EXCLUSIVE ConocoPhillips-backed Solaris readies IPO with sustainability pitch -sources

Water pipes are seen at a wastewater injection facility operated by On Point Energy in Big Spring
Water pipes are seen at a wastewater injection facility operated by On Point Energy in Big Spring, Texas U.S. February 12, 2019. Picture taken February 12, 2019. REUTERS/Nick Oxford

Aug 24 (Reuters) - ConocoPhillips (COP.N)-backed Solaris Midstream Holdings LLC, the water pipeline company serving the U.S. oil and gas fracking industry, is preparing for an initial public offering (IPO) that it hopes will attract sustainability-focused investors, according to people familiar with the matter.

Fracking, which uses water combined with chemicals and sand to split open rocks and release oil and gas, has drawn criticism from environmental groups who say the process consumes and contaminates fresh water sources.

The issue is acute in arid New Mexico and Texas where Solaris operates. Energy companies in the Permian Basin have consumed millions of gallons of groundwater even as farmers and municipalities struggled with perennial water shortages.

Solaris says it can make fracking environmentally friendly by treating and recycling used water. It has pledged that 60% of the water it provides for fracking will be recycled by 2022, up from 42.1% in 2020, with the remainder being groundwater. By 2030, it says nearly all the water it provides will be recycled.

Solaris set these targets as part of a $400 million sustainability-linked bond it issued in March. It used the proceeds to refinance debt and redeem preferred equity held by ConocoPhillips, its biggest customer which also owns a 30% stake in the company.

"Solaris is the only company in (its) peer group to have concrete targets to increase recycled produced water," ISS ESG, a consultancy commissioned by Solaris to assess its sustainability targets, wrote in an opinion in March.

Solaris has filed confidentially for an initial public offering (IPO) in New York that could value it at more than $1 billion, plus debt, the sources said. The listing could come before the end of the year and will seek to attract investors guided by environmental, social and corporate governance (ESG) principles, they added.

Solaris declined to comment. ConocoPhillips did not respond to a request for comment. Private equity firms Trilantic Capital Partners and Yorktown Partners LLC together own 52% of Solaris. Trilantic declined comment and Yorktown Partners did not respond to a request for comment.

If successful, Solaris would be the first U.S. pipeline company to debut on the stock market since Rattler Midstream LP (RTLR.O) in 2019. Many investors have snubbed the sector because of years of poor returns, especially versus other industries such as technology.

Rob Fernandez, director of ESG Research for Breckinridge Capital Advisors, said energy investors often focus on how well fracking companies manage their water usage.

"In fracking and the energy sector, water has become such a big issue," Fernandez said. Among investors, he said, "it is a mainstream ask."

Water recycling rates vary widely between U.S. companies and shale basins. For the U.S. industry as a whole, data provider IHS Markit forecast in an April 2020 report the vast majority of wastewater leaving an oil field in 2022 will still not be recycled and, instead, will be injected into disposal wells.

Reporting by David French in New York Additional reporting by Ross Kerber in Boston; Editing by David Gregorio

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