Permian operators face rising tide of water issuesThis may be the next great opportunity for MGX.
Link A rising tide of water management issues is headed for the Permian oil patch as the basin continues to dominate industry activity.
The average Permian Basin well currently requires between 500,000 and 700,000 barrels of water — more than 21 million gallons — to be hydraulically fractured. And that amount is expected to climb as operators drill longer laterals and use bigger fracturing jobs to complete their wells. Water demand is forecast to be 100 billion gallons a day by 2020.
“In the last five years or so, in every one of the meetings we’ve had with clients, they say they are becoming a water producer with a byproduct that is oil and gas,” said Danny Jimenez, chief executive officer of Gradiant Energy Service. “More and more companies are assembling water teams that are looking into a value chain with water: water supply that is sustainable, economic and environmentally friendly.
“We need to be proactive in dealing with water issues,” Joey Hall, executive vice president, Permian Operations, with Pioneer Natural Resources, said during a recent Shale Energy Workshop presented by the International Association of Drilling Contractors at the Horseshoe. “Pioneer’s water demand will more than quadruple by 2026 to meet our production goal of a million barrels of oil equivalent per day by then.”
As the region’s unconventional shale play began to take off and operators increasingly utilized hydraulic fracturing, their preference was for fresh water. But limitations on the availability of this resource — along with concerns about how it would affect municipalities and other industries — sent operators looking for other sources.
“Pioneer is on a mission of reducing our use of fresh water. We all have to do this,” Hall said.
In order to reduce fresh water use, operators are turning to brackish aquifers such as the Santa Rosa and the Dockum. But that’s not a sustainable solution.
“You can’t take that much water out of the aquifer,” said Todd Abbott, vice president of Permian infrastructure development and operations at Pioneer Natural Resources and president of Pioneer Water Management, earlier this year.
His company is spending hundreds of millions of dollars to buy effluent water from the cities of Midland and Odessa for use in their hydraulic fracturing operations.
Operators are also turning to recycling and reusing flowback fluids and treating the large amounts of water produced along with the crude oil and natural gas. A variety of technologies are being touted for their economic effectiveness in addressing the issue.
Gradiant Energy’s technology utilizes a combination of electricity and table salt — instead of chemicals — to disinfect water. The company also uses a natural humidification and dehumidification process to reuse, recycle or purify produced water or even cleanly evaporate it into the environment, eliminating the need for disposal.
It was developed at the Massachusetts Institute of Technology and “landed in the Permian Basin because we felt we could deal with water management issues there,” Jimenez said in a phone interview.
“We approach it from a green viewpoint and an economic standpoint. We don’t see where one has to exclude the other.” he said. “We have a pipeline of projects in execution mode. Our clients want to ... lower costs and protect the environment.”
Gradiant’s technology takes produced water, which Jimenez called variable, and returns to the client water that is very consistent, he said.
“We can do that and at a price point that’s economic. That’s why we’re seeing our pipeline grow. In 12 to 18 months, we’ve grown to processing 380,000 barrels a day,” Jimenez said
“Consistent output out of our plants allows for lower operating price points. Consistent water is cost-effective and reliable. Over the last few months, we’ve grown our client base significantly and rapidly.”
He reports that Gradiant already has projects lined up into 2019.
Other treatments promise to create a revenue stream from the produced water by harvesting minerals contained in the water.
One example is MGX Minerals out of Canada, which harvests minerals such as lithium and magnesium.
“We have a large project of our own in the Paradox Basin in Utah and Colorado,” Marc Bruner, MGX chairman, said in a phone interview.
“There are a lot of particulates in this basin — 450,000 total dissolved solids. We’re in the process of testing the lithium and other valuable minerals. We have 100,000 acres in the Blueberry Unit where we’ve approved testing. This is on our primary prospect where we own the oil and gas.”
Bruner said his company is avoiding the Permian Basin until management figures out where investors are spending their money.
“One thing that’s important to consider is each project is different. The minerals and the water and total dissolved solids are different. It’s not like it’s a one-size-fits-all,” he said. “Part of the solution depends on the minerals involved. A big part of the transaction would be a water-hauling solution. We’d save money on handling and use in different areas like agriculture.”
Added Jared Lazerson, MGX chief executive officer, “There are sophisticated water-handling issues such as the logistics of where the water comes from, where and how it’s used, where it’s being disposed of.
“Also, there’s the water profile: What minerals are contained and what can be sold to generate revenues? There are different costs even within the same geological area. Some areas with industrial plants need these minerals close to railroads. If those minerals are in a remote area that’s not close to a railroad, they’re of no use,” Lazerson said.
Bruner and Lazerson said they would like to partner with an operator that has a large enough acreage position to implement a project in the Permian.
The Permian Basin “is a work in progress but working on recycling and bacteria removal,” Jimenez said.
“All of us in the industry have evolved. The reason why we are where we are, why you’re seeing 380 rigs in a $50 oil price environment is technology,” he said.