Water management practices have changed greatly since the Produced Water Society was established, and the dynamics of the water midstream sector will continue to evolve.
US unconventional development has progressed by leaps and bounds over the past few years, and water’s role has likewise evolved at a rapid pace, especially in the Permian Basin. The Produced Water Society’s 30th Annual Seminar opened with a keynote address on this topic from Solaris Water Midstream CEO Bill Zartler.
“A lot has changed in 30 years, but one thing that hasn’t changed is that oil and water don’t mix,” Zartler told the audience. He explained how industry trends have driven the water management business to develop in a way similar to how the natural gas sector did in the 1990s. As operators move away from managing their own water, third parties are stepping in to provide transportation, disposal and recycling services through large-scale infrastructure.
Much of this shift is due to the nature of unconventional development, which sees greater initial production rates and steeper declines than conventional operations. The water intensity of hydraulic fracturing activity is also high, both in terms of source and produced water. “It requires massive [pipeline] infrastructure to handle that,” Zartler said. “It’s pretty hard to move 50,000 bbl/d coming off a 16-well pad with trucks; it’s virtually impossible.”
Pipeline networks are already being built out to meet transportation needs and deeper saltwater disposal wells (SWDs) are likewise being drilled to take in greater volumes of water. “That evolution is taking place and it requires a lot more capital, which limits the way the [sector] participants can play,” Zartler explained.
The move towards the water midstream has been influenced by the capital environment for oil & gas operators. Zartler told attendees that operators’ need to preserve capital and deliver returns has manifested in minimized expenditure on water. This strain has provided an opening for services providers focused on services and infrastructure to position themselves in the market.
There is room for further mergers & acquisitions (M&A) activity among water services providers as well. When asked how water midstream consolidation might occur, Zartler said sector players would engage in acreage trades to build up core positions, similar to what exploration & production (E&P) companies do. He added that consolidation will also be determined by capital market conditions.
Another key trend Zartler pointed to was a rising interest in produced water recycling. Many operators recycle at least some of their produced water, especially in New Mexico where water prices are high and water is state-allocated. Recycling in that state is further incentivized by recently passed legislation that clarifies produced water ownership and liability issues.
When asked about the scope for adopting new treatment technologies, Zartler said that the industry’s cost-cutting focus influences the way it adopts new treatment technologies.
“It’s all about making it effective and as cheap as possible,” he explained. “When technologies save on money and [market players] see it, they adopt it. When it’s a little more esoteric and harder to quantify, it’s hard for them to adopt it.” He added that produced water disposal via injection still currently “the best available technology at the right price.”