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How to Manage the Permian Basin Upstream Oilfield Water Crisis

By Joshua Adler

The Permian Basin of West Texas and New Mexico has become the most active, most important oilfield in the world. IHS Markit estimates that over the next five years, Permian crude production will more than double – again — adding 60% of all net new crude production on Earth. Not only will this make America the largest oil and gas producing country, but it will also make the Permian Basin alone bigger than any OPEC country after Saudi Arabia.

 

By 2023, Permian oil production will have increased by almost six times, or 500%, from 2010 levels, when hydraulic fracturing first took off. There’s no bigger boom than Permian oil, right? Wrong.

 

In that same time period, water use by the Permian energy industry will have grown by over 4,000% — a 40x increase in 12 years. How is it possible that water use is growing almost ten times faster than oil production? Because the amount of water injected per well has been growing every year, as wells get deeper and longer and more proppant-intensive. Back in the early days of hydraulic fracturing, less than 100,000 barrels of water were injected per frac. But today about 500,000 barrels of water are injected per frac — and still rising — while the number of new fracs in the Permian is approaching 10,000 per year. The math is easy. By 2023 the industry will inject about 5 billion barrels of water per year, assuming 8,200 new horizontal wells injecting an average of 600,000 barrels of water each.

 

But that’s only one side of the Permian water story, the smaller side. For every barrel of oil produced in the Permian, about 8 barrels of naturally-occurring “produced water” come up with the oil. On top of that, the water injected into a frac eventually comes back as “flowback water.” By 2023, we can expect over 15 billion barrels per year of produced water plus about 5 billion barrels of flowback water. More than 20 billion barrels of water produced with only 2 billion barrels of oil. That’s ten times more water than oil. And all of that water has to go somewhere.

 

If we are having trouble moving 2.4 million barrels of oil per day out of the Permian right now, in 2018, how on Earth are we going to deal with 70 million barrels per day of water in just five years?

 

The real Permian boom isn’t a gusher. It’s a tidal wave. The opportunity is in the water. Finding, buying. selling, moving, storing, treating, recycling, and disposing of water. And unlike the oil business, which has been going strong for almost 100 years in the Permian, the water business is less than ten years old. It’s a new, wide-open territory. As a result, hundreds of companies are scrambling to get a piece of what will soon be a $20 billion market for oilfield water services in the Permian, about half of the total U.S. market.

 

But this water business opportunity is somehow both enormous and yet also hard to find. That’s because the whole oilfield water business, huge as it is, is not one big opportunity, it’s thousands of small, local opportunities every day, spread over a 75,000 square mile area (bigger than nine U.S. states combined.) The oilfield water business is a local business. Some places have too much, some too little. Which are which changes from day to day with ever-changing frac schedules. There is no visibility into who needs or has water, where or when or how much. In short, there is a water data problem.

 

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NOTE: Want a free tour of Sourcewater’s water intelligence products? Click here to schedule yourself on our calendars.

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For example, an operator might need water for a frac that starts this week, but the completions team discovers that their frac water supply pit has less water in it than they had planned a few months ago because the weather has been hotter than expected, or because two other operators are drilling nearby, reducing groundwater flow rates into the pit. They are only short by 50,000 bbl on a 500,000 bbl frac, but it doesn’t matter – if they are even one barrel short, they can’t start the well stimulation, and a $500,000 per day frac crew is sitting at the job getting paid to do nothing, blowing the budget. How does the completions team find 50,000 bbl of water same-day?

 

Maybe other operators nearby have their own full pits they are not using right now, but who are they, where are they and how much is in their pits? The completions team could easily spend their whole day just making phone calls, or they could hire a land team to drive all around, looking for pits and then knocking on doors to find the owners. There are probably a few pits nearby with water to sell, burning off in the West Texas sun. But their owners don’t know who might want that water, how much they need, or what they are willing to pay. A transfer or hauling company could be making money connecting the buyer and seller and moving the water for them – but they don’t know who needs the water or who has the extra water either. It’s a lost opportunity for everyone involved, because of a lack of current water supply and demand data.

 

Take another example: a saltwater disposal company just finished building a new SWD that has 20,000 bbl/day of capacity. The SWD is hooked up to a few operator tank batteries by pipeline, but it’s only receiving about 5,000 bbl/day of produced water from these batteries. There are several operators fracking nearby who will have more flowback than their existing SWDs can handle, but they don’t know about this new SWD and its extra 15,000 bbl/day of capacity, and the SWD owner doesn’t know which operators are flowing back this week or which ones would like to be able to hook up to his SWD in the future. Everyone would benefit from running a temporary pipeline between the frac locations and the new SWD, but instead, the SWD sits mostly empty while operators nearby put their excess water in trucks and pay five times more to haul it to busier SWDs that are further away. That is, if they can find enough truck drivers for the job. In fact, the operators’ logistics managers might be calling quite a few of the 2,300 licensed wastewater hauling companies in Texas just to find enough drivers to handle their daily loads.

 

On any given day in the Permian, there are hundreds of companies who need water services like these and thousands of companies offering these services, but because there is no current water supply and demand data, they can’t find each other to do business in a timely, efficient way.

 

Instead, companies fall back on the old ways of doing business. They pick through Google Earth looking for water impoundments, even though the imagery there is two years old and doesn’t show where the new pits are, or who owns them. They search state databases like the Railroad Commission website, even though the filings are months old and often inaccurate, handwritten forms, and the interface is slow and hard to use. Are you seeing all of the permits from all the databases, and how many are missing or late? You never know.

 

They spend days driving the oilfield, noting new construction and rig locations. They pull files from courthouses, look up numbers in the phonebook (the actual phonebook, made of paper!) They make cold calls to wrong numbers, send letters that are never opened, knock on doors (risking the ire of a granny with a shotgun), and mostly, they ask their old buddies for help with introductions, trading favors, occasionally finding opportunities within their own personal networks but never growing beyond them.

 

The result is months of work to gain an understanding of a tiny piece of a huge market – maybe one county, a 30-by-30-mile square. A bigger company might hire a land team to investigate the market, at a cost of well over $100,000 per year per landman hired.

 

These options, even when they work, don’t scale. Remember, the Permian Basin is 75,000 square miles. There are 254 counties in Texas alone. Spending half-a-million dollars per year to hire a four-person land team to research all the water-related data in a county covers less than 2% of the entire market.

 

An ideal system would include all the water data for the entire region. It would include locations of frac water pits, water wells, saltwater disposal wells, water rights, surface owner parcels, operator leases, rights-of-way, and treatment facilities. It would also include water transport options such as current hauling, transfer and water pipeline capacity. It would include dates of availability, volumes and flow rates, water quality details and restrictions.

 

Most of all, it would have contact names and contact details for each facility or service, with asking prices to buy their water or water services like disposal, hauling, transfer, and treatment. That way, companies looking to obtain or offer water or water services through the entire region could find each other instantly, assess whether there is a fit, and do business efficiently, making the most of every day, every person and every capital asset.

 

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NOTE: Want a free tour of Sourcewater’s water intelligence products? Click here to schedule yourself on our calendars.

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Fortunately, exactly such a water data platform now exists. Sourcewater, Inc., based in Houston, Texas, is a spinout from the Massachusetts Institute of Technology’s Energy Ventures program, which applies and commercializes new technologies for the energy industry. Sourcewater collects every possible data source relating to oilfield water supply and demand, analyzes and publishes these data on “Sourcewater Watermap” an online Geographic Information System.  In other words, you get an easy-to-use online map that allows you to access millions of critical water and disposal data points that lead to key insights in seconds. You can learn more about the Watermap by clicking here.

 

Sourcewater collects oilfield water data from sources that are not available anywhere else. Data sources include the Sourcewater.com marketplace, satellite imagery analytics, government filings and permits, a team of market researchers in Houston who make hundreds of calls every day to oilfield water market players, and even digital data feeds from IoT sensors in the field.

 

The popular Sourcewater.com online marketplace for oilfield water and water services is one of the proprietary water data sources for Sourcewater Watermap. Nearly 1,500 companies and individuals have listed more than 3,500 water sources and disposals in the Permian Basin on Sourcewater.com, and these locations, available dates and volumes, quality reports, owner contacts and ask prices are shown and constantly updated in Sourcewater Watermap.

 

Another unique data source on Sourcewater GIS is the company’s exclusive satellite imagery analytics for the Permian Basin. Sourcewater constantly scans recent high-resolution satellite imagery of the entire Permian and runs machine learning algorithms on the images to identify oilfield business activity, often months before public permits are available. For example, Sourcewater identifies new frac water supply pits, produced water impoundments and drilling reserve pits as they appear, estimates the water volumes present, and matches these to surface owner records and operator leases. Since Texas does not require permits for frac water supply pits, there is simply no other way to find where Permian frac pits are located and who owns them – and since all water that goes into a frac goes into a pit first, long before drilling permits are released, these pits are the best early indicators of oilfield activity, and they are the best source of lifted water for immediate use. The Journal of Petroleum Technology published an article in December 2018 about Sourcewater’s satellite imagery analysis, which you can read by clicking here.

 

Sourcewater also employs a team of market researchers in Houston who talk to hundreds of water market players every day – landowners selling water, E&P water managers, disposal well owners, hauling, transfer and treatment companies, and others – to update the price and availability of water resources listed in the Sourcewater marketplace, make matches between buyers and sellers, and gather the latest intel on water and disposal pricing, trades and trends. Sourcewater constantly updates its GIS data with these insights and uses the data to construct water and disposal price indexes and private market research reports.

 

Sourcewater also scours local, state and federal government databases pertaining to water resources, identifies relevant data, and extracts, transforms and loads these into Sourcewater GIS to create new oilfield water market insights. Data sources include, for example, the Texas Railroad Commission, which provides disposal well locations, capacities, and utilization levels. Sourcewater then takes this information to the next level, by converting tens of thousands of P-18 skim oil report pages per month into machine-readable format, then analyzing the data to map which operator leases are hauling water to which commercial disposals, how much water each lease is producing, and which haulers are getting that business.

 

Or, for another example, gathering water well drilling reports from the Texas Council on Environmental Quality, not only to place over 80,000 water well locations on a digital map but also to analyze over 40,000 water quality tests to heatmap dozens of key water quality parameters across the state. Even though all of these government data sources are publicly available in theory, in practice they are hard to find, hard to work with, full of errors and inaccuracies, and often in incompatible formats. Sourcewater GIS is the only online resource that combines all of these disparate public data sources into a single, standardized, quality-assured format with user-tested analytics tools and insights.

 

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NOTE: Want a free tour of Sourcewater’s water intelligence products? Click here to schedule yourself on our calendars.

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Finally, Sourcewater is obtaining more and more oilfield water data from Internet-of-Things cloud-connected sensors in the field, such as transfer pumps, tank battery level sensors, pond levels, and water truck locations, to provide the first generation of true real-time oilfield water market intelligence. As the Permian Basin water market explodes to meet the needs of upstream energy hypergrowth, pushing the outer limits of regional resources and infrastructure, real-time water market data will become essential for up-to-the-minute supply chain optimization and tens of billions of dollars of competitive spending decisions.

 

Energy fuels the engine of the world economy, but water fuels the engine of the Permian Basin energy industry. Sourcewater provides all of the data, tools, analysis, and insights needed to connect businesses with the huge opportunities offered by this once-in-a-lifetime boom. Call (713) 909-4664 to learn more about how Sourcewater can help your business surf the Permian Basin tidal wave.

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