Water Demand Spurs Permian Infrastructure Investment

Abstract

The production growth in the Permian Basin has created a new dilemma for operators looking for cost efficiency. In September Bloomberg predicted that Permian production could rise from its present level of 2.4 million BOPD to 10 million BOPD, a rate that could produce up to 50 million B/D of flowback water. With the WTI price at around $57/bbl in early December, disposal of that flowback water can be expensive. Bloomberg estimated the cost of the service is between $1.50 to $2.50/bbl. While this predicted spike in water volume may be an issue for operators, it is an opportunity for oilfield water management companies working in the region. With demand for their services going up, these companies have already begun acquiring pipeline infrastructure, saltwater disposal (SWD) wells, and facilities. Multi-Basin Strategy With water management becoming a critical issue for operators in the Permian, midstream companies have been aggressive with mergers and acquisitions in their efforts to bolster their positions. H2O Midstream’s acquisition of Encana’s produced-water-gathering system last June gave it control of more than 100 miles of interconnected pipeline and five SWD wells with a total permitted disposal capacity of 80,000 BWPD. In September 2017, RRIG Water Solutions announced the acquisition of a 475-mile pipeline from Oilfield Water Logistics. Located in the eastern part of the Delaware Basin, the pipeline has the potential to move more than 2.3 million B/D of fresh water. WaterBridge Resources is another company that has been active in the Permian region. Since its founding in 2015, the midstream development company has focused on acquiring and operating flowback and produced water infrastructure for various oil and gas producers, including water sourcing, gathering, reuse, pipeline infrastructure, and disposal infrastructure. In August 2017, WaterBridge acquired EnWater Solutions, a company whose current assets include more than 100 miles of gathering line and nearly 150,000 B/D of permitted disposal capacity. WaterBridge plans to extend EnWater’s existing gathering business into a full-cycle, closed-loop water sys-tem, and by the end of 2018 the company expects to have more than 300,000 B/D of disposal capacity and 200 miles of interconnected gathering pipe. “The assets we acquired from EnWater are located in the southern Delaware, and the EnWater team’s expertise encompasses the entire Permian region from the Delaware to the Midland, so that was a regional platform with an existing management team that are certain areas across the US where the water/oil ratio is much greater. The Eagle Ford is fairly dry, the SCOOP/STACK is fairly wet, and the Permian’s fairly wet. The water/oil ratios are what we chase because, at the end of the day, our business is a volumetric business. The greater the volumes of water to be handled, the better our profitability is.”