Executive Summary / Key Takeaways

• Aris Water Solutions (NYSE:ARIS) has strategically transformed into a leading, highly efficient environmental infrastructure provider in the Permian Basin, specializing in full-cycle water handling and recycling.
• The company has consistently delivered robust financial performance, marked by strong volume growth, durable margin improvements from operational efficiencies, and significant free cash flow generation.
• ARIS's technological differentiation in water treatment, beneficial reuse, and mineral extraction, coupled with its extensive integrated infrastructure and long-term customer contracts, underpins its competitive moat and future growth optionality.
• This strong foundation culminated in a definitive agreement for Western Midstream Partners, LP (WES) to acquire ARIS in an equity-and-cash transaction, creating a fully integrated Delaware Basin water value chain.
• Key considerations for investors include the successful completion of the merger, the integration of ARIS's innovative technologies into a larger platform, and the continued resilience of Permian Basin activity.

The Permian's Liquid Gold Rush & Aris's Strategic Foundation

The Permian Basin stands as the undisputed heart of U.S. oil and natural gas production, yet its prolific output comes with a significant challenge: vast quantities of produced water. This "liquid gold rush" necessitates sophisticated, sustainable water management solutions. Aris Water Solutions, founded in 2015, emerged as an independent, environmentally-focused company dedicated to addressing this critical need. Through its controlling interest in Aris Water Holdings, LLC, the company provides full-cycle water handling and recycling solutions to operators, primarily in the highly economic Northern Delaware Basin.

Aris's overarching strategy centers on building long-term value through the development, construction, and operation of integrated produced water handling and recycling infrastructure. This approach not only supports its customers' operational efficiency but also enhances their sustainability efforts. The company's journey, marked by an Initial Public Offering around October 2021 and successful navigation of commodity price volatility and the COVID-19 pandemic, demonstrated a resilient operational model. By 2024, Aris reached a "meaningful inflection point in cash generation," enabling increased shareholder returns and setting the stage for its next chapter.

Technological Edge & Innovation: Beyond Disposal

Aris's competitive advantage is deeply rooted in its differentiated technology and integrated infrastructure. The company operates an extensive network comprising over 770 miles of large-diameter pipeline and manages approximately 625,000 dedicated acres under contract. This infrastructure enables high-capacity, comprehensive produced water management, recycling, and supply solutions, offering tangible benefits such as enhanced operational efficiency, reduced costs, and improved environmental compliance for its customers.

Beyond its core gathering and processing, Aris is actively engaged in significant research and development initiatives aimed at expanding the utility of produced water:

• Beneficial Reuse Joint Industry Project (JIP): In collaboration with industry leaders like Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM), and Coterra Energy (CTRA), Aris is developing and piloting technologies to treat produced water for non-oil and gas applications. These include reservoir replenishment, industrial uses, non-consumptive agriculture, and surface water discharge. Phase 1 testing, completed in Q2 2025, successfully demonstrated the ability to lower energy consumption, capital, and operating costs for produced water treatment. Phase 2 is now focused on scaling up these promising technologies. Aris has filed a permit application with the Texas Commission on Environmental Quality (TCEQ) for the surface discharge of up to 475,000 barrels per day of reclaimed water, with a goal of permit approval by late 2025 and discharge capability in 2026. Management anticipates desalination operating expenses could be below $1 per barrel.
• Mineral Extraction: Aris is actively exploring pathways to extract valuable minerals from produced water. Site selection for the first iodine extraction facility in the Permian Basin has been finalized, with operations expected to commence in early 2026. This project will be structured on a royalty basis, requiring no capital contribution from Aris. The company is also examining other potentially attractive minerals such as magnesium, ammonia, and lithium, with bench testing currently in progress.
• Industrial Water Treatment: In February 2025, Aris acquired Crosstek Membrane Technology LLC, gaining intellectual property, a skilled workforce, and assets to accelerate its entry into broader industrial markets. Crosstek specializes in high-recovery water treatment solutions, utilizing reverse osmosis technology to minimize waste streams. This initiative is envisioned as a multi-state endeavor, leveraging the acquired team's backlog of projects with large industrial customers.

These technological advancements and strategic initiatives are critical for Aris. They not only diversify future revenue streams and reduce operational costs (e.g., by reducing landowner royalties through owned disposal sites like McNeill Ranch) but also solidify Aris's leadership in sustainability, creating a robust competitive moat.

Financial Performance: A Trajectory of Growth and Efficiency

Aris has consistently demonstrated strong financial performance, reflecting its strategic execution and operational effectiveness. For the three months ended June 30, 2025, total revenue reached $124.1 million, marking a 23% increase year-over-year. Net income for the same period was $14.1 million, up 7% from the prior year. The Water Gathering and Processing segment, the company's core, generated $123.7 million in revenue and $45.1 million in operating income during Q2 2025.

Volume growth has been a key driver. Produced Water Handling volumes in Q2 2025 increased by 13% year-over-year to 1,234 thousand barrels of water per day (kbwpd), while Water Solutions volumes surged by 44% year-over-year to 523 kbwpd. This growth was fueled by higher-than-anticipated completion activity and sustained produced water takeaway demand.

Profitability metrics, while showing some quarterly fluctuations, reflect durable structural improvements. The adjusted operating margin per barrel was $0.41 in Q2 2025, a slight decrease from $0.46 in Q2 2024, primarily due to the timing of maintenance expenses and lower skim oil price realizations. However, management emphasizes that underlying margin improvements, driven by electrification efforts, reduced chemical costs, automation, and enhanced solid waste handling processes, are sustainable long-term. Improved skim oil recoveries, attributed to a dedicated field team and operational changes, also continue to benefit margins. For the full year 2024, Aris reported adjusted EBITDA of $211.9 million, a 21% increase from 2023, with adjusted operating margins of $0.45 per barrel, up 15% year-over-year. The company generated $73 million in free cash flow in 2024.

Aris maintains a strong liquidity position and disciplined capital management. As of June 30, 2025, the company held a cash balance of $57.4 million and working capital of $71.7 million. In Q1 2025, Aris successfully refinanced its senior notes due in 2026 by issuing $500 million aggregate principal amount of 7.25% Senior Notes due 2030, fully repaying its Credit Facility borrowings. The company had no outstanding borrowings under its Credit Facility as of June 30, 2025, with $346.7 million in revolving commitments available, and was in compliance with all debt covenants. Its debt-to-Adjusted EBITDA ratio of 2.2 times (as of Q2 2024) was well below its target range of 2.5 to 3.5 times, providing significant financial flexibility.

Competitive Landscape: Differentiating in a Dynamic Market

Aris Water Solutions operates in a competitive environment, but its integrated infrastructure, long-term contracts, and technological advancements provide distinct advantages. The company's extensive network, including 770 miles of pipeline and 625,000 dedicated acres, allows for efficient, high-capacity water management. This is complemented by a proactive strategy for securing disposal capacity, with approximately 90 permits across diverse regions and strategic alliances with landowners like Texas Pacific Land Corporation (TPL). The recent acquisition of McNeill Ranch further bolsters its long-term pore space and offers opportunities for royalty reduction.

Compared to direct competitors such as Select Water Solutions (WTTR), Helix Energy Solutions Group (HLX), and Newpark Resources (NR), Aris exhibits superior profitability. For instance, Aris's TTM Gross Profit Margin of 39.67%, Operating Profit Margin of 22.95%, and EBITDA Margin of 38.97% significantly outpace WTTR's (15% GPM, 4% OPM) and HLX's (16% GPM, 9% OPM). While NR has a 35% GPM, its TTM Net Profit Margin was negative. This demonstrates Aris's operational efficiency and cost leadership in its specialized niche.

• Against Select Water Solutions: While WTTR boasts a broader operational footprint and diversified services, Aris's specialized recycling facilities and focus on environmental solutions offer greater efficiency in water treatment and potentially lower operating costs. Aris's long-term contracts and dedicated acreage provide a stable revenue base, countering WTTR's broader, potentially less concentrated, client network.
• Against Helix Energy Solutions: HLX's strength lies in technology-heavy, subsea well intervention. Aris, with its land-based, integrated water infrastructure, offers superior efficiency for the high volumes of produced water in the Permian. While HLX may lead in certain advanced robotics, Aris's core competency in water-specific infrastructure provides a distinct advantage in its primary market.
• Against Newpark Resources: NR provides a broader range of fluids and environmental services. Aris's dedicated recycling facilities deliver better performance in water treatment and storage, fostering stronger customer loyalty through tailored environmental solutions. Aris's market positioning as a dedicated water infrastructure provider gives it strategic adaptability, particularly in regions with stringent environmental regulations.

Aris's competitive disadvantages include its relatively smaller scale compared to some diversified players, which can lead to higher customer acquisition costs, and a dependency on oil and gas demand. However, its strategic response involves focusing on its core strengths, pursuing bolt-on acquisitions that enhance its system, and continuously developing its technology. The company's ability to control water at its source and lock in long-term consumption under long-term agreements provides a unique base load for a dynamic system, allowing it to flex capital around its network in a highly efficient manner.

Strategic Initiatives & Future Outlook: Building for the Next Chapter

Aris's strategic roadmap for 2025 and beyond is robust, focusing on both organic growth within its core business and expansion into new, high-value areas.

The acquisition of McNeill Ranch in Q4 2024, comprising approximately 45,000 surface acres, provides significant long-term operational advantages. With 11 permits already secured on the Texas side, offering 330,000 barrels of permitted disposal capacity, the ranch is poised to reduce landowner royalties, a major operating expense. Development of water injection capacity at McNeill is anticipated in the 2026-2027 timeframe, with meaningful revenue impact expected by 2027. The ranch also offers flexibility for generating surface income through solar, wind, battery development, and rights of way.

The Crosstek acquisition in February 2025 marked a significant step into the industrial water treatment market, leveraging Aris's expertise in complex water treatment for multi-state expansion. Furthermore, in July 2025, Aris extended its water gathering and handling agreement with ConocoPhillips from May 31, 2033, to May 31, 2040, solidifying a critical long-term customer relationship.

For 2025, Aris has provided concrete guidance:

• Produced Water volumes: Expected to range between 1.15 million and 1.21 million barrels per day, representing a 5% year-over-year increase at the midpoint.
• Water Solutions volumes: Forecasted to average between 460 thousand and 520 thousand barrels per day, a 15% increase over 2024, driven by increased customer completion activity.
• Adjusted EBITDA: Projected to be between $215 million and $235 million.
• Capital expenditures: Anticipated to be between $85 million and $105 million, consistent with 2024 levels.
• Free cash flow: Expected to be between $75 million and $95 million, an impressive 17% increase over 2024 at the midpoint.

Management's outlook assumes continued strong first-half volumes, improved skim oil volume recoveries, and the benefit of CPI-linked revenue escalation clauses in its contracts, which are expected to offset a potential $6 million to $8 million headwind from the current WTI price strip. Aris also maintains significant capital flexibility, capable of reducing 2025 capital expenditures by 25-30% in a downturn, with sustaining capital under $50 million to maintain flat volumes. This ensures resilient free cash flow generation and balance sheet protection. The company remains committed to increasing shareholder returns through consistent, sustainable dividend growth, evaluated annually.

The culmination of Aris's strategic evolution arrived on August 6, 2025, with the announcement of a definitive agreement for Western Midstream Partners, LP (NYSE:WES) to acquire Aris Water Solutions, Inc. in an equity-and-cash transaction valued at approximately $1.5 billion. This transformative merger is expected to close in Q4 2025 and aims to create a "differentiated Delaware Basin produced-water system" and a "fully integrated produced-water value chain" encompassing gathering, disposal, recycling, beneficial reuse, mineral extraction, industrial water, and long-haul transport.

Risks & Considerations: Uncharted Waters Ahead

Despite a strong operational and strategic trajectory, investors should consider several risks. Commodity price volatility remains a key concern, as Aris's service demand is indirectly linked to oil and gas drilling activity, and a portion of its revenue is directly exposed to WTI price fluctuations. However, Aris's customer base, comprising large, well-capitalized operators like Chevron, ConocoPhillips, Oxy (OXY), and Mewbourne, has demonstrated resilience in past downturns, allowing Aris to moderate its capital investments accordingly.

Inflationary pressures could impact operating margins, as many of Aris's CPI-linked contracts have maximum annual increase caps, potentially leading to costs rising faster than contractually allowed fees. While the company is monitoring tariff uncertainty, it does not anticipate a material direct impact on its existing cost structure. Regulatory risks include seismicity in operating areas, though Aris's integrated pipeline network has allowed it to adapt without material disruption. New Mexico's potential setback rules have also been addressed by customers adjusting drill schedules, mitigating impact on Aris's business.

The most significant current considerations revolve around the Merger with Western Midstream Partners, LP. The completion of the merger is subject to various conditions, including shareholder and regulatory approvals, which may not be satisfied or waived. The value of the consideration, which includes WES common units, will fluctuate with market prices, introducing uncertainty for ARIS stockholders. Furthermore, the merger process itself could lead to business disruption, potentially impacting existing relationships with customers and employees. The merger agreement also contains provisions, such as non-solicitation clauses, a right-to-match for WES, and a $57 million termination fee, which could limit alternative acquisition proposals. Should the merger fail to complete, Aris could face negative market reactions, incur significant costs, and experience management distraction without realizing the anticipated benefits.

Conclusion

Aris Water Solutions has meticulously built a robust and technologically advanced environmental infrastructure platform in the Permian Basin. Its journey, characterized by operational excellence, disciplined capital allocation, and a relentless pursuit of sustainable water solutions, has driven consistent financial growth and strong cash flow generation. The company's pioneering efforts in beneficial reuse, mineral extraction, and industrial water treatment, coupled with its extensive integrated network and long-term customer partnerships, have established a formidable competitive position.

This compelling value proposition culminated in the transformative acquisition by Western Midstream Partners, LP, marking a pivotal moment for Aris. The merger is poised to integrate Aris's specialized capabilities into a broader, more diversified midstream entity, creating a fully integrated water value chain in the Delaware Basin. For investors, Aris's story is one of strategic foresight and execution, where its leadership in sustainable water management and technological innovation has not only yielded strong standalone performance but also positioned it as a critical asset in the evolving energy landscape, now set to contribute significantly to a larger, more resilient enterprise.