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Saturday, April 10, 2021

Permian leads domestic energy revival as water remains issue

As energy giants like Exxon and Chevron announce plans to increase commitments to the Permian Basin in West Texas and New Mexico (click here for the story), water continues to be an issue.

The second annual Permian Basin Water In Energy Conference (PBWIEC.com) was held in Midland in February, and it reflected the many water-use challenges faced by operators in what is fast becoming the epicenter of oil and gas production in Texas and the United States.

The conference was spearheaded by Jim Woodcock, University of Texas Permian Basin College of Business Advisory Board Chair, founding PBWIEC board member and PBWIEC’s chairman. In 2017, Woodcock began working with volunteers, business, civic and regulatory leaders as well as other Permian Basin stakeholders to focus on information, issues, opportunities and solutions with respect to water in energy.

“Each horizontal well that is drilled uses anywhere from 100,000 up to a million barrels of water and because the Permian Basin is in the middle of a desert we have to be extra mindful of water,” Woodcock said in a news release. “No one wants any drilling activity to stop because of water concerns or availability, but we’ve got to recognize our usage and try to identify ways to best manage that. And that concern was really the nucleus, the reason why we pulled this water conference together.”

The U.S. Energy Information Administration expects Permian regional production to average 3.3 million barrels per day (b/d) in 2018 and 3.9 million b/d in 2019. Although favorable geology combined with technological and operational improvements have contributed to the Permian region becoming one of the more economically favorable regions for crude oil production in the United States, recent pipeline capacity constraints have dampened wellhead prices for the region’s oil producers. Lower wellhead prices in the region are contributing to slower growth in Permian crude oil production in 2019 compared with 2018.

Even with some growth slowing, water remains an issue, said Monica Jacobs, partner and chair of the Water Law Section at Kelly Hart & Hallman.

“One of the things that has changed in a relatively short period of time is the way that water is transported as the Permian has developed,” she said. “It used to be there was a pretty heavy reliance on transport by truck. Because of the level of activity out there, that really is not feasible anymore.”

Pipelines and more regionalized systems are more common now, she said. “That is a good thing, I think, because of the wear and tear on roads, safety and all sorts of things. There is a recognition in the industry that the additional truck traffic had some associated negatives.”

Fort Worth-based Basic Energy Services Inc. has seen continued growth in its Water Logistics segment, primarily from pipeline operations in the Permian Basin.

“[O]ur Permian Basin operations moved almost 60 percent of its saltwater disposal volumes via pipeline in the fourth quarter of 2018, another new record,” said Roe Patterson, CEO. “Total water volumes for fourth quarter were also a new quarterly record, totaling 9.9 million barrels, an increase of 5 percent from the previous quarter.”

Basic Energy will be investing in more wells and pipelines for water as that area grows, Patterson said.

“As we believe this segment contains significant potential, we are announcing plans to build multiple discrete gathering and infrastructure projects within our existing saltwater disposal network. These midstream projects will include additional disposal wells in the Permian Basin, long-term contracted pipeline water commitments and the opening of several of our disposal wells to selected third-party truck volumes. We expect these growth projects to require $25-$30 million dollars in 2019, representing over 75 percent of our full-year growth capital expenditures,” he said.

The water issues in the Permian have created some opportunities for business as well.

In February, private equity fund Blackstone announced that funds managed by Blackstone Energy Partners L.P. have formed Waterfield Midstream, a full-cycle provider of water management services, including water gathering, treatment, recycling and disposal, to provide solutions to producers in the Permian Basin. Waterfield is Blackstone’s water midstream platform in the Permian Basin and has a $500 million equity commitment to pursue Greenfield development and acquisitions of water-related infrastructure, helping producers minimize the environmental impact and operating cost of oil and gas production, according to Blackstone. Waterfield is led by co-CEOs Scott Mitchell and Mark Cahill, who previously built and led Anadarko’s and Western Gas’s Permian Basin commercial water infrastructure platform.

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Robert Francis
Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

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