U.S. Shale: Water Is the New Oil

Texas has a water problem, and this one isn’t due to Hurricane Harvey…

Rising U.S. shale output has led to increased amounts of the water that inadvertently flows out of wells together with oil. For now, drillers use trucks to transport this dirty water—which exceeds the amount of oil produced—to disposal sites, creating heavy traffic on roads. But now, at the heart of the shale boom in Texas, water management companies are thinking about new ways to move this water, creating a new opportunity in the onslaught of U.S. shale—and a new hurdle for U.S. shale drillers desperately trying to cut costs to stay afloat.

Water is used­—and produced—in the various stages of hydraulic fracturing. Drillers source freshwater or brackish water, and then transport it to the well, mix it with proppants, and inject the fluid into the well to create cracks in the rock formations.

Oil and gas flows to the surface, and the water comes with it. And the quantity of this water is typically several times higher than the oil flow—especially in the Permian.

The higher the amount of the produced water, the higher the water management costs for drillers, and cost-cutting in today’s low-priced oil environment is now a necessity for survival.

To manage this water, operators hire oilfield management firms to transport—by trucks—the produced water to sites that are miles away from the well sites. With shale production in the U.S. on the rise—a trend expected to continue next year—E&P companies will have more and more produced water to manage.

According to research by Barclays, based on Digital H20 data, the water use per well between 2013 and 2016 soared by 434 percent in the Permian, by 103 percent in the Williston Basin (in the Bakken), and by 64 percent in the Eagle Ford.

The Permian Basin has the highest amount of produced water among the major U.S. shale formations, while the Marcellus typically generates the lowest quantity of produced water, according to the research. In the Permian, the water-to-oil ratio is high: For every barrel of oil produced last year, more than 6.5 barrels of water were produced. The Williston Basin had around 1.1 barrels of water produced for every barrel of oil, while 0.9 barrels of water were produced per one barrel of oil in the Eagle Ford.

Although Texas has many disposal wells for Permian’s produced water, they may not be sufficient, Barclays says.

“Next to profitability and safety, water may well be the next most important topic for an oil company,” Laura Capper, chief executive officer at EnergyMakers Advisory Group in Houston, told Bloomberg. “It has risen to the forefront over the last five years unlike anything I’ve ever seen.”

There are some 25 companies that have been studying and preparing—at various stages—to develop water pipelines for shipping away this produced water, said Capper.

One such company is WaterBridge Resources, set up last year and funded by Five Point Capital Partners LLC, whose CEO David Capobianco was co-head of the Private Equity Group of Vulcan Capital, the direct investment arm for Paul Allen.

“By year-end 2018, WaterBridge expects to reach more than 300,000 barrels per day of total disposal capacity and 200 total miles of interconnected pipeline for gathering,” the company said last month when it announced the acquisition of EnWater Solutions, a produced water gathering and disposal company in the southern Delaware Basin.

WaterBridge will announce another deal in two to four weeks, Capobianco told Bloomberg last week.

The company is also studying a possible listing within one year to 18 months. This would make it the first oilfield-water-pipelines-only company to be traded on a major U.S. stock market, EnergyMakers reckons.

The pipelines for taking produced water away from the well sites could be a solution to alleviating the already jammed traffic on Texas roads where trucks are shipping in sand, freshwater, and equipment toward the well sites.

“There is not a well-developed road network, so ideally as many trucks you can get off the road the better,” Colton Bean, associate of midstream research at Tudor Pickering Holt & Co. in Houston, told Bloomberg.

According to a Barclays report, “reducing transportation costs will inevitably drive investment in pipeline infrastructure for both produced water and freshwater. Although building pipeline infrastructure carries a high upfront capital expenditure, it reduces operating expenses down the line.”

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