Getting reuse to work in the Permian Basin
Global Water Intelligence
Water reuse volumes in the Permian are on the rise, but there is some way to go before the economics make it universally viable.
Three new deals this month underlined the buoyant mood of produced water management companies in the Permian Basin, despite a continued decline in oil and gas prices which has helped erode the value of publicly listed players in the space.
Aris Water Solutions, Infinity Water Solutions, and Select Energy Services (which is soon to be renamed Select Water Solutions) are all predicting a bullish few years for water reuse in the industry, as oil and gas operators increasingly look to recycling options for their water sourcing and disposal needs, even as the shale boom and rig counts reach an apparent plateau.
During 2022, Select recycled 174 million barrels of produced water for reuse, a number which is set to grow with the expansion of its conveyance and recycling infrastructure in and around Midland and Odessa, Texas. In February, the company announced a new recycling plant project in the Permian, backed by “multiple long-term contracts” capable of recycling 100,000 bbl/d of produced water (with a storage capacity of up to 1.5 million barrels). In addition, Select has been acquiring smaller storage and recycling facilities, brackish source water wells, pipelines, and permitted disposal capacity, and is planning to invest $90-130 million in 2023.
THE RAW ECONOMICS OF OIL AND GAS
Falling oil and gas prices have the potential to put the brakes on E&P companies’ capex plans. Produced water management companies remain bullish on the prospects for growing their share of the pie.
For Select CEO John Schmitz, the company’s imminent rebranding as Select Water Solutions is about communicating the company’s evolution and vision.
“We have been very busy. We’ve done a dozen M&A transactions in 18 months, added 1,500 employees, and absorbed ten different logos. The name change better reflects what we do for our customers,” he told GWI.
In early March, Aris announced the addition of ExxonMobil to an existing reuse partnership with Chevron and ConocoPhillips which is evaluating a suite of pilot technologies with potential reuse applications.
“This is a step beyond recycling in the industry,” CEO Amanda Brock told GWI. “Can we use produced water to grow biofuel soybeans or palm oil, or for hydrogen production? Absolutely. Can we extract ammonia, bromine, or lithium from produced water brines? Absolutely. Is it cost-effective? We’ll see. That’s what we’re trying to work out.”
In 2022, the volume of produced water managed by Aris grew to over a million bbl/d, up 36% year-on-year. Recycled produced water volumes were over 250,000 bbl/d (up 144%). Aris also concluded a separate research project with Texas A&M University that successfully utilised produced water to grow cotton and ryegrass, which is of particular interest to ESG investors because of the potential to sequester carbon in the root systems of such crops.
In addition to joining Aris’ partnership, Exxon also struck a deal with Infinity, a private start-up that has raised $22 million since its inception in 2019. The agreement will expand the portfolio of water management initiatives in the Permian undertaken by Exxon subsidiary XTO Energy, and points to how smaller companies and start-ups have found footholds in the Permian’s produced water market. Over the past four years, Infinity has grown to handle 125,000 barrels of daily throughput capacity across 150,000 acres spanning the Texas-New Mexico border.
Infinity CEO Michael Dyson described to GWI an emerging market characterised by both collaboration and competition. “Obviously this is free market capitalism on a barrel-for-barrel basis, but if we understand the magnitude of the problem and collaborate on the solutions, there’s plenty of business to go around.”
In a 2022 report to the state legislature, the Texas Produced Water Consortium predicted that up to 500,000 acre-feet (616.7 milllion m3) of produced water could be available for reuse in Texas on an annual basis. While beneficial reuse is “not currently more economical than disposal or reuse within the industry,” the consortium predicts that technological advances and scarcity conditions will – eventually – make it economically viable.
Despite the general sense of optimism the produced water sector is not without its challenges. Both Aris and Select missed their 2022 earnings forecasts, pointing to inflationary pressures, capital investment, and weather-related issues in Q4 2022 as mitigating factors. Both have endured stock price slides as a result. However, notwithstanding Wall Street jitters, produced water fundamentals remain solid, according to James West, senior managing director and partner at EvercoreISI.
“The market for water in the Permian Basin, both for use in fracturing and produced water disposal and recycling, continues to grow despite the rig count moving sideways. Greater water cuts in producing wells and ESG drivers make the reuse and recycling of this scarce resource increasingly important,” he told GWI.
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