Usually, whenever someone says, “Let’s do the math,” my eyes glaze over.

Not this time.

I came across this simple equation more than a year ago, and it’s still fresh in my mind:
11,400 x 6.1 million = 69.54 billion.

Translation, courtesy of Scarcity & Real Wealth’s Nathan Slaughter: Each of the approximate 11,400 new shale wells per year in the United States requires an average 6.1 million gallons of water. That amounts to about 70 billion gallons.

That’s a lot of liquid — enough, in fact, to cover an area twice the size of Delaware at a depth of an inch.#-ad_banner-#

The exact number of wells will fluctuate from year to year, but oil and gas explorers will be plying their trade for decades to come. And as you can see from the math, these drillers are a thirsty lot.

So it only stands to reason that if you’re in the niche business of quenching that thirst, there are profits to be had — not to mention investment opportunities for the rest of us.

That’s where Heckmann (NYSE: HEK) comes into play.

Heckmann is an oilfield-services company that sources, stores and transports fresh water to drilling sites. The company also treats and disposes “flowback” water and waste fluids. In other words, Heckmann collects a check for bringing the fresh water in, and another check for hauling the waste water away. That’s a recurring revenue stream that can last for up to 30 years, according to Nathan.

It’s no secret that water management practices at fracking operations across the United States are under close scrutiny by regulators and environmental groups. Among other things, critics contend that drinking-water supplies are unduly threatened by the “fracking cocktail” — the mixture of water, acids, detergents and other ingredients that’s injected into the shale to create the fractures that release the gas and oil.

But that’s precisely why drillers need a “trusted specialist that can stay in compliance with local and federal environmental mandates,” wrote Nathan, when he initially recommended Heckmann in Scarcity & Real Wealth in February 2012. “Given the potential consequences of a contamination lawsuit, water disposal is not the place to save a few bucks,” said Nathan.

All of which plays right into Heckmann’s wheelhouse.

On March 12, Heckmann surprised Wall Street by announcing a fourth-quarter profit of $5 million, when in fact analysts were expecting the company to report a $5 million loss. Part of company’s good news stemmed from a larger income-tax benefit, but revenues also beat expectations, soaring 119% from a year earlier to $113 million.

In response to the earnings report, shares of Heckmann popped 27.7% to a high of $4.42 last Friday, from a low of $3.46 on March 4. Even with the recent strength, current prices are still below a peak of about $7 a share in December 2011.

So what happens from here? If anyone is qualified to talk about Heckmann, it’s Nathan. As you’ll read in the interview below, Heckmann is operating in his back yard. And the company is one of the largest holdings in the Scarcity & Real Wealth real-money portfolio.

Bob: Heckmann does more than haul water, right?

Nathan: Yes, Heckmann does much more than just shuffle water around. The company provides a range of ancillary services. The 2012 acquisition of Thermo Fluids, for example, brought in 200 route-based trucks that pick up and recycle used motor oil and antifreeze. These complementary business lines have made Heckmann a well-rounded company that is re-branding itself as an “environmental solutions” company.

Bob: How big is Heckmann’s footprint? Where do they operate?

Nathan: Back in 2011, Heckman operated strictly within the Haynesville Shale in northwest Louisiana. This happens to be my backyard, incidentally — the nearest Heckmann water tanks aren’t much more than a stone’s throw away, so I have first-hand familiarity with this company. But during the past two years, Heckmann has made a concerted effort to expand its reach — a wise decision since tumbling natural gas prices have slowed drilling in the Haynesville play.

Today, Heckmann has an active presence in eight shale formations around the country. The company is now firmly entrenched in oil and liquids-rich plays such as the Bakken Shale in North Dakota, the Eagle Ford in Texas and the Utica in Ohio — all spots where exploration and development activity are buzzing.

To serve these regions, Heckmann has amassed a fleet of 1,200 trucks and 200 rail cars, along with over 100 miles of water collection and delivery pipelines. The company also owns 4,200 frack tanks and 46 liquid waste disposal wells. More recently, it has been constructing facilities designed to treat and recycle used fracking fluids.

This end-to-end infrastructure that accommodates the full cycle from collection to delivery to recycling is just one reason why Heckmann is winning the business of major customers such as Continental Resources (NYSE: CLR) and ExxonMobil (NYSE: XOM).

Bob: What is the political climate for fracking right now?

Nathan: That depends largely on where you live.

In places like my home-state of Louisiana, where many people depend on the oil and gas industry for their livelihood, there is virtually zero organized opposition to fracking. At the other end of the spectrum, New Jersey has issued an outright moratorium on the practice. But since there’s very little oil and gas in New Jersey anyway, the ban is essentially meaningless.

The U.S. Environmental Protection Agency (EPA) will probably try to overreach on this issue. But its oversight is limited since fracking is expressly exempt from the 1974 Safe Drinking Water Act. Most regulation is done at the state level, where tighter rules are being put in place.

Some states have mandated that drillers publicly disclose fracking fluid chemicals (many companies had already done so voluntarily). To augment that, I expect other states to pass tougher construction standards to insure proper well integrity. Some regulators may pile on extra planning and permitting paperwork.

But none of this is particularly costly or onerous in terms of compliance. The bigger risk is permit delays (no drilling, no profits). But the odds of a worst-case scenario are slim. Aside from meddling in state issues, the federal government doesn’t want the political backlash.

According to economic research firm IHS Global Insight, shale gas extraction will create or support 870,000 jobs during the next four years and generate $118 billion in economic activity. It will also help wean the United States off foreign oil. President Barack Obama himself has given fracking something of an endorsement by advocating the development of home-grown natural gas and pledging “every possible action” to see it through.

Even in left-leaning states like California (itself no stranger to oil production) I expect pragmatic politicians to recognize that tapping shale reserves will jump-start employment and send billions in royalties flowing into the state’s coffers, plugging some gaping budget holes.

In any case, tighter fracking regulations will be a positive for Heckmann, not a negative. If oil and gas producers have to spend more money to safely dispose of their waste, this is who will be cashing the check.

Bob: You’ve been a believer in Heckmann even in the volatile periods.

Nathan: A pullback can be a good thing. Heckmann shares were in a free-fall last summer over perceived impact of weak natural gas prices. That selling intensified on August 7, 2012 following a routine analyst downgrade, which sent the stock plummeting 20% to a new low of $2.61 a share. I came to the company’s defense that very day with three counter-arguments:

1. Even with fewer drilling rigs, water volume flowing through Heckmann’s Haynesville pipeline system had tripled to 50,000 gallons per day, from 17,000 gallons per day a year earlier.

2. When natural gas prices rebound, drilling crews and equipment could always move back in just as quickly as they moved out — and gas prices had already climbed more than 50% during the previous few months.

3. In the meantime, Heckmann was rapidly expanding its footprint into oilier plays such as the Utica Shale and Tuscaloosa Marine Shale, where drilling activity was hopping.

When everyone else was focusing on natural gas prices, I was looking at Heckmann’s HR department. The company had recently recruited 175 new truck drivers to be dispatched into the field — you don’t hire dozens of new employees unless your current workforce will soon have more than it can handle.

So rather than sell with the crowd, I took the opposite tack and added another 150 shares to my Scarcity & Real Wealth real-money portfolio. And the shares actually began recovering the very next day. Less than a month later, Heckmann had rebounded more than 50% and was back above $4.

Bob: What’s your outlook for Heckmann?

Nathan: As you noted above, the market just gave Heckmann a standing ovation following a robust fourth-quarter earnings report. Investors that are preoccupied with natural gas are missing the bigger picture — Heckmann has adapted and now generates about 70% of its revenues from oil/liquids shales.

After doubling from $156 million in 2011 to $350 million in 2012, the company’s revenues are now forecast to double again to a minimum of $750 million in 2013.

To be sure, Heckmann’s fortunes are dependent upon loose spending among energy producers such as Kodiak Oil & Gas (NYSE: KOG). And that spending will ebb and flow along with fluctuating oil and gas prices. Still, the United States is on track to become the world’s largest oil producer during the next decade.

And you can’t get there without fracking and drilling thousands of new wells — each one of which will require six million gallons of water. This company will play a central role in the ongoing shale revolution — it’s only a matter of time before Heckmann retakes the $5 a share mark.

[Note: Fracking isn’t the only game-changer in the energy space. In this Web presentation, Nathan talks about a rediscovered 68-year-old technology that could turn into the most profitable investment idea of the year. (For the text version, click here.)]