Pat McKeough responds to many personal questions for stock investing advice and to other questions on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, an Inner Circle member asked about a company whose treatment of waste water gives it an important role in the “fracking” method of extracting natural gas and shale oil. The company will soon change its name, but it is also broadening its focus with a greater presence in shale-oil fracking. Pat assesses the company’s outlook as it diversifies by acquisition.

Q: Hi Pat: Your thoughts please on Heckmann Corp. Many thanks.

A: Heckmann Corp. (symbol HEK on New York; www.heckmanncorp.com) disposes of the waste water that results from unconventional oil and gas exploration and production, such as the fracking methods used in shale oil and gas regions.

(Fracking involves the high-pressure injection of water, sand and chemicals into rock formations to break them up and make it easier to retrieve oil and gas reserves.)

The company has more than 1,200 trucks in service. It also rents out more than 4,200 “frac tanks,” for containing waste water, and 1,900 upright and other types of tanks.

Heckmann plans to change its name to Nuverra Environmental Solutions in mid-May. The company’s stock symbol will change to NES from HEK.

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Two acquisitions add major operations in oil recycling and shale-oil fracking

In March 2012, Heckmann bought used-oil recycling company Thermo Fluids Inc. from Chicago-based private equity firm CIVC Partners for $245 million in cash and stock. The company made this purchase to diversify its operations beyond waste-water disposal.

In September 2012, Heckmann paid $381 million for Power Fuels, which transports, treats, recycles and disposes of fluids from shale-oil fracking. Power Fuels is the largest operator in the huge Bakken shale basin.

In the three months ended December 31, 2012, Heckmann earned $0.03 a share. That beat the consensus estimate of a $0.03-a-share loss. A year earlier, the company lost $0.02 a share. Revenue more than doubled, to $113.2 million from $51.7 million. The revenue gain and improved earnings were largely due to the Power Fuels acquisition.
In the Inner Circle Q&A, Pat examines Heckmann’s plan to expand beyond natural gas fracking into oil fracking and to diversify geographically. He also looks at whether evolving government regulation will prompt a greater need for waste-water disposal services in shale oil and gas operations. He concludes with his clear buy-hold-sell advice on the stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

Despite environmentalists’ concerns about “fracking” there is no doubt that the process is helping to produce an enormous amount of natural gas and shale oil in North America. In what ways do you think Canadians will benefit from this homegrown energy production? Do you see any drawbacks? Let us know what you think.