Reducing water cost-of-ownership enhances the economics of operating on UL acreage.

University Lands (UL) is developing a program to facilitate full cycle water management on its oil and gas leases. This effort is intended to create an enhanced economic environment for exploration and production (E&P) companies operating on those lands.

University Lands (UL), of Houston, manages the surface and mineral interests of 2.1 million acres of land across nineteen counties in West Texas for the benefit of the Permanent University Fund. The fund is one of the largest university endowments in the U.S. and benefits educational and health institutions at University of Texas and Texas A&M.

The initial scope of the program considered how to optimize the sales of fresh and brackish water. However, the scope was expanded in order to achieve the overall objectives of UL: encourage and accommodate all E&P operators on UL leases to maximize drilling and completion (D&C) activity through full cycle water management initiatives. Ultimately, these efforts are intended to create an economic drilling, completion and production environment on UL acreage that provides optimal financial results to attract maximum activity.

A big part of this process includes optimizing water availability, disposal options and water transfer in certain key areas, while simultaneously reducing the total cost of ownership (TCO) for the operators.

Water management in the Permian Basin has become identified as the key operational challenge facing E&P operators in developing and producing O&G leases. Water volumes for frac work has grown exponentially over the past few years, with an ongoing trend towards larger volumes per foot of formation stimulated.

During the past peak drilling and completion period (2013-2014), water volumes required to meet operational needs were at critical levels. Growing concern over water availability caused Wall Street to issue a warning report regarding the potential shortfall of water for fracing. This could have had a negative impact on the growth levels of certain E&P companies.

Questions were asked about water sourcing, especially under drought conditions. Water recycling offered some relief to this enormous challenge, however, only operators with large contiguous acreage positions and high levels of D&C activity were able to efficiently and economically implement such practices.

Fast forward to today and produced water volumes have become the new challenge facing operators in the Permian. Although recycling has increased, it has not been enough to offset increased produced water volumes. Moreover, the same is true with water disposal limitations. There has been some limited sharing of water infrastructure between operators. These include frac pits, transfer lines, water trading in-kind and salt water disposal facilities. But this sharing has been minimal.

These obstacles explain why University Lands has commenced a full cycle water management program. With its large acreage footprint, UL is in a favorable position to implement this program. It is intended to enable multiple operators to benefit by realizing a reduction in water ownership costs.

This is a process with many moving parts, but when viewed from 30,000 feet, it illustrates a more cost and operationally efficient business model.

A full cycle water management program includes the following:

• Fresh and brackish water wells linked via pipeline systems to meet D&C water needs of multiple operators within the most active areas. The pipeline system should be designed to minimize the need for short-term, temporary transfer lines with installation of strategically located risers that afford efficient transfers and reduce costs. Note that transfer costs often represent more than 70 percent of water costs to the frac location.

• Water impoundment facilities shared between E&Ps should be incorporated into the full cycle water management program. This facilitates accumulation of volumes necessary to meet high water-rate demands during fracing activities. This will be discussed in more detail below.

• Heavy-brine water wells should be evaluated for economic potential. Heavy brine, greater than 9.5 ppg, is used in certain drilling operations such as drilling through the salt section and in lost circulation zones, and in some completion work. Heavy brines typically command a good market price. Many existing commercial brine reservoirs have become partially depleted and produce at limited flow rates preventing them from keeping up with demand during peak times. Note that heavy brine is only used in limited quantities and much less than frac water. Heavy brine is a by-product of some recycling operations and in certain local areas, supply and demand will be limited.

• Commercial SWD facilities are an important part of a full cycle water management program. As a part of the new UL program, new commercial SWD wells will be networked in order to balance the volumes being injected among wells and possibly reduce pressure on geologic formations. The intent is to address and potentially mitigate seismicity concerns. Water midstream pipeline networks will help transfer produced water more efficiently from producing O&G wells to SWDs, reducing transfer costs and truck traffic within the region.

• Recycle facilities will be incorporated in the UL water management operation. UL anticipates contractual requirements for recycle percentages that increase each year over a ten-year period. The need to recycle larger volumes of produced water will likely result in the development of central process facilities connected via pipeline to multiple SWD wells. This will allow recycling of large water volumes, while simultaneously reducing injection volumes and pressures.

• Based on current volumes for today’s fracing activity, inground water pits for recycled and produced water are extremely beneficial to the recycling process. As the use of row and zipper frac operations increases, the need for inground pits will escalate. Until recently, UL policies limited earthen pit storage to water with total dissolved solids equal to or less than 3000 ppm. Today, UL has construction and operational specifications for produced water earthen frac pits. By adhering to these specifications, E&P companies are enabled to impound produced water for recycling. Pit specs can be found on the UL website.

Increased produced water volumes are the new challenge facing operators.

spwm park2University Lands solicited proposals from the best water management and midstream companies to help achieve the full cycle water management goal. Multiple water management and midstream companies were interviewed and their proposals thoroughly vetted. Two companies were contracted as “preferred water service providers” and are moving forward with the program. The companies are Fountain Quail Water Management and UL Water Midstream, a joint venture between H2O Midstream and Layne. University Lands encourages E&P operators to consider the benefits of utilizing these companies for their Permian water needs.

The UL full cycle water management process consists of three primary segments: recycling, impoundments and disposal. This graphic presents all the components of the full cycle water management process.

Water transfer and impoundment are operational risks that tend to be environmentally driven.

WATER RECYCLING
Water recycling and reuse is a key component of a full cycle water management program. There are three significant risk factors generally associated with water recycling. The first risk is the effectiveness of recycled water to successful frac operations, such as post-frac well production and frac fluid chemistry. Generally, the industry has mitigated this risk and operators express confidence that frac stimulation using recycled water is a valid alternative. There are many effective water recycling technologies and UL is technology agnostic regarding which works the best. Instead, UL focused on selecting preferred water management companies with a long track record of proven performance.

The second two recycling and reuse risks are operational risks and are environmentally driven. They are water transfer and impoundment. UL has developed standards, in particular regarding pit construction and operations, that address these risks.

Permian water recycling processes vary between areas and basins due to reservoir rock characteristics and available water. Also, within each basin, key performance indicators are variable for recycled water quality. KPIs are based on different producing formations tolerance for recycled water and frac designs, such as slickwater, hybrid, crosslink gel and linear gel. Regional considerations include:

• Across ULs large contiguous acreage in the Delaware Basin, oil wells produce large volumes of formation water throughout the life of the well. This makes available large volumes of water for recycling, if appropriate. However, the optimal recycle technology can quickly become a very complex topic from one operator to the next. They do agree that the simplest, cheapest treatment is the best.

• Recycling in the Midland Basin is a different story than the Delaware. Some areas have low reservoir water saturations and associated relative permeability to water. As a result, recycling is often associated with flowback frac water. This water can contain frac chemistry constituents that alter recycling techniques, but not dramatically. The same rule of simplicity applies, but more focus is required on the frac design and impoundment considerations.

Water recycling technologies are a critical part of the full cycle water management process and will require buyin from E&P companies, including specific KPIs for the delivered water which in turn drives the treatment process and costs. KPIs will be dictated by the oil companies and controlled by the area formations being stimulated plus the local knowledge of previous recycling results.

In some cases, large central processing facilities may be more economically suitable to achieve strict performance standards. With its large, contiguous acreage positions, UL is well suited for central facilities. Likewise, sharing of larger facilities between multiple operators offers considerable economic advantage, both to the oil company and the recycle facility operator. Additionally, when a CPF is linked with multiple SWD operations, savings on disposal costs further enhances the full cycle economics.

The UL acreage position helps E&P companies participating in a scaled CPF water recycling program to avoid being “held hostage” by typical checkerboard landownership configurations. In the past, such landowner hurdles prevented the company from transferring recycled water to and from well locations.

Under the central facility approach, timely coordination by multiple operators is required for the supply chain to remain intact, certainly not an easy task. However, it is achievable with specific tracking procedures in place.

All water for ongoing frac operations and projected water needs for upcoming completions must be included in tracking procedures. Since most E&P companies already perform this planning exercise in-house, water service providers should be able to coordinate with multiple operators to confirm scheduling and water delivery timelines. Effective planning will anticipate situations where insufficient recycled water is available to perform all frac work with 100 percent recycled water, in which case blending of fresh and brackish water may be an alternative.

IMPOUNDMENT AND PIT OPTIONS
Frac water volumes have steadily increased over the past several years, and that trend continues today. This is driven by two primary factors. First, lateral lengths are extended where justified in order to achieve better economics, which given the current commodity price environment are now essential. The cost of drilling longer laterals has been pushed down on a cost per foot basis, due mostly to better polycrystalline diamond compact (PDC) drillbit technology. Also, drillers have improved downhole cleaning practices and developed new best practices for drilling each casing-point section of the wellbore.

Secondly, new frac designs have improved completion efficiency with the use of more barrels of water and pounds of sand per lateral foot. As a result, well production is improved. As greater volumes of water are required, additional water impoundments will be needed.

As greater volumes of water are required, additional water impoundments will be needed.

Fresh Water Inground Pits: This water accumulation practice has become a staple of fracing operations in the Permian. Every E&P operator has their own ideas about how these pits should be constructed and operated. Some are built with very robust containment berm designs, with slope grades of 3:1 or more. Other companies just push up a wall of dirt and rock and install a liner. Some E&Ps use 40-60 mil high-grade liners with spec welding placement, including dual welds pressure tested to verify the integrity of every weld. Still others might install used 20 mil liner material that was salvaged from an older pit. University Lands requires a five-year contract for construction of a fresh water frac pit. Further specifications can be found on the UL website.

It is important when operating an inground pit to determine the actual volume of water it contains. The graphic below shows an example of a simple, inexpensive pit bathymetric survey produced by a small surfboard looking device equipped with sonar and GPS. Surveys can determine precise depth versus volume curves by accurately adjusting for actual inside wall or berm slope and pit subgrade. The information derived from these surveys can show that in some cases, the actual pit volume is drastically different and usually less than calculated from prebuilt drawings and construction company estimates.

On the Fly: A non-pit solution, only a few operators have attempted water recycling treatment “on the fly” in order to meet the needs of a frac job. Some E&P companies are apprehensive about utilizing large produced or impaired water impoundments, so they see on the fly as an alternative. This approach normally includes the introduction of some sort of oxidant or filtration process. It is a lowcost option but requires a high-rate of produced or flowback water in order to meet the daily water requirements of a typical frac operation.

spwm park3Aboveground Storage Tanks: ASTs are an increasingly common option for frac water storage in recycle operations and they are approved by UL. ASTs offer only limited water storage volume for their footprint and UL recommends secondary containment berms to contain a catastrophic wall failure due to hoop stress. The largest ASTs are 40,000 bbl in size, with 34,000 bbl of usable fluid. ASTs with 60,000 bbl capacity are available but supplies are limited. With current frac designs demanding larger volumes of water, a battery of these tanks will be needed.

Produced and Recycled Inground Pits: As mentioned above, inground pits for produced and recycled water are a critical component of full cycle management. They allow large accumulations of water as needed to sustain a non-blended fracing operation. The state of Texas has authorized use of inground pits but offers limited specifics on what is required regarding construction design or materials used. In New Mexico, the state recently instituted detailed design characteristics for impaired water pits (NMAC19.15.17).

As noted, University Lands has developed specifications for recycled and produced water pits. Specs include, but are not limited to proximity limitations for schools, hospitals, groundwater, surface water, surface faulting, and 100-year flood plains. Other requirements cover tandem pit design for pits larger than 500M bbl, construction specs for liners, berms, leak detection, fencing, bird deterrent, routine inspection and reporting, three-foot freeboard, closure specs and a removal bond. As with all activities conducted on University Lands acreage, operators are strongly encouraged to follow best practices when transferring recycled or produced water, especially across temporary lay flat water lines.

spwm park4Modular Above Ground: MAG tanks are an alternative to either an AST farm or an inground recycled water pit. Due to the various wall panel shapes, this above ground pit design can be configured into virtually any shape required to fit existing landscape limitations, from round to oval, square, rectangle, or L-shape. They also can be built to almost any volume size. MAG tanks are different from AST designs with their vertical walls because MAG tanks feature wall sections of 45 degrees. When filled with water, the net force vector acts to push the tank to the ground as much as it tries to push it horizontally. As a result, these forces offset minimizing the risk of catastrophic wall failure. This increased size and volume flexibility and reduced wall failure risk present a meaningful risk and operational benefit to the operator.

Both ASTs and the MAG tanks have the advantage of early detection of small liner leaks before they become an irreparable and expensive problem.

spwm park5SALTWATER DISPOSAL
Saltwater disposal wells are another key component of full cycle water management. Due to environmental and operational concerns, University Lands currently allows only active UL mineral operators to install and operate SWD wells on its acreage.

Recent improvements in commercial SWD facility design, construction and operations have allowed UL to authorize the preferred service providers to install and operate SWD wells. As a result, existing SWD facilities will likely be acquired and new ones will be installed. The intent is to more efficiently share SWD volumes between multiple E&P companies, mostly connected via pipelines. This should help reduce ownership costs for producers and address injection pressure and seismicity concerns.

By linking SWD facilities with recycle operations, disposal injection volumes and the need for additional volumes of fresh and brackish water blends will be reduced. Furthermore, more efficient operation of shared facilities through better field oversight and multitasking of field personnel can be expected.

spwm park6LONG-TERM OUTLOOK
As University Lands moves forward on a full cycle water management initiative, it remains focused on its goal of reducing the total cost of ownership of water for oil companies operating on its lands. To date, it has established service provider agreements with two preferred vendor companies to support this objective. These companies are finalizing their development plans and meeting with area oil companies to determine their needs and solicit interest in the program.

Objectives of the program include:
• Full cycle water management;
• Fresh and brackish water wells constructed to UL specs;
• Efficient water disposal processes to reduce truck traffic;
• New SWD well construction follows best practices and addresses seismicity;
• Water transfer processes follow best practices;
• Recycled water impoundment must meet UL specs;
• Water recycling technology achieves local frac design KPIs;
• Must reduce the oil companies’ TCO of water.

University Lands is also responsibly participating in detailed studies of future water needs, produced water volumes, recycling volumes and needed disposal capacity over a ten-year period. Such studies help UL better predict business direction and support its leaseholders.

Authored by Douglas A. Park, Park University Lands/CSL