It is looking like 2019 will be a good year for produced water management, especially in the Permian Basin.
Most analysts following oilfield water management expect growth in the Permian to outpace the other unconventional oil and gas markets. Oilfield water management has been estimated to be a $20 Billion market.
Within that market, water treatment and recycling are seen as the fastest growth area.
Overall, it is a new and emerging market. Yes, produced water has been around forever, but unconventional oil and gas has redefined the produced water market and for the matter, the entire oilfield water management
segment. This reset of our market clears the table for an exciting year, but what changes can be expected and, more importantly are we up to the task to provide the services the market values most?
This opportunity may seem straightforward to some people; they will say “keep selling what I have.” That is probably not a good strategy if you are selling transistor radios or DVD players. You see, every product or
service has a lifecycle and sometimes, you can find yourself at the wrong end of the cycle.
So, what is a good market strategy for produced water management?
Markets are fickle and change in unexpected ways. Keeping track of the market is critical. Since we are a new industry, we don’t have history to help guide us in the direction of the market. However, we can look for
answers at how all markets evolve. Some people look at markets like the wind, letting the wind take them where it wants to go. If Henry Ford followed the wind, he would have built a better bicycle and not the Model
T. The answer is not about following the wind but understanding it. It is about being a disruptive innovator.
If Henry Ford had let variable market winds lead him, he would have built a better bicycle and not the Model T.
Success in the market means understanding the changes and planning services around them while looking for an opportunity to add value. As the market shifts and changes, find a way to do it cheaper or safer or add new services.
Why all this talk of markets and their direction? I think 2019 is going to bring big changes to the way produced water is managed, especially in the Permian Basin.
This year, we will see the continuing transition into the Delaware Basin where 5:1 to 10:1 water cuts are the norm. That means more produced water. This transition from the Midland Basin, where water cuts are nearer 1:1 to 2:1, means a significant increase in produced water volumes. Our industry needs to plan for this increase.
On the regulatory front, we will likely see the Texas Railroad Commission (RRC) follow through on its announced plan for further restrictions on disposal wells, especially in the Delaware Basin where induced seismicity has become an issue.
Anticipating this market shift, a data analytics company, Sourcewater, has included seismicity mapping in its Water Intelligence Platform. Other companies provide similar services. The message is clear: if you are not paying attention to the seismicity issue, you should be.
In New Mexico, disposal restrictions are already in place. This is not necessarily because of seismicity itself, but when combined with the fact that southeast New Mexico is home of the U.S.’s largest underground radioactive waste repository, there is good reason for the state to clamp down.
The restrictions on disposal wells there are understandable. This fact alone will drive more recycling in the Delaware and more produced water pits and aboveground storage tanks (ASTs). Even so, we will still have an oversupply of produced water. The big question this year is whether increased disposal capacity will be enough or will regulatory restrictions force disposal capacity to play catch up.
The transition to slickwater as a frac method has also made the recycling of produced water much easier. Unlike gels, slickwater is far more salt tolerant allowing for more produced water to be recycled.
For produced water reuse in gel fracs, a 30 percent blend is about the maximum. Slickwater fracs, on the other hand, can use 100 percent recycled produced water. The real limitations for produced water reuse on slickwater fracs are logistics and just not having enough produced water at the right location.
With higher water cuts in Delaware production, recycling will increase. In fact, we are already seeing increases in the number of produced water pits. Unfortunately, recycling falls short of handling all the produced water generated in the Permian Basin and even shorter in the Delaware Basin.
With 100 percent treated produced water acceptable for slickwater fracs, the real limitations are logistics.
Produced water volumes are more than double the demand for frac water in completions. This overcapacity of produced water will get bigger as more completion activity transitions into the Delaware Basin. The other concern is that completion activity is driven by impacts such as oil price and takeaway capacity. Without completions, there is no demand for recycled produced water. So as important as recycling can be it, UIC well disposal is the failsafe for an effective produced water management program.
Midstream to the Rescue?
Faced with restrictions on disposal, water managers see the growing water midstream networks as a possible solution. The ability to move large volumes of produced water around may be in-valuable, especially if the Delaware Basin sees a stressing of disposal capacity.
As the big midstream companies fight for footprint, changes could be coming for how produced water is managed. Midstream company strategies and how much they grow and acquire, can have a most dramatic effect on disposal, especially in the Delaware Basin.
Some midstreams are combining disposal wells with recycling facilities allowing operators to recycle more produced water. There is a question of whether operators are willing to take other operator’s produced water. Not long ago, the answer was an absolute no. Today it is already happening. How much will this increase recycling? This is an issue to be followed as it develops in 2019.
Fresh and Brackish Supply
As the water management industry shifts towards more recycling of produced water, reduced demand for fresh/brackish water will result. Does this mean landowners, who may require an operator to buy their fresh/brackish water under a surface use agreement, will restrict the use or transfer of produced water across their property? Such scenarios may not be prevalent, but the possibility will continue to plague certain operators as they try to reduce cost and optimize reuse programs.
In New Mexico, new legislation passed this year allows the operator to effectively void fresh water agreements if produced water is available for reuse and the operator wants to use it. Known as SB 546, the bill in its final form also included a last-minute amendment to increase in penalties for violation of state oil and gas regulations.
I don’t expect this to happen in Texas. New Mexico has a different land ownership makeup in the Delaware Basin; most of the acreage is state and federal owned. In Texas the majority is privately owned, and the industry has a history of getting good legislative support.
The Role of Regulation
As mentioned, SB 546 improved the definition of who owns produced water. This gives operators and water managers in New Mexico real headway towards making produced water reuse easier. Other legislation was not so industry friendly, such as SB 459 which called for a four-year moratorium on hydraulic fracturing. That bill did not survive the session in Santa Fe.
I still see New Mexico as a pro-oil and gas state, but with a new governor and legislature, it won’t take much for that to flip. But that’s not the point. The point is we must pay attention to what happens in the legislature because it can change how we do business and the direction of the market.
Also on the horizon, the EPA’s produced water study is due to be released this summer. What will it bring? Under the current administration, I don’t expect anything too dramatic,
but again we must pay attention.
In Colorado, anti-oil legislation was passed and the impacts of it are not yet clear. But the message is clear: we have to pay close attention in places like New Mexico or the produced water industry will become more and more impacted by adverse legislation.
The opposition is not just the antioil lobby or environmental activist groups. We can expect OPEC to silently work to impact unconventional oil and gas by supporting the anti-oil groups when they sponsor legislation at the state level. You see, America’s unconventional oil and gas boom has changed the global oil industry and that success is likely to draw some opposition.
This all reminds me of the circus act where a performer balances spinning plates on his head, hands and feet. There is so much going on that you can’t afford to stop.
Seismicity, disposal capacity, produced water recycling, legislation, oil prices, takeaway capacity and even landowner resistance. Welcome to the circus of produced water management in 2019. It all impacts what we will do in 2019. Yes, our industry will see growth and yes, 2019 is shaping up to be a good year for us, but we must understand that our industry will change, and we must change with it.
To succeed, we must take notice of shifting markets and what is causing them to change. Our industry is moving from a game of checkers to three-dimensional chess. Those of us who get it right will grow and prosper. So, here’s to 2019; let’s hope we get it right.
Authored by Mark Patton
Mark Patton is president of Hydrozonix. He has more than 25 years’ experience in the development, design, implementation and operation of treatment technologies. Mr. Patton’s oil and gas background includes treatment systems for waters, wastewaters, drilling muds, tank bottoms and process residuals. He holds one produced-water patent with two additional patents pending.
Mr. Patton earned his B.S. in chemical engineering from the University of Southern California in 1985.