Aris Water : 3Q 2023 Earnings Presentation

Aris Water Solutions, Inc. - Earnings Presentation

Third Quarter 2023

Cautionary Statements

Forward-Looking Statements

This presentation and the oral statements made in connection with this presentation contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of forward-looking statements include, but are not limited to, statements, information, opinions or beliefs regarding our business strategy, our industry, our future profitability, business and financial performance, including our guidance for 2023, current and potential future long-term contracts, legal and regulatory developments, our ability to identify strategic acquisitions and realize expected benefits therefrom, the development of technologies for the beneficial reuse of produced water and related strategies, plans, objectives and strategic pursuits and other statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "guidance," "preliminary," "project," "estimate," "expect," "anticipate," "continue," "sustain," "will," "intend," "strive," "plan," "goal," "target," "believe," "forecast," "outlook," "future," "potential," "opportunity," "predict," "may," "visibility," "possible," "should," "could" and variations of such words or similar expressions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated or implied by the forward-looking statements including our guidance for 2023. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to, energy prices, the Russia-Ukraine and Israel-Hamas conflicts, macroeconomic conditions (such as inflation) and market uncertainty related thereto, legislative and regulatory developments, customer plans and preferences, technological innovations and developments, and other events discussed or referenced in our filings made from time to time with the Securities and Exchange Commission ("SEC"), including such factors discussed under "Risk Factors" in our most recent Annual Report on Form 10-K, and if applicable, our subsequent SEC filings, which are available on our Investor Relations website at https://ir.ariswater.com/sec-filings or on the SEC's website at www.sec.gov/edgar. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. All forward-looking statements, expressed or implied, included in this presentation and any oral statements made in connection with this presentation are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Industry and Market Data

Market and industry data and forecasts used in this presentation have been obtained from independent industry sources as well as from research reports prepared for other purposes. We also cite certain information from media and other third-party sources. Although we believe these third-party sources to be reliable, we have not independently verified the data obtained from these sources and we cannot assure you of the accuracy or completeness of the data. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this presentation. Statements as to our market position are based on market data currently available to us, as well as management's estimates and assumptions regarding the size of our markets within our industry. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. As a result, we cannot guarantee the accuracy or completeness of such information contained in this presentation. In addition, any reference within this presentation or made in connection with this presentation to our support of, work with, or collaboration with a third-party entity or organization does not constitute or imply an endorsement of any or all of the positions or activities of such entity or organization.

Non-GAAP Financial Measures

In this presentation, we use certain non-GAAP performance measures to evaluate current and past performance and prospects for the future to supplement our GAAP financial information presented in accordance with GAAP. These non-GAAP financial measures are important factors in assessing our operating results and profitability. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in the appendix to this presentation.

Although we provide guidance for the non-GAAP measures Adjusted EBITDA and Adjusted Operating Margin per Barrel, we are not able to forecast the most directly comparable measures (net income and gross margin) calculated and presented in accordance with GAAP, without unreasonable effort. Certain elements of the composition of forward-lookingnon-GAAP metrics are not predictable, making it impractical for us to forecast. Such elements include but are not limited to non-recurring gains or losses, unusual or non-recurring items, income tax benefit or expense, or one-time transaction costs and cost of revenue, which could have a significant impact on net income. As a result, no reconciliation of forecasted non-GAAP measures are provided.

2

Aris Provides Essential Environmental Solutions

• We are a leading, growth-oriented environmental infrastructure and solutions company
• We deliver full-cycle water handling and recycling solutions that increase the sustainability of energy companies
• Our infrastructure serves premier operators in core areas of the Permian Basin under long-term contracts

Mission Statement:

We are dedicated to supporting responsible domestic energy production by providing produced water management with a heightened level of environmental standards. We work to maintain the trust of our employees, customers and neighbors through sustainable operations and a commitment to maintaining the highest integrity and safety standards.

3

Overview of Aris Water System

Asset Footprint

Aris Infrastructure

Produced Water Pipeline

Right of Way

Water Handling Facility

Water Recycling Facility

Customer Acreage

Contracted

	Asset Highlights as of September 30, 2023
Miles of Pipeline		~730
Produced Water Handling Capacity		~1,800 kbwpd
Water Recycling Capacity		~1,400 kbwpd
Contracted Acres		>650,000

4

Third Quarter 2023 Highlights

3Q 2023 Operational Highlights

3Q 2023 Financial Highlights

• Total water volumes of ~1.5 million barrels per day
• Produced Water volumes of ~1.06 million barrels per day
• Water Solutions volumes of ~460 thousand barrels per day

Up 7%

versus 3Q 2022

Up 17%

versus 3Q 2022

Down 10% versus 3Q 2022

✓	Revenue of $99.8
	million
✓	Adjusted EBITDA (1)
	of $44.9 million
✓	Adjusted Operating
	Margin per Barrel (1)

Up 10%

versus 3Q 2022

Up 14%

versus 3Q 2022

Up 11%

Operational Update

• ~$5.4 million annualized Adjusted EBITDA (1) cost savings from electrification vs. 3Q'22
• Line power connections on track to provide further cost reduction through year-end 2023

of $0.40/bbl

✓ Capital Expenditures

of $39.6 million (2)

versus 3Q 2022

Down 43% versus 3Q 2022

1. Represents a non-GAAP measure. See definition and a reconciliation to the most directly comparable GAAP measure in the Appendix.
2. Calculated on capital costs incurred during the period, excluding the impact of working capital.

5

Key Operating and Performance Metrics

Volume Profile (1) (kbwpd)

Adjusted Operating Margin (2) ($/bbl)

Produced Water Handling

					1,092	1,167	1,242
	924	961		401
806				364
	342
	205		253
158				803		841
					750
	719		708
648

			Water Solutions
1,416			1,497 1,516
1,305	1,376
		460
						452
511	365	405

905

940

971

1,045 1,056

$0.42			$0.43	$0.42
					$0.41
$0.39		$0.41						$0.39	$0.40
															$0.38
															$0.36	$0.37

1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23

1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23

Adjusted EBITDA (2) ($ millions)

CAPEX (3) ($ millions)

$36 $36 $37

$31 $31

$23

$39

$36

$43

$38

$45

$80

$70

$60

$50

$40

$30

$20

$10

$0

$25

$21

$16

$4

$26

$52

$70

$20

$48 $49

$40

1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23

1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23

1. During 3Q'23, Aris sold non-core assets in Martin County, Texas which were handling approximately 50 kbwpd of Produced Water Handling volumes.
2. Represents a non-GAAP measure. See definition and a reconciliation to the most directly comparable GAAP measure in the Appendix.
3. Calculated on capital costs incurred during the period, excluding the impact of working capital.

6

Updated Fourth Quarter 2023 Outlook

• Forecasting Adjusted EBITDA at the high end of original guidance range of $150-$170 million for the year
• Produced water handling volumes forecasted to be up approximately 2-3% excluding the impact of non-core asset divestiture (~50 kbwpd of volumes divested)
• Pull-forwardof certain water solutions activity brought volumes into 3Q'23 from 4Q'23
• 3Q'23 Adjusted Operating Margin improvements expected to be sustained going forward
• Capital expenditures on track to meet forecast of $160-170 million for the year

			Fourth Quarter 2023	Total Year 2023
Metric		Low End	High End	Estimate
Produced Water Handling Volumes		1,045	1,055	1,025	- 1,030
(kbwpd)
Water Solutions Volumes		405	420	420	- 430
(kbwpd)
Adjusted Operating Margin per Barrel	(1)	$0.39	$0.41	~$0.39
($/ Total Volumes)
Adjusted EBITDA (1)		$41.0	$45.0	$166.0	- $170.0
($ million)
Total Capital Expenditures		$24.0	$34.0	$160.0	- $170.0
($ million) (2)

1. Represents a non-GAAP measure. Although we provide forecasts for the non-GAAP measures Adjusted EBITDA and Adjusted Operating Margin per Barrel, we are not able to forecast their most directly comparable measures (net income and gross margin) calculated and presented in accordance with GAAP without unreasonable effort.
2. Calculated on capital costs incurred during the period, excluding the impact of working capital.

7

Capital Allocation Framework, Leverage and Liquidity

Aris's Capital Allocation Framework

• Balance Sheet Management
• • 3Q'23 leverage at ~2.53X (1) vs. leverage target range of 2.50X - 3.50X
  • Credit facility refinancing extends maturity and provides incremental liquidity commensurate with the Company's growth
• High-ReturnOrganic Growth
• • Attractive capital investment opportunities to grow alongside existing customers
  • Opportunity to selectively add new customers with incremental capital
• Opportunistic, Strategic Acquisitions & Divestitures, & Bolt-On Customer Connections
• • Divestiture of non-core assets allows for capital redeployment into higher return organic projects
  • Disciplined and rigorous evaluation of acquisitions
  • Key focus on strategic fit, technology & expertise, financial returns and customer quality
• Return Capital to Shareholders
• • Announced a ninth consecutive dividend of $0.09/share for 4Q'23

		Operating Cash Flow
		(-) Interest Expense
		(-) Sustaining Capital
	EXCESS CASH FLOW
Organic Growth	Return of Capital		Balance Sheet
◼	High-Return	◼	Dividends	◼	Cash to
	Growth Capital	Share		Balance Sheet
		◼		and/or Debt
			Repurchases
				Paydown
		Strategic M&A

No Near-Term Maturities and Increased

								Liquidity (2)
				Senior Notes								$400
				Drawn Revolving							$350
				Credit Facility
				Undrawn Revolving
				Credit Facility
	$ millions										$316
	Cash		~$24
	(+) Revolver		~$316
	Total Liquidity (as of 9/30/2023) ~$340
																		$34
2023			2024	2025				2026		2027

(1) Represents a non-GAAP measure. Defined as net debt as of 9/30/2023 divided by trailing twelve months Adjusted EBITDA. Net debt is calculated as the principal amount of total debt less cash and cash equivalents. See a reconciliation to the most directly comparable GAAP measure in the Appendix.

(2) Reflects Aris's amended and restated credit agreement executed on October 12, 2023.

8

Expanding Our Beneficial Reuse Capabilities & Technology

Ongoing Research and Development Update

• Pilot project through Aris's alliance with ConocoPhillips,
  Chevron, and ExxonMobil is successfully underway
• • The first of three integrated desalination process trains has begun to treat produced water to a high-quality level utilizing thermal distillation technology
• Dr. Eric Hoek, who previously joined Aris as an advisor, and Aris's technical team have identified several potentially valuable constituents such as ammonia, magnesium, bromide and strontium
• • Aris is evaluating extraction technologies and options to determine commercial viability

"By joining forces on this project, we bring

together our collective knowledge to accelerate technology, conversation and regulation around beneficial reuse of produced water"

• ConocoPhillips Senior Vice President of Lower 48 Assets and Operations Kirk Johnson

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Appendix