Conference Transcript - WTTR 2026-09-25

Operator

Greetings and welcome to the Select Water Solutions conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Garrett Williams, Vice President, Corporate Finance and Investor Relations. Please go ahead, sir.

Garrett Williams, Head of Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call to discuss our announced acquisition of Pilot Water Solutions. With me today are John Schmitz, our founder, chairman, president, and chief executive officer, Chris George, executive vice president and chief financial officer, Michael Skarkey, executive vice president and chief commercial officer, and Mike Lyons, executive vice president and chief strategy and technology officer. Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay until October 9th, 2026. The access information for this replay was also included in the acquisition press release. Please note that the information reported on this call speaks only as of today, September 25th, 2026, and therefore, time-sensitive information may no longer be accurate as at the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meetings of the United States federal security laws. These forward-looking statements reflect the current views of select management. However, various risks, uncertainties, and contingencies could cause our actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K our current reports on Form 8K, our quarterly reports on Form 10Q, and our other filings with the SEC to understand those risks, uncertainties, and contingencies, as well as to review additional disclosures associated with the pending acquisition. In addition, comments made by management during this conference call may contain discussions of certain non-GAAP financial metrics. For the definitions of such metrics, please refer to our SEC reports and the related disclaimers set forth therein. These non-GAAP measures should be considered in conjunction with the information contained in our financial statements prepared in accordance with GAAP. The pending transaction of Pilotwater Solutions, which is currently expected to close in the fourth quarter of 2026, is subject to customary closing conditions in receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. Now, I'd like turn the call over to John.

John Schmitz, CEO

Thanks, Garrett. Good morning and thank you for joining us. Today, we announce our agreement to acquire Pilot Water Solutions, a leading private water midstream company with a sizable produced water infrastructure footprint, most notably across the Permian-Delaware Basin. With Pilot Water, Select will have highly contracted production-related earnings stream at an accretive valuation in the heart of the Delaware Basin. The pilot water acquisition strengthens Select's position as a diversified, market-leading water midstream platform. While Select will continue to lead with its Recycle First strategy, with the integration of pilot water, we will have a well-balanced overall infrastructure network managing both both scaled recycling and disposal across a market-leading presence in the broader Delaware Basin. Pilot Waters Infrastructure Platform consists of approximately 2.7 million barrels per day of active, permitted disposal capacity, nearly 900,000 barrels per day of incremental, undeveloped permitted disposal capacity, and more than 700 miles of pipeline infrastructure. In the first half of 2026, pilot water has handled about 850,000 barrels per day of produced water, with more than 80 percent of these volumes coming from the Delaware Basin across both Texas and New Mexico. Additionally, a new 175,000 barrels per day MVC-based contract in the Delaware Basin is expected to increase Pilotwaters' daily produced water volumes handled to 1 million barrels per day during 2027. Importantly, pilot water's revenue are supported by an attractive contract portfolio with more than 80% of its annual revenue supported by long-term contracts with an average tender of more than seven years. These contracts include 480,000 barrels per day of minimum volume commitments and 306,000 dedicated acres. Select has successfully built a scaled acreage dedication contract portfolio in recent years, and I am very excited to strengthen Select's pro forma contract book with Pilot's sizable MVC contract base in addition to the incremental dedications, adding greater predictability and durability to Select's future cash flows. pilot water strategic disposal portfolio provides select with immediately available capacity which will allow for near-term utilization enhancements and long-term system optimization and water balancing capabilities across select broader recycling and disposal network when tied in to selects existing Delaware Basin network, we will be well positioned to efficiently capture the full life cycle economics of produced and treated produced water across a broader pro forma footprint. Additionally, pilot waters approximately 900,000 barrels of undeveloped permitted disposal capacity, largely in the Delaware Basin across both Texas and New Mexico, insurers select is well positioned to capture a growing percentage of the industry's produced water volumes in the region, which are expected to grow by more than 10 percent per year over the next decade. This capacity I outlined is before taking into account the broader leased and owned surface we will acquire in this transaction that provides access to additional high-value pore space, offering incremental optionality for long-term out-of-basin disposal or beneficial reuse solutions officially located related to Select's broader New Mexico network. We will continue to prioritize local recycling as the most cost-advantaged solution for every barrel. However, pilot water's available disposal capacity and permitted undeveloped pore space availability gives SELECT the flexibility to optimize volumes across an integrated system and the opportunity to capture the full growth potential of our contracted produced water in the future. SELECT has been on a steady growth-oriented strategic path over the last five years to build out our water infrastructure segment and transform our business into a production-weighted midstream business supported by long-term contracts and durable and predictable cash I believe we have been very successful at executing our strategy in recent years with our water infrastructure segment growing at an average annual growth rate of more than 50% over the last five years. The pilot water acquisition is expected to immediately deliver another 60% plus leg of growth for the water infrastructure segment in 2027. We have near term visibility to growing our combined daily volumes to more than 2.5 million barrels per day during the first half of next year, supported by additional contracted MBC volumes. And with multiple previously announced projects set to be completed by the end of 2027, we are well positioned for additional contracted growth in the years ahead. To put that in perspective, in 2027, water infrastructure is now expected to comprise approximately approximately 70% of select pro forma consolidated gross profit before depreciation and amortization with the majority of this earning stream under long-term MVCs or acreage dedication commitments. To conclude, I am very excited for what's to come for the integrated business and I look forward to welcoming the new pilot water employees into the select family soon. At this point, I'll hand it over to Chris to provide additional highlights around this accretive acquisition. Chris?

Chris George, CFO

Thank you, John, and good morning, everyone. We are pleased to announce the acquisition of Pilot Water for aggregate closing consideration of $700 million, including $600 million of cash and $100 million of shares of Select's Class A common stock. The sellers also have a right to an additional $15 million contingent cash payment payable upon the satisfaction of certain operational milestones expected in early 2027. Additionally, the sellers retain a right to a cash true payment if the 30-day volume-weighted average share price as of the six-month anniversary of the closing date is lower than the 30-day volume-weighted average price at the closing date. For the full year of 2026, Pilot Water is expected to generate $100 to $110 million of 2026 adjusted EBITDA, which is expected to grow to $120 million to $130 million in 2027, primarily driven by the new $175,000 barrel per day MBC-based contract that John mentioned Longer term, we are targeting an additional $10 to $15 million of annual cost synergies that are incremental to the 2027 forecast and are expected to be achieved during the next 12 to 18 months. These metrics equate to a highly accretive acquisition represented by valuation multiples of 6.8 times, 5.7 times, and 5.2 times based on the total transaction value, including earn-out consideration relative to the EBITDA guidance midpoints for 2026-2027 and an implied 2027 run rate with fully realized synergies respectively. We believe the combined systems, especially in the Delaware Basin, also offer significant revenue synergy potential in the coming years with excess capacity availability, enhanced commercialization opportunities, and broader system balancing capabilities. Additionally, there are incremental opportunities to develop capital-efficient out-of-basin disposal solutions, significantly scale mineral extraction royalties, and efficiently integrate long-term beneficial reuse solutions. We look forward to harvesting incremental value as the combined network positions us to deliver our customers with increased optionality, scaled produced water flow assurance, and ultimately attractive economic savings. Select's combined network will have significant scale with 3.8 million barrels per day of recycling capacity capacity, 4.8 million barrels per day of combined active and undeveloped permitted disposal capacity, over 1,600 miles of pipelines, and approximately 57 million barrels of treated and produced water storage capacity. Looking forward, we expect the acquired assets to require approximately $20 to $25 million of additional recurring annual maintenance CAPEX, while we separately plan to invest approximately $50 million of one-time additional integration and network enhancement CAPEX for each of the next two years to enhance, tie in, and integrate Pilot Water's infrastructure into SELECT's existing networks. As we have continued to grow and mature our water infrastructure segment and its contractually secured earnings streams with a diversified blue-chip customer base, the long-term cash flow visibility and through-cycle stability of the business has been significantly enhanced. On a pro forma basis, Select maintains a highly diversified customer base with no single customer representing more than 7% of consolidated revenues. As John mentioned, Select's future earnings will be supported by a strong contract portfolio, which on a pro forma basis includes over 600,000 barrels per day of MBC commitments, about 90% of which are with investment-grade counterparties, as well as approximately 3.6 million acres under dedication or rofer dedication with a weighted average remaining contract term of approximately nine years. The combined company's robust contract position supports improved visibility through cycle durability and steady growth and produce water volumes across a diverse fight footprint operating across all major U.S. basins with an especially strong position in the core of the core in the Delaware Basin within the Permian. additionally this contract stability provides us with incremental flexibility as we look at the long-term capital structure of the business as noted in the transaction release in connection with the acquisition select has entered into debt commitment letters with jp morgan and bank of america to provide a committed financing sufficient to fund the acquisition subject to customary conditions select expects to fund the cash portion of the consideration with cash on hand borrowings under our committed debt financings, or depending on market conditions, other debt financing. That said, we fully intend to maintain a prudent balance sheet and capital allocation framework, preserving strategic flexibility as we continue to invest in and grow the business in the years ahead. Accordingly, pro forma for the anticipated debt financing required to fund the acquisition of Pilotwater, we anticipate net leverage at closing to remain less than 2.0 times. demonstrating our ongoing commitment to maintaining a more conservative leverage profile as compared to most other competitors in the marketplace. While we expect a near-term uplift in CapEx with the addition of PilotWater's assets, the combined company's cash flow generating capabilities are strong and growing, and we expect the transaction to be immediately accretive on a cash flow per share basis. Overall, we believe we are well positioned to continue investing in the business while still returning cash to shareholders and maintaining a very attractive balance sheet. While the transaction remains subject to the satisfactory completion of customary closing conditions and regulatory approvals, the transaction is expected to close during the fourth quarter of 2026. Ultimately, I am very excited about the opportunities ahead for the pro forma business. And with that, I'll hand it over to the operator for any questions. Operator?

Operator

If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Jim Rolison with Raymond James. Please proceed with your question.

Jim Rollison, Analyst — Raymond James

Hey, good morning, guys. Yes, congrats on the deal and certainly pretty favorable relative multiples here. I don't know if this is for John or Chris, but you guys have been clearly leaders in Permian Recycling, and this really seems to round out your capabilities on the disposal side. I guess I would love to hear your thoughts in any maybe brackets around potential, but what does this combination do for your growth opportunity? Because as I think about this, you guys have been capturing a lot of value, locking things up, particularly led by recycling, and maybe you were getting to later innings in how much potential you had to capture from here. I'm curious what you think this does for that kind of back-end opportunity set.

Chris George, CFO

Yeah, it's a great question, Jim. It obviously expands the opportunity set for us and gives us more choices, but maybe I'll give Michael a chance to weigh in on this one.

Michael Skarke, COO

Thank you, Jim. Obviously, we think the systems are highly complementary. We still love our recycling-first position, but the optionality and the flexibility that we create by providing the disposal backup from the pilot assets is significant. I would say that really our goal is to tie the systems together and then to utilize that disposal backup to fully monetize the investment we made in the large diameter dual pipeline system across New Mexico and further monetize the contracts that both Select and Pilot have as we look kind of out into 2029, 2030 and beyond. So we're really excited about this transaction and we think there is significant in kind of revenue and operational synergies that will come in future years.

Jim Rollison, Analyst — Raymond James

I presume the revenue opportunities on synergies are meaningfully higher than the 10 to 15 million just in cost synergies. But Chris, on the second, just follow-up question here, on kind of cash flows, capex, things like that, you laid out maintenance capex of 20 to 25 that AWS adds, and then the kind of, you know, couple years of $50 million a year to integrate all this stuff together. I presume they've been on a similar growth trajectory, you know, somewhat to you guys, but maybe once you get past that integration capex, just how to think about ongoing capex growth opportunities and kind of how this ultimately builds the free cash flow on a combined basis for you guys.

Chris George, CFO

Yeah, it certainly is going to scale the long-term free cash flow generating capabilities of the business, Jim. As we outlined and you referenced, we do have near-term visibility into the capital needs to put the system together effectively. The NBC that we mentioned that's coming online in 2027 has been an ongoing capital project for pilot over the course of the bulk of 2026 here, and that'll largely be completed and ready to come online in the early part of 2027. So, you know, there'll be a little bit of capital associated with the completion and build out of that project. And then the other, you know, needs of putting the two systems together. But the maintenance needs of that, you know, system at that point, as I referenced, you know, on top of what we've historically outlined for our needs, that we think is an expectation we can maintain go forward. So, you know, as we look out two years for now, we'll have a meaningful acceleration in the free cash flow potential of the business, and at that point, we'll have a great set of capital allocation choices to continue to invest in growth or to continue to look at other opportunities to return or deploy Got it.

Jim Rollison, Analyst — Raymond James

Appreciate it. Again, congrats.

Garrett Williams, Head of Investor Relations

Thanks, Jim. Thank you.

Operator

Our next question comes from the line of Derek Withfield with Texas Capital Securities.

Derek Withfield, Analyst — Texas Capital Securities

Good morning, guys, and congrats on the acquisition Thank you, Derek. As you think about the synergy associated with Pilot's customers, could you speak to what that could mean for diversification and growth with that client base for you guys?

Michael Skarke, COO

Sure. So, I mean, the Delaware Basin is a relatively small customer base, so there's obviously a lot of overlap, but there's clearly customers where Select has a stronger relationship and ones where Pilot has a stronger relationship. And it's largely centered around the fact that pilots, the disposal solution and select is recycling first. So really our job is to combine the two, integrate the system, and then strengthen both those relationships by bringing our industry-leading recycling solution to those that are primarily disposal, and then by providing, as I mentioned earlier, by providing the disposal backstop to our current recycling solution for our primary customers.

Derek Withfield, Analyst — Texas Capital Securities

Great. Makes sense. And clearly looking at slide 11, it's a hand-in-glove situation from a PIP perspective. But as you guys think about future projects that could drive further synergy, it would seem that bringing down your Eddy Connector pipeline into Culberson or Rees could be very synergistic for both businesses. How do you think about that opportunity?

Michael Skarke, COO

That's a good question, Derek. What I would say is that there's – you're exactly right. The complementary nature of the system from a geographic perspective is really attractive. And then, again, from a purpose perspective, one being recycling and one disposal. I would say that this acquisition does present us with several kind of other solutions. One would be it's an avenue to an out-of-basin solution or other distant disposal solutions like the one that you mentioned on Eddy County. Obviously, Pilot wasn't involved in mineral extraction or beneficial reuse solutions, and so we would have technology and partnerships to bring to this relationship through the work we've done over the last 12 to 18 months on those fronts. So there's a number of different opportunities that this will allow us to embark on that really would be harder to have achieved as a standalone company.

Garrett Williams, Head of Investor Relations

Again, congrats on the transaction, guys. Thank you much.

Operator

In the line of Scott Gruber with Citigroup, please proceed with your question.

Scott Gruber, Analyst — Citigroup

Yes, good morning, and I'll reiterate the congrats on the deal. I'm just thinking about the timing around those commercial synergies. You know, slide six suggests, you know, those could be sizable and kind of several times the size of the cost synergies. You talk about, you know, two years of investment to integrate the systems. How should we think about the timing around capturing the commercial synergies, you know, kind of post-integration?

Chris George, CFO

Yeah, I'll maybe start and let Michael add to Scott. You know, obviously, you know, first and foremost, we're focused on, you know, getting the transaction to an efficient and timely close. And we'll, you know, we'll be in a position to have more open and discreet discussions with our customers and with the appropriate counterparties at that point in time. So we think that there's certainly a lot of opportunity here to pull those existing contracts together and find the right opportunities to get the appropriate integrated outcome. The timeline to integrate the system could accelerate to the extent there was an appropriate reason to do so. As we outlined on the cost energy side, we're targeting a 12- to 18-month timeline here. So we want to make sure that we make the right choices and the appropriate, you know, timelines to get the best outcomes. But, you know, I think that that, you know, 24-month period here is going to be a very, you know, important period for us. But, Michael, anything to add?

Michael Skarke, COO

Yeah, I mean, we agree with you. We think the revenue synergies are really attractive. There's a number that we've identified and there's a number more that we just think that when we get in there and work with our collective customer base and really show them the full offering that there's going to be more that we haven't identified today. in terms of timing, the first step is getting the system fully integrated and connected. And that's a process that we've already begun evaluating, but there's going to be a phased-in approach. So I would expect some of the synergies to come, you know, kind of within that initial two years as we get the system built, and then there's going to be a number of them that are going to be outside of that timeframe. So it's not going to be a light switch where they all just show up once we connect the system. It's going to be, we'll have some, you know, hopefully next year, certainly the year after, and then continue to build from there. I appreciate that.

Scott Gruber, Analyst — Citigroup

And then just looking at the, you know, complexion of the systems, obviously, you know, different, you know, being more recycling-led in New Mexico and disposal-led in Texas. So does the $100 million of CapEx in total to integrate the system, Does that contemplate recycling build-out in Texas? Would that come after? Is there interest in that from your customers? Just get a little bit of color on the, you know, kind of how you see the recycling side, you know, building out in Texas if there's interest.

Chris George, CFO

Yeah, it's a good question, Scott. Right now the focus of that capital is on, you know, integrating the system, continuing to complete the build-out of existing projects underway. You know, there is existing permits and capacity for, you know, recycling across both portfolios. So, you know, we will have flexibility of choice, obviously, with the scale of what we've built out on the select side with recycling. We think that gives us a meaningful avenue to utilize that footprint to treat and distribute barrels efficiently throughout New Mexico. going as we look down into Texas, as we previously mentioned, and you'll see, you know, we've got existing, you know, projects we've added into the Texas side here in recent periods as well with contracted frameworks. So, we do think there's going to be optionality to look at more of an integrated recycling and disposal approach long-term across the whole of the footprint. But we think we can do that pretty efficiently on a recycle barrel basis with the integrated system with adding that pipeline connectivity between the two systems.

Garrett Williams, Head of Investor Relations

I get it. I appreciate the color. Thank you. Thank you.

Operator

Thank you. Our next question comes from the line of Bobby Brooks with Northland Capital Markets. Please proceed with your question.

Bobby Brooks, Analyst — Northland Capital Markets

Hey, good morning, team. Thank you for taking the question. Just wanted to touch on, like, the timeline of this coming to fruition. Also, just a nice multiple you paid on this. Is it fair to think the pilot team saw upside in joining Select with having a bigger network, right, more network effects, and then also, obviously, they took a portion of the acquisition and has given them equity in SELECT, so they also continue to have upside exposure to this. Just wanted to hear on those two pieces.

John Schmitz, CEO

Yeah, thanks, Mr. John. You know, I would say that both parties come out really well in this transaction. They have a core business that they want to focus on. And at the same time, they wanted some value out of their asset base that had some upside. And we, on the other side, completely are very excited about the integration opportunity with these two assets. We also are getting, you know, both operational and regulatory and permitting and things of that nature out of the team that's staying with us that really enhances our abilities with this system and other things when we think about, you know, regulatory application of beneficial reuse or mental extraction or things of that nature.

Michael Skarke, COO

So I think both parties got really good value out of it.

John Schmitz, CEO

It allowed the sellers to concentrate on a core that they were very focused on, and And it allowed us to actually add to our core in a meaningful way.

Michael Skarke, COO

And there's a lot of synergies between these two systems.

Bobby Brooks, Analyst — Northland Capital Markets

I agree. Both parties definitely coming out on top. And just on, like, timeline, like, has this been something, has Pilot been on your radar for, has this been over the past nine months, 18 months, just any sense there?

John Schmitz, CEO

Yeah, I mean, they were a competitor. So we have had a relationship with them in a positive way for a long period of time. And, you know, this was an asset that we stayed very close to and understood and would be something that we'd tell you that we had a long-term focus on. You know, as far as the transaction itself, I think we executed it on both sides. did an extremely good job of executing the due diligence and what we got to yesterday, and we're very proud of that. But we've known them for a long time. They're great people. It's a great asset. It allows both parties to do what they want to do.

Bobby Brooks, Analyst — Northland Capital Markets

Yep, makes perfect sense. And then just last one for me, the added disposal volume and permitted undeveloped disposal volume seems very meaningful because it's my view that – or my understanding that getting permits for these SWDs is becoming incrementally harder. Could you just discuss that dynamic, and is my logic fair there? I know you guys touched on, like, that this kind of gives a backstop to the recycling-first view. Just wanted to hear more color discussion there.

Michael Skarke, COO

Yeah, so, I mean, the dispel – they handle a lot of produced water that provides a lot of stability to their earnings, which we like. It does provide a backstop to our disposal to where we can be more aggressive in securing MVCs and making sure that we have an outlet when completion volumes lag or schedules change, which, again, strategically and synergistically we really like. There is a considerable amount of excess capacity. If you think about it, when the 175,000 barrel per day NBC comes online, their Delaware system is going to be about 60% utilized. So we have upside to continue to commercialize that, and we think with the integrated solution we'll be able to do that. And that's before you move into the 900,000 barrels per day and permitted capacity, much of which has already been drilled but uncompleted. So that's going to be, you know, one, you don't have to get the permits when permits are becoming increasingly more challenging to obtain, but it also will be much quicker to bring those assets online and commercialize them. So it's all kind of part of how we think about the deal, Bobby, and it's really why we're excited about bringing these two assets together.

Operator

Our next question comes from the line of Don Christ with Johnson Wright. Please proceed with your question.

Don Christ, Analyst — Johnson Wright

Thanks for letting me in, guys. You partially answered this with your response to Bobby's question, but I was going to ask about utilization across the pilot system. As I appreciate it, your northern Delaware system that you're building out today is roughly 50% utilized, or you expect it to be roughly 50% utilized, So it gives you a lot of optionality on the interruptible side to kind of juice returns. But what about the pilot system? Are there kind of bottlenecks as you move into Texas that the $50 million in CapEx per year is going to alleviate? Can you just kind of expand on that?

Michael Skarke, COO

Yeah, no, you're exactly right, Don. So there are bottlenecks in that system that we know we have to alleviate to fully integrate it the way that we want to integrate it. There will also be inevitably bottlenecks that we have not identified now that hopefully we can prior to closing, but maybe not, that we'll have to address, which is why we kind of have that phasing in over two years. But once we do get that kind of all worked out and have the system fully integrated with, I'll just say, large diameter pipe and in many instances dual pipe, then we think we'll have kind of one system that we can be really flexible and opportunistic around commercializing.

Chris George, CFO

Maybe one thing I'll add to it, Don, when you think about that utilization framework you outlined, I'd just reinforce, I mean, most of the dedicated acres we've contracted here have been put in place over the last 24 months. We're still, you know, actively building out, you know, a big piece of that position in the Eddy County side. You know, they're actively underway in building out the project to bring that new NBC online in the early part of next year. So, you know, while the utilization of the system today is lower, the pace at which this is getting built out in both the select and pilot side across the whole network, you know, really is in the early innings of accelerating that commercialization long term, both on the base contracts, but as we get those core projects built out over the next 18 months. But furthermore, as we look beyond that to the overall commercialization framework we outlined to use the rest of the capacity, we think we're still in the early stages of executing upon that. But the demand's there, and the opportunity set is meaningful.

Don Christ, Analyst — Johnson Wright

Okay. And I did want to ask about kind of the areas outside of the Permian Basin. Obviously, the Haynesville looks like a pretty decent system. Does that integrate in the other areas outside of the Permian? Do they integrate well with what you have today? And how does specifically the Haynesville look? Because it looks like Pilot had a pretty good system there too.

Michael Skarke, COO

They did, and we're actually tied into their system already in the Haynesville. So, again, it's a system that we know well. It's a team we know well. It's an asset we know well. And, you know, we do have overlapping operations in the other basins, and we're really glad that it's part of the deal and coming with it. But, you know, as you'd expect at the end of the day, what we're most excited about is the Delaware. I mean, the Delaware has been our kind of core focus for the last couple of years, and it's also been pilot's core focus for the last couple of years. And I know I've said it before, so I apologize for repeating myself, but we just couldn't be happier with how these two systems marry up from what they're able to accomplish in a geographic standpoint.

Chris George, CFO

And I think some of that smaller diversity across other basins, too, It just really put us in a unique position to bring those other positions online and absorb them and integrate them officially into what we already have, given the breadth of diversity we have across every basin.

Garrett Williams, Head of Investor Relations

I appreciate the talk. I'll turn it back. Thanks. Thank you, Dylan.

Operator

Thank you. Our final question this morning comes from the line of Jeff Robertson with Water Tower Research. Please proceed with your question.

Jeff Robertson, Analyst — Water Tower Research

Thank you. Good morning. As you think about putting these two systems together and managing capacity utilization over the next several years. How do you think about the margin profile of the infrastructure business?

Chris George, CFO

Yeah, it's a good question, Jeff. Obviously, as you increase utilization on existing capital assets, you're going to get a margin efficiency over time. We outlined that there's a big opportunity here to continue to scale that mineral extraction potential across, you know, now a footprint that's managing, you know, 800-plus thousand barrels a day going to a million next year. So that's a big, you know, scale, you know, volume base that we can expand that opportunity set around. Obviously, there's more opportunity to harvest and efficiently capture scheme out of that system as well. So, you know, part of the operational cost synergies we outlined is, you know, is processes, procedures, things like that. But some of it is operational efficiency, getting everything integrated onto the platform on a combined basis. And we think that there's opportunity to improve the margin profile of the base asset as we get it integrated with ours, where we're seeing a margin profile that's obviously attractive and been moving up here over the recent quarters.

Jeff Robertson, Analyst — Water Tower Research

Your point, Chris, about mineral extraction and some of the other ways to maximize the value of the barrel. Will the combined system, as you stitch it together in the volume that it will have moving through it, change the nature of the conversations that you have around those types of opportunities with mineral extractors or ultimately beneficial reuse?

Chris George, CFO

Yeah, it certainly scales the overall potential and will give us opportunities to think through the timelines and the pace and prioritization of where and how we deploy those opportunities. Obviously, expanding the footprint here into the Texas side of the Delaware gives us another set of geographic reach where you've got, obviously, varied quality and content across broad geographic footprint where you've got different diversification of opportunity there. So, we think it's going to continue to add opportunity to scale this thing up in a manner with broader reach that may provide different opportunities than where you've got today. Michael, anything to add?

Michael Skarke, COO

Yeah, no, I think it's just important to add that when we talk about changing the conversation, the conversation that I think really changes gets back to customers because Pilot was having primarily disposal conversation, and we've been having recycling-first conversation. And being able to go to that customer base and show them a recycling and a disposal option and really just in conjunction a one-stop shop total water management solution, that's the conversation that I think changes the most. And another thing is mineral extraction. We love that. But that's where the real revenue synergy should occur.

Chris George, CFO

And as we think about the long-term opportunity set as well, having that, you know, that footprint reach into the Texas side as we think about beneficial reuse and the potential flexibility around, you know, moving barrels around to maximize the opportunity set around beneficial reuse over the coming years as well. between both New Mexico and, importantly, into Texas is another, you know, important consideration.

Jeff Robertson, Analyst — Water Tower Research

Lastly, Michael or Chris, does Pilot have surface acreage as you think that you could leverage as you think about expanding the recycling business into the southern part of the Delaware Basin?

Chris George, CFO

Yeah, it's a great question, Jeff. They do have some surface acreage on an own basis as well as a meaningful, as you can imagine, surface use agreement position on a lease basis, both for their existing activities, but as well, as we think about that existing permit portfolio that they have, as well as incremental acreage positions that would allow for future permitting opportunities. So we think it's an opportunity that's going to continue to bring value.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Schmitz for any final comments.

John Schmitz, CEO

Thanks to everybody for joining the call today to learn more about this exciting acquisition. We appreciate your continued support and interest in Select Water Solutions.

Operator

For today's conference call, you may disconnect your lines at this time. Thank you for your participation.