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Don't Believe Water Companies About Fracking

Stocks in this article: CAM HEK SI

NEW YORK ( TheStreet -- Don't believe water companies about fracking.

Traditional water treatment companies are looking at the oil industry as a new source of revenue outside the usual wastewater treatment, but investors should know that breaking into the shale gas produced water market isn't so easy.

These aspiring water companies face a market almost entirely locked up by three companies, a murky profit picture and a changing regulatory environment

"I think a lot of traditional water treatment companies have done very poorly in oilfield water because traditional water companies are not used to water that changes its composition every day," Brent Halldorson, chief operating officer of Fountain Quail Water Management recently told Global Water Intelligence, which provides industry analysis.

Oilfield water is a $2.5 billion a year business, so the lure of a new income stream is high. Oil companies tend to outsource the water treatment and especially water services for shale gas because the work is temporary and moves from site to site.

The business can be unpredictable. For instance, hydraulic drilling in the Marcellus shale area has been challenging as the geological formations there are different from other areas where the drilling hasn't caused problems with water.

Currently, the oilfield water treatment market is dominated by one player. Cameron (CAM) has more than a 50% market share of the market followed by Siemens (SI) and Veolia with each owning 8% of the market.

Cameron is the largest player in the market because of an aggressive consolidation strategy. The company is also a Wall Street darling with 85% analysts covering the stock giving it a buy rating.

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