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Select Energy Services Announces Acquisition of Breakwater Energy Partners

Select Energy Services, Inc., a leading provider of sustainable water and chemical solutions to the energy industry, today announced the acquisitions of Breakwater and certain water gathering pipeline and disposal assets from Cypress, as well as its financial and operating results for the quarter ended September 30, 2022.

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Select Energy Services, Inc., a leading provider of sustainable water and chemical solutions to the energy industry, today announced the acquisitions of Breakwater and certain water gathering pipeline and disposal assets from Cypress, as well as its financial and operating results for the quarter ended September 30, 2022.

John Schmitz, chairman of the board, president and CEO, stated: "Our strong third quarter results, combined with our recent acquisitions, display our ability to execute on our strategy to improve and bolster the base business, advance our technology, sustainability and diversification efforts, and execute on strategic M&A. We progressed each of these initiatives while also commencing our previously announced regular quarterly dividend program. Reinforced by a steady activity backdrop, a challenging labor market and a tight equipment supply environment, we continue to capture market share and see pricing improvements across each of our segments. During the third quarter we achieved 12% sequential revenue growth and 59% incremental gross margins, resulting in significantly improved profitability with Net Income and Adjusted EBITDA growing 70% and 32%, respectively, quarter over quarter.

"Our chemicals segment continues to produce record revenue and margins, we continue to improve efficiencies and gain market share in our Water Services segment, and our Water Infrastructure segment achieved quarterly revenue more than 10% above our previous pre-pandemic peak level. Overall, I'm very pleased with our financial and operational execution and believe we are well positioned to continue to improve the profitability of the business in the quarters to come.

"In addition to these improvements in the base business, we identified and completed the acquisition of Breakwater, a core Permian infrastructure, recycling and logistics business, to further our growth, consolidation and sustainability strategies, while our Cypress transaction adds to our infrastructure scale and development opportunities in the Bakken. With these additions, we have meaningfully enhanced our water infrastructure and water services footprints, and significantly expanded the capacity and reach of our sustainable recycling solutions. We expect to see immediately accretive benefits from both acquisitions and believe we have a meaningful opportunity to invest organically around the acquired operations and asset footprints as well.

"In Breakwater, we are acquiring one of the market leaders in advanced water recycling, infrastructure and logistics solutions focused in the Permian Basin. Importantly, we're also adding significant operational leadership depth to the organization and welcoming more than 300 new employees to the Select family. With a strategic portfolio of highly contracted recycling assets in the core of the Midland Basin, we believe Breakwater has developed one of the leading recycling footprints in the U.S. today. This footprint expands Select's recycling capabilities to nearly 3 million barrels of total daily capacity across fixed and mobile capabilities, while adding a number of new strategic customer relationships and strengthening existing relationships with new recycling opportunities. During the third quarter, we exceeded our full year 2022 target for produced water recycling volumes established in our sustainability-linked credit facility, while this acquisition positions us to quickly meet and meaningfully exceed our future targets as well. These recycling facilities also offer significant network flexibility via geographic and infrastructure interconnectedness, currently allowing for approximately 10 customers at any given time to deliver produced water and receive recycled water as demand ebbs and flows with their own activity needs, while reducing capital outlays and operating expenses for our customers.

"Through the Cypress acquisition, we've added a portfolio of strategic wastewater disposal facilities in North Dakota at an attractive value, further consolidating the Bakken region following our previous Agua Libre Midstream and Nuverra acquisitions. With more than 60% of the current volumes being delivered to these assets via contracted pipelines, we believe there is continued opportunity to expand and network the assets with our existing infrastructure footprint in the region.

"Additionally, I'm very confident in the strategic and clear financial benefits of these acquisitions. On a combined basis, the acquired operations from Breakwater and Cypress are expected to generate approximately $110 – $115 million of revenue and more than $30 million of Adjusted EBITDA on a 2022 full year basis, with a strong trajectory and room for growth in 2023.

"Ultimately, I am very pleased with our financial performance, supported by our recent acquisitions, pricing improvements, organic growth opportunities and our other strategic investments. I look forward to building upon our recent positive results, while meaningfully expanding our free cash flow generation in the quarters ahead. Supported by these factors, I am proud to have recently announced our first ever quarterly dividend payment of $0.05 per share for the third quarter of 2022. Returning capital to shareholders remains a core component of our overall capital allocation strategy and this represents an important commitment for Select," concluded Schmitz.

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