The rapid rise in drilling and completions across the Permian Basin has given rise to new operating cost pressure on operators, according to a recent study.
Released by Wood Mackenzie, the study examines the potential impact that rising volumes of produced water could have on producer breakevens and oil production growth.
Produced water is “the least appreciated” of the many operating risks facing producers, said Ryan Duman, principal analyst for Wood Mackenzie Lower 48 Upstream. “The combination of rising volumes and higher disposal costs threaten to shift cost curves and pose a growing risk to oil production growth in the Permian.”
The report examined several production scenarios. One, an aggressive future cost scenario, says breakeven costs in the Midland and Delaware sub-plays “could increase by $3 to $6 bbl, potentially choking future growth by 400,000 b/d by 2025.”
Water demand has continued a steady increase as operators invest additional water resources in completion efficiency, the report notes. In just three years, some operators are using twice the volume of water – almost 405,000 bbl – on an average well completion in the Midland Wolfcamp.
In addition to more water used in completions, water cuts in newer horizontal wells are rising faster than wells drilled five years ago. Wolfcamp wells are seeing water cuts increase from an already high base of 70 percent to 80 percent in the first four years of production.
Similarly, water to oil ratios of 2:1 at first production can increase to nearly 5:1 by the fourth year and eventually to 7:1 in subsequent years.
“Operators are unable to cheaply reinject those volumes and water handling costs can run from $0.50 to $3 bbl,” it states. Disposal costs,including available transportation, well proximity and injection are the biggest cost factors.
The report suggests operators can mitigate rising produced water costs by “investing in pipeline infrastructure, limiting the amount of trucking and collaborating with offset operators.”
A comparison of transportation costs stated that moving water by truck can cost $2.50 bbl while shipping it by pipe was $0.30 bbl. Trucking costs appear “set to increase as trucking regulations become stricter, pads become more remote and roads become congested,” it said.
Operators can manage water costs by turning to recycling, the report advised. By reducing disposal costs and limiting water sourcing constraints, operators can realize a savings of between $1 and $2.50 bbl in lease operating expenses.
“We expect to see the proportion of recycled water volumes to continue increasing as more operators understand how to manage chemistry and use the volumes in new, offset completions,” Duman commented.
Oil producers are expected to invest more in water management solutions, he concluded.
“Just as the level of drilling intensity in the Permian breaks basin records, so should the scale of water management solutions.,” Duman said. “Investors should challenge operators on how water is being managed.”