Solaris Oilfield Infrastructure (SOI) Valuation Update - May 14

[dan_s]

Solaris will be generating a lot of free cash flow this year. Capex spending is down 75% YOY to just $15 million. Based on my forecast, the Company should generate over $70 million of free cash flow this year.

I expect them to step up their stock buybacks and raise their dividends, which are currently $0.12/quarter for annualized yield of 5.3%.
The balance sheet is already in good shape, so most of the FCF will go back to shareholders.
From 12-31-2022 to 3-31-2024 the outstanding stock has declined from 31.6 million to 28.3 million. With funds remaining in their current stock buyback plan, they can buyback close to 2.0 million more shares.
The low share count is key to my valuation of $13/share.

Notes from the Company's 10-Q:
Demand for our services is predominantly influenced by the level of oil and natural gas well drilling and completion
activity in the U.S. Through mid-April 2024, U.S. drilling and completion activity, as measured by the Baker Hughes U.S.
Land Rig Count, was down 1% year to date, which reflects the net impact of a slight increase in the number of oil-directed
rigs and a 9% decrease in gas-directed rigs. Average WTI oil prices increased over 15% from the low-$70s per barrel range at
year-end 2023 to the low-$80s per barrel range in April 2024. Average Henry Hub natural gas prices declined over 30% from
the start of the year to below $2 per MMBtu, which was the primary driver of the decrease in gas-directed drilling activity.

For the first quarter ended March 31, 2024, our fully utilized total system count averaged 102 systems, which was roughly
flat from 103 systems for the fourth quarter ended December 31, 2023 and was relatively in line with the Baker Hughes rig
count trend. A small increase in pricing at the start of 2024 and incremental earnings from our new services allowed us to
grow earnings despite the softness in drilling and completion activity. As a result, our operating profit grew over 8%
sequentially despite the industry activity decline.

Today oil-directed drilling activity comprises over 80% of the total Baker Hughes U.S. Land rig count. Oil prices
currently remain in the low-$80s per barrel range, which we believe should support a sustained level of oil-directed U.S.
drilling and completion activity. For the remainder of 2024, we expect the Company’s revenue and profitability to track the
overall direction of U.S. drilling and completion activity, which we expect will be negatively impacted by low natural gas
prices and industry efficiency gains, partially offset by stable oil-directed activity.

Our capital expenditures of approximately $3 million in first quarter 2024 were down over 50% compared to the fourth
quarter of 2023. The Company continues to expect full year 2024 capital expenditures to be below $15 million, which reflects
an over 75% decrease from total capital expenditures in 2023 following the completion of our prior growth capital program in
2023. This reduction in capital expenditures should allow us to generate significantly increased cash flow in 2024.

[dan_s]

Solaris is one of four companies in our Small-Cap Growth Portfolio that pay good dividends and there is a good chance that they raised dividends later this year.
Based on the May 24th closing prices here are the annualized dividend yields.

GRNT: 6.70%
REPX: 5.61%
SOI: 5.38% < Safest bet since Solaris will be generating record free cash flow this year.
ZPTAF: 6.98%