call or are you more optimistic based on what you saw 4Q progress?

Jay Parkinson

Chief Financial Officer

I would say no change, we might be little more optimistic about what we are seeing.

Scott Levine - Imperial Capital

Analyst

On an underlying basis but then layer on top of that the weather?

Jay Parkinson

Chief Financial Officer

I think weather would definitely be an impact in Q1, which we don’t think is reflective of general activity levels after that. But I would say if you think about more in terms of full year, we feel pretty comfortable with what we have say -- said earlier on a macro basis.

Scott Levine - Imperial Capital

Analyst

Understood. And then with regard to the geographic footprint, any thoughts on getting into some additional markets, I mean, I don’t know what you got in terms of thought process, maybe Permian or some additional market so as to focus, for the most part growing within your existing regional footprint?

Jay Parkinson

Chief Financial Officer

I would say the one market right now that will probably underserved in as the Permian. I think, as we think about the strategy, one thing we got to be careful, as I referenced earlier is going into a market, not having a scale to meet return on capital hurdle we wanted to achieve. So that's certainly something that we will have to think through, to think about our strategy. But other than that I think we have a good position in the markets, obviously we would like to grow our position in the Eagle Ford and then the other basin where I think we have a very strong position.

Scott Levine - Imperial Capital

Analyst

Got it. One last follow up on the Eagle Ford, would you say that the business or the business environment. It sounds like operationally you have gotten stronger there but from a market prospective on the margin are things better, worse or the same as what you saw in, let’s say Q3 for example?

Jay Parkinson

Chief Financial Officer

I would say about the same, but I think -- from a macro standpoint I think we have made some progress there, but from a macro standpoint I would call it about the same right now.

Scott Levine - Imperial Capital

Analyst

Got it. Thank you very much.

Jay Parkinson

Chief Financial Officer

Okay. Thanks.

Operator

Operator

Thank you. And our final question is from Michael Hoffman with Wunderlich Securities. Please go ahead.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Thanks for taking follow up.

Jay Parkinson

Chief Financial Officer

Sure.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

So just a hitchhike on, Scott’s question, there was out there in the second half last year talking about sort of high single low double-digit E&P capital spending growth, which you should participate in and about that rate, is that, I just want to clarify that as oppose to there is a double-digit number out there?

Jay Parkinson

Chief Financial Officer

I think it depends on what basin you are looking at and obviously, that relates to, there is some operating leverage to that model. But I think I have seen estimate anywhere from high single digits to mid-teens I will call it, particularly in some of the basins we operate in. So that’s what colors our view point there.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. And this when we talk about that we are talking about that against the Shale Solutions numbers on a comparative basis?

Mark Johnsrud

Chief Executive Officer

Right.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Right. And then we should get some operating leverage as you continue to improve your performance in Haynesville even if you are flat in the Eagle Ford and then there is organic growth in the Bakken and Utica, there should be operating leverage relative to the topline?

Mark Johnsrud

Chief Executive Officer

Correct.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. And then the last -- the down opportunity in the first quarter, 100% of that gets made up across the three quarter? Is that the way to think about it?

Jay Parkinson

Chief Financial Officer

I would say, at least, maybe I’ll be a little bit careful predicting that. I certainly think it’s not lost revenue, I think its differed revenue, whether we get 100% of it back, its hard to say at this point, but I think we will get the revenue back one way or another.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. And then 2Q ’13 had some weather issues related to all that rain in the Bakken? So I think I am hearing I have got an easy comp plus, better activity plus push out of some first course, so Q2 could be really handsome, is that...

Jay Parkinson

Chief Financial Officer

It certainly could be.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay.

Jay Parkinson

Chief Financial Officer

I would say very encouraging from our what our customers are telling us now, Michael.

Michael Hoffman - Wunderlich Securities

Analyst · Wunderlich Securities. Please go ahead

Okay. All right. Great. Thank you very much for the follow-up. I appreciate it.

Mark Johnsrud

Chief Executive Officer

Thanks, Michael.

Operator

Operator

Thank you. And I’d like to turn the call back to management for closing comments.

Mark Johnsrud

Chief Executive Officer

Thank you everyone for joining us this afternoon. We appreciate your interest in Nuverra and look forward to updating you on our progress during the next quarter we report.