Greetings. Welcome to the Aris Water Solutions Fourth Quarter 2021 Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. And please note that this conference is being recorded. I'll now turn the conference over to David Tuerff. Thank you. You may begin.

Good morning and welcome to the Aris Water Solutions fourth quarter 2021 earnings conference call. I am joined today by our Founder and Executive Chairman, Bill Zartler; our President and CEO, Amanda Brock; and our CFO, Brenda Schroer. Before we begin, I'd like to remind you that in this call and the related presentation, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance, and are subject to a number of known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors included in our annual report on form 10-K filed with the Securities and Exchange Commission. I would also like to point out that our investor presentation and today's conference call will contain discussion of non-GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with US GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation. I will now turn the call over to our Founder and Executive Chairman, Bill Zartler.

Thank you, David, and thanks to everyone for joining us this morning. The fourth quarter of 2021 was a strong finish to a transformational year for our company. Last year, our business and infrastructure system grew rapidly, supporting our current and new customers. We achieved pivotal milestones by issuing the first sustainability-linked bond in the produced water industry, successfully completing our initial public equity offering, navigating into our next phase as a public company and initiating our first dividend. We continue to see rapid adoption of our full cycle infrastructure-driven water management solutions. Our produced water volumes grew 24% year-over-year underpinned by the production growth of our customers, while our recycled produced water volumes grew by over 100% year-over-year. We see the Northern Delaware and the Midland basins continuing to be the most active and economic oil production growth areas in the lower 48, and consequently have a very optimistic view of our growth in 2022 and beyond. Amanda will now expand further on our operational progress for the quarter as well as on our ESG achievements and goals.

Thank you, Bill. In the fourth quarter, we saw record volumes of produced water handled and recycled on our integrated infrastructure network. Our total water volumes were up 14% sequentially over the third quarter, averaging over 1 million barrels per day. The growth in volumes was driven primarily by the increased activity of our long-term contracted customer base and growing adoption of our recycling solution. Operators are increasingly recognizing the proven reliability, efficiency and environmental and sustainability benefits of our full cycle water infrastructure. On the business development front, in the fourth quarter, we continued to close on new opportunities and executed three new long-term acreage dedications, increasing our dedication from 34,000 acres to a total of approximately 583,000 acres. For the second quarter in a row, recycled produced water made up more than 60% of source volume supply to our customers for the quarter, exceeding our sustainability performance target that we established for our 2022 fiscal year under our sustainability-linked notes. We are meeting our sustainability commitment on an accelerated timeline, and we are pleased to continue to make demonstrable progress towards our longer-term goals of helping the industry minimize the use of groundwater and maximize water reuse. Our adjusted operating margin per barrel was $0.43 per barrel in the fourth quarter of 2021 compared to $0.35 per barrel in the fourth quarter of 2020. We have made significant progress in reducing structural costs through automation, increased recycling activities and spreading costs over a larger volumetric base. In the fourth quarter, we also benefited from lower than expected repairs and maintenance expenses. Looking forward, we believe we will see margins normalize a little lower to our full-year 2021 figures, as some of the more lumpy or intermittent required maintenance work is undertaken. As expected, we are closely managing inflationary cost pressures. We have CPI-linked inflation clauses in all our material contracts, which allows us to increase our fixed fees to protect margins. We have been working hard to offset some labor cost increases with automation and scale. We are seeing commodity-linked costs, such as treatment chemicals, tick up as well as some increased costs and extended lead times for certain capital equipment. However, we will keep you posted as to how our input and capital costs evolve throughout 2022. Finally, we've been tracking recent seismic activity and associated regulatory actions undertaken by the Texas Railroad Commission and the New Mexico Oil Conservation Division to curtail water injection and define seismic response areas. The regulators are focused primarily on curtailing injection of volumes in these designated areas where injection is into deeper intervals, generally defined as formations below the base of the Wolfcamp formation. Today, the Railroad Commission's actions have had an immaterial impact on our volumes or revenues. In the fourth quarter, following requests from the regulators, we curtailed approximately 3,000 barrels per day of produced water injection, equating to less than 1% of our produced water volume. We are monitoring the situation carefully and have had very constructive ongoing dialogue with regulators in both Texas and New Mexico. We recently received amended permits from the Texas Railroad Commission to allow us to recomplete two impacted deep wells into shallow injection intervals if we determine that is the right course of action. We want to highlight that these seismic events have further emphasized the need for full cycle water infrastructure and solutions offered by Aris. Operators are increasingly approaching us for water offtake and reuse solutions, recognizing the need to tie into a geographically diverse network of disposal locations like ours. We maintain a significant inventory of shallow interval disposal permits, which can be quickly and cost-effectively utilized to increase disposal capacity as needed. Our water recycling efforts also reduce the need for disposal. As you can see from our increased recycled volumes last year, our customers recognize that dual benefit of reducing groundwater withdrawals and minimizing disposal, but they also recognize the potential seismic benefits associated with minimizing disposal. They are rapidly increasing their demand for the options we are able to deliver at the scale and volumes they need. If our customers cannot effectively manage their water, oil and gas production is negatively impacted. We operate critical infrastructure that the industry relies on to reliably address their water takeaway and sourcing needs. We are also working on opportunities to reduce water disposal through the beneficial reuse of produced water outside the oil and gas industry. Our current infrastructure network allows us to take the lead, working with customers, regulators and academic institutions to identify, adapt pilots, and scale technologies that enable the beneficial reuse of treated produced water. We're excited about several pilot projects we're working on. The first is in conjunction with Texas A&M University to study opportunities to utilize treated produced water for irrigation of non-consumptive crops. Specifically, we already have a pilot underway growing cotton and range land grass using treated produced water. Once the growing cycle is complete, we will also evaluate the quantity of carbon sequestered by the carbon in range land grasses and ascertain what potential carbon offset credits may be available. The second project, currently being scoped and where we expect to work with a number of stakeholders, is evaluating treated produced water for potential safe surface recharge and as industrial process water. We are also working with the University of Texas at El Paso to understand the treatment levels of produced water required to help recommend a regulatory framework for beneficial reuse. Finally, we are participating in a study funded by the US Department of Energy to create software for modeling produced water management, with an emphasis on identifying opportunities for beneficial reuse. In all cases, we are working closely with the regulators, operators, and other stakeholders to ensure there are stringent water treatment specifications before discharge and that any beneficial reuse of treated produced water positively impacts local communities and all stakeholders. It is still early in the evolution of identifying opportunities for cost-effective beneficial reuse, but there is significant interest from our customers, regulators, and potential end users. Given our infrastructure, we are positioned to play a key role in this effort, particularly as it relates to cost-effective wastewater treatment technologies that can be used for recycling water within and outside the oil and gas industry. We focus on making target investments, leveraging our partners and customers’ capabilities where appropriate and working collaboratively with regulators to move this initiative forward. We'll have more updates as we progress. And with that, I'll turn it over to Brenda to discuss our fourth quarter and full year financial results.

Thank you, Amanda. Our adjusted EBITDA for the fourth quarter of 2021 was $35.7 million, up 16% sequentially from the third quarter of 2021 and nearly double the fourth quarter of 2020. For the year of 2021, adjusted EBITDA was $120.5 million, up over 60% from the prior year. Our capital expenditures were approximately $75 million for 2021 compared to approximately $140 million in 2020. In 2021, we were able to moderate capital spending while rapidly growing adjusted EBITDA by leveraging our previously constructed infrastructure. We are growing rapidly while maintaining a conservative balance sheet at the low end of our long-term leverage target with ample liquidity. We ended the fourth quarter with approximately $60 million in cash and an undrawn and available $200 million revolving credit facility, for a total available liquidity of $260 million. With our industry-leading balance sheet and liquidity position, we have significant optionality to allocate capital to the highest return opportunities for shareholders. We continue to deploy capital at attractive returns to capture new production volumes alongside our long-term contracted customers. We have a track record of disciplined M&A that prioritizes financial returns, strategic fits, customer quality, and contractual underpinning. We will continue to prioritize these considerations in any potential acquisitions. Additionally, last Friday, we announced our first quarter 2022 dividend of $0.09 per share, continuing our commitment to returning cash to shareholders. Looking ahead to 2022, we are positioned to continue the rapid growth we demonstrated in 2021. Based on our currently contracted operators' latest outlooks on our dedicated acreage, we anticipate our 2022 adjusted EBITDA will be between approximately $150 million and $160 million. As far as the shape of 2022 goes, maintenance costs will be higher in the first quarter of 2022 than they were in the fourth quarter of 2021, with variability in timing of when these costs are incurred. For the first quarter of 2022, we anticipate our adjusted EBITDA will be between approximately $32 million and $34 million. On the capital side, we expect 2022 capital expenditures will be between approximately $80 million and $90 million, which corresponds to our anticipated $150 million to $160 million of adjusted EBITDA for the year of 2022. Of these estimated capital expenditures, we expect approximately $50 million to $60 million to be spent in the first half of the year, supporting anticipated production increases in the second half of 2022. One differentiating factor of our business is the ability to rapidly scale capital up or down as activity levels change. We will provide updates as the year progresses. In summary, Aris Water had an excellent year in 2021 and we're seeing that continue in early 2022. We are extremely optimistic as we continue to rapidly grow our volumes, help the industry achieve its sustainability goals, and deploy capital at attractive incremental returns alongside our long-term contracted customers. We are managing our balance sheet prudently and have demonstrated our commitment to thoughtful capital allocation. With that, we will take questions.

Our first question comes from the line of John McKay with Goldman Sachs.

I just wanted to start on the commercial front. Amanda, I know you gave us a brief update there, but just wanted to see if there's any other kind of broader updates you can share on adding incremental business beyond the existing footprint. How much of that might be baked into ‘22 guidance already? And then also really how maybe some of the recent seismic issues kind of factor into that commercial side?

As we announced in the fourth quarter, we executed those three new contracts, two of them over 10 years for approximately 34,000 more dedicated acreage. We do not build into the model as David sort of explains a lot of BD growth for new customers. We are very active; however, there's a lot of activity in the market. We are in conversations and even negotiations with additional customers to add them to our system with this backbone that is already built out. So we are seeing a lot of activity in the market. In terms of the impact of seismic, the seismic activity, in a way, actually has accelerated the conversations that we are having with our existing customers and with new customers and potential customers. Our footprint, being very diverse geographically, and with our access to shallow wells along the border, and we are drilling additional shallow wells along the Texas-New Mexico border, really gives people a lot of comfort that in the event that there is a seismic issue in a particular area, we have a system that is able to move volumes to different locations, where there may be no seismic activity. As we say, you can't deal with water; water has to flow. You're not going to be able to produce your oil and gas. So the critical infrastructure that we have with a diverse footprint and all of these shallow permits and shallow wells really has accelerated a lot of our BD and conversations.

Maybe following up on some of the beneficial reuse. I understand it's early, but you guys gave a little more detail than you have in the past. I'm just curious, are you guys looking at this stage as something that helps pull in customers, so it's helpful on the commercial side, or could this also be a kind of broader revenue and earnings driver on its own?

We are very excited about what we are seeing with beneficial reuse. You're right, it is early, but we are going to play a key role just given our infrastructure and our access to volumes. It definitely has had a positive commercial impact. If you think about all of the ESG initiatives that have been announced by our customers, and if you look at who our customers are, like Chevron, Conoco, Oxy, and others, looking for alternatives for the use of this water is very important to them as well. When we talk about the stakeholders we are working with, I can assure you, we are in conversations and working very closely with our customers, and that just continues to make those relationships more sticky. So it has had a positive commercial impact. In terms of looking broader, we know the technology is there; it's really a function of getting the regulatory regime where it needs to be, so there's regulatory certainty as to what the benchmarks and discharge requirements are, and the technology we use or we develop can be used outside of the industry. So we do see broader application. We are looking at bringing technology in from other industries. But as we said, early days, but we definitely see longer-term that this has broader implications and are pretty excited about the opportunities we see ahead of us in this area.

Our next question comes from the line of Dan Walk with J.P. Morgan.

A couple of questions on capital allocation. The first I wanted to ask on the dividend, given the growth this year, what are your latest thoughts on the payout ratio? And I realized the fourth quarter dividend was flat prorated. But just given the growth, what are you thinking in terms of the dividend competing with other uses of capital?

We think that dividend is important for this industry for us to have it; it keeps some discipline. We are balancing between a significant amount of growth in this business, unlike maybe a typical slower-growing MLP at this point in time. So it's a little bit of apples-and-oranges when you compare and contrast us. We think a relatively stable dividend over time holds discipline. We've got the balance sheet and the growth to look forward to that and liquidity. So it really is a balancing act. We don't see the probable increasing dramatically for the next year while we see rapid growth. In fact, if the industry slows down, which it certainly doesn't look like it's doing, it actually turns us into a quicker dividend payer. So it is a balancing act really determined by the growth rates and the attractiveness of new capital that goes in as our customers continue to add rigs and completions activity in our market.

The second question I had kind of dovetails off that. I noticed in the deck overnight, you mentioned the ability to quickly select capital spending up or down, both in '22 and '23. Just curious if you could talk a little bit more about the drivers and what could swing you from your base case, especially in the back half of this year and into next?

If activity slows down, it's very easy for us to moderate the addition of additional facilities and connection pipe capital. We have some capital going into the recycling business as well. If we don't see the completions coming, we've got a pretty good forward look at what's going to flow back in the systems, and it's easy to cut back. If things continue to increase, there may be additional growth. The key here is our backbone has capacity, and we can make it work. We have operating significant capacity around the recycling facility, and that's relatively low capital. So what drives us up is the increased produced water and rapid increases in water or oil production in the basin that we need to keep up with. Looking forward and considering today's activity levels, I think the forecasters are correct.

I guess just to clarify. So the '22 plan, just given the first half weighted CapEx spend, that anticipates relatively steady activity through the year, correct? And I guess there is room for additional activity if producers were to revise plans they stand today?

Likewise, if we see a slowdown, we can also slow down the first-half capital as well. We do have a lot of flexibility. We have a significant backlog of permits along the border. With today's tightness on supply and costs increasing from the drilling business, we see the ability to drill four or five holes in a row for disposal facilities. We can get some synergies on doing that rather than waiting. That front half waits a little, and we will build the surface facilities as we need the volumes injected.

Next question comes from the line of Jon Christ with Johnson Rice.

There have been a lot of discussions among other operators about interconnecting to where if one person has an issue, it can be shifted to another operator's disposal wells. Obviously, that would be done under some kind of tolling arrangement or something like that. Have you had any of those discussions, and what kind of opportunities do you think could arise if somebody else had an issue and you could use your excess capacity to dispose of their water?

I think we do that today. We're connected with multiple operators and multiple other water service providers. What this says is what we've built is where the industry's going, which is shared infrastructure to handle their waste products of the water here. If you think about that in other basins, operators start connecting their systems, they're replicating what we have. Often, what's happened in oil and gas infrastructure is that it’s better having a third party manage and operate that system, potentially owning it. Conoco is a shareholder of ours, and they see that. It could evolve in other parts as we expand. It makes a lot of sense for shared infrastructure and the ability to utilize and spread volumes out over larger areas, managing the peaks and valleys that come with shale production.

We have a number of contracts that are executed where we send water to some of our peers in the market to landowners and others. This really helps us balance our peak and manage our CapEx spend as well.

Our next question comes from the line of Kyle May with Capital One.

Just looking at the guidance for this year. Can you share details about the volume assumptions that are baked into your forecast?

So Kyle, we get operators on our acreage that provide us pretty detailed schedules. We obviously do a little bit of risking on timing and completion counts on those schedules, and those inform our outlook. We have a great degree of granularity, and we have pretty big customers that tend to stick to their plans. We have a very nice degree of steady growth in there for next year and feel confident about our granularity in planning going forward.

And looking at 4Q results, there was an increase in the adjusted operating margin per barrel, and I believe you mentioned this should normalize a bit lower going forward. Can you provide any additional details about the changes that are driving that, and then also your assumptions again for the rest of this year?

We have regular well maintenance that occurs, but those repairs don't occur on a regular schedule. In the fourth quarter, we had very few well repairs needing to happen. Then the calendar flipped over in January, and that sort of caught up. Looking at a long-term basis, you're always going to have ongoing repairs. They've been embedded in our historical and ongoing operating costs. As we said, we expect to see operating margin closer to the total year figure of 2021, rather than just the fourth quarter, where some of that timing's going to catch us as we come into the first.

Kyle, we were using a different word, but 'lumpy' was the best we could come up with. Just as lumpy as you think about all the moving parts in the system, so you will see that fluctuate.

At this time, we have reached the end of the question-and-answer session. I'm now turning the call back over to Bill Zartler for any closing remarks.

Thanks, John, and thanks everyone. I want to conclude by thanking our employees, customers, and stakeholders for helping make 2021 a fantastic year for Aris. All of your combined efforts and support make this possible. We're thrilled with the outlook for our business in 2022 and beyond. Thank you for your time this morning and stay safe.

This does include today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.