Bluefield Research, an independent advisory firm, forecasts the hydraulic-fracturing water-management market will average $17 billion per year from 2019 through 2028. Because of increased demand for scaling-water supplies and disposal needs, many midstream water companies backed by private equity and wealth funds are in the position “to seize the opportunity going forward,” said Bluefield.
According to Bluefield’s report, Midstream Water Management: U.S. Hydraulic Fracturing Strategies, Solutions, & Outlook, water management for the fracing sector has maintained a steady clip since 2017. Spending on water supply, transport, treatment, storage and disposal has increased 12 percent per year from $11.74 billion to a projected $15.49 billion by the end of 2019.
“Water management does not just start and stop at the frac, which underpins the recent growth in the midstream water management and a wave of investment from 30-plus private equity and financial firms,” said Reese Tisdale, president of Bluefield Research. “The significant share of transport costs to the industry has ushered in more than 57 watermanagement firms—pure-play water players, energy-services companies and technology promoters—along the industry value chain.”
Predictably, most of the activity has been in the Permian Basin, where 47 percent of active horizontal drill rigs are located. Eight of the 10 most active counties in the U.S. are in the Permian Basin, which spans West Texas and Eastern New Mexico. Over the last two years, Bluefield identified more than 30 water-transfer projects in the Permian, alone, targeted at addressing water transfers for fracing.
With oil prices ranging from $50.88 to $64.93 in 2019, and what some consider a softening market, demand for midstream water management remains strong. The combination of more efficient drilling practices and increased water need per well—sometimes reaching 15 million gallons—creates significant water-volume demand.
Confidence in water for fracing went up in 2015 when global energy markets spiraled toward below $40 per barrel. Water management, as a result, began making up a larger share of the industry wallet, let alone increased public scrutiny. Bluefield identified 69 acquisitions of companies active in managing water and produced water. While some of the earlier deal flow stemmed from the consolidation of struggling and bankrupt companies, more recent activity, such as Blackstone’s and Singapore-based GIC $3.3-billion investment, signals greater interest.
Bluefield’s analysis indicates two fundamental changes since the last market collapse. The overall resiliency to price swings of upstream oil and gas in the U.S. has increased for water-service providers, encouraging more investment in related infrastructure. Then second, watermanagement strategies have zeroed in on water transfers, which make up approximately 49 percent of what is spent on total water management.