For every barrel of oil produced from the average Permian Basin well, about three barrels of water get pumped out with it. The water-to-oil ratio is lowest in the established Midland Basin, but more exaggerated in the Delaware and other Texas basins.
A midstream water management industry has grown up in Texas alongside the shale oil boom. Most of the water gets injected back underground into disposal wells, although more and more is getting treated and moved to other drilling sites to frack new wells.
Still, more research and infrastructure will be needed to handle the growing volumes of produced water if Permian production growth continues even at the recently scaled-back projected levels.
Permian oil producers want to get a better handle on produced water before it becomes a crisis, said Karr Ingham, a petroleum economist and executive vice president of the Texas Alliance of Energy Producers.
PERMIAN PRODUCED WATER VOLUMES
The group recently published a study with the Independent Petroleum Association of America containing a series of recommendations for improving the outlook for produced water management.
Produced water could become an existential threat to US oil drillers either from running out of reservoirs to store it, or from tightened regulations as a result of increased earthquake activity or policies by a future US president opposed to fossil fuel development.
Permian drillers have pumped more than 9 billion barrels of water from horizontal wells since 2010, according to S&P Global Platts Analytics.
“The continued problem of how to deal with produced water has been on the radar of most interested in the basin’s future potential,” said Andrew Cooper, quantitative analyst on Platts Analytics’ supply and production team.
Cooper said operators such as Shell, Apache and Oxy/Anadarko have developed acreage in more water-heavy zones than the likes of Pioneer and Chevron.
He added that Apache is trying to reuse produced water during well completions to improve the overall well lifecycle, and Shell wants to haul less water to disposal sites and recycle more of it.
About 50 companies currently provide water management services in the Permian Basin. The Texas Alliance said that makes the industry ripe for consolidation if private-equity investors want to target companies with large continuous acreage and pipeline miles.
Searching for new uses
Oil producers and these water managers would like to find outlets for “beneficial reuse” of the produced water outside of the oil and gas industry, such as irrigation after heavy treatment. The water often contains salts, oil, grease, naturally occurring radioactive materials, bacteria and other solids.
The Environmental Protection Agency has been working with states, mostly New Mexico, to explore ways to recycle produced water other than underground injection, said Katie Bays, co-founder of Sandhill Strategy.
“Economically, treatment costs must come down,” the Texas Alliance study says. “If desalination costs can be lowered, especially for non-food crops, the economics will line up and it will be dam-breaking.”
Disposal will continue to be the preferred strategy for managing produced water and must remain a viable option, the study says.
“However, concerns are developing about the adequacy of injection well capacity as demand ramps up quickly,” the Texas report says. “Some Permian sub-basins are currently constrained due to insufficient injection well capacity. Projected production growth will worsen the situation.”
The study has recommendations on a host of federal regulations that could someday limit options for produced water disposal, treatment or reuse.
Potential regulatory risk
Looming over the issue is the 2020 presidential election and promises by several Democratic candidates to ban fracking.
While most analysts do not think an outright fracking ban by the White House could survive a court challenge, there is growing concern among US oil producers that a future administration might try to go after produced water disposal to effectively shut down drilling.
Bays said EPA’s efforts around produced water recycling are more bipartisan, as “better water management strategies are generally a public good.”
“What would be kind of awful for industry would be to require that all produced water be treated and recycled, which would be crazy expensive, but I haven’t heard anything about that,” she said. “It would be a big stretch to start requiring companies to recycle, but interesting to think about.”