Rising produced water volumes and expanding costs pose a significant risk to production growth in the Permian Basin, Ryan Duman, Senior Analyst, Lower 48, Wood Mackenzie, told delegates at the Unconventional Resources Technology Conference (URTeC) in Denver.
Amid low breakevens and favorable margins, producers have rapidly increased oil production, leading to a growing strain on the Permian’s infrastructure. This has resulted in the growing challenge of how to source water and what to do with wastewater produced by completed wells, Mr Duman said.
“Without adequate investment and planning, produced water threatens to lower Permian production potential, as it can shift the entire Permian cost curve,” Mr Duman said.
“Water management in the Permian is becoming more expensive, in addition to slower permit approvals and the prospect of additional regulations,” Mr Duman added.
Produced water must be injected into saltwater disposal wells or treated. However, growing volumes are flowing back to the surface as demand increases for enhanced completions. Multi-well pad developments can also result in a higher concentration of produced water in a single geography.
Water midstream companies can be better placed to tackle complex and growing water-related challenges by linking operator positions and offering economies of scale. This can help limit operational risk at a reasonable cost.
“There is no one-size-fits-all solution – effective water management is unique to each exploration and production company,” Mr Duman said. “Self-build, third-party solutions or a combination may all be ideal, depending on a wide variety of factors.”
“The water management industry is fragmented and rapidly evolving alongside new regulations and technology. Private equity money has entered the space and has created an opportunity for firms to address supply chain inefficiencies, offer new technologies and take advantage of a major pain point for producers,” Mr Duman added.
“The timing is perfect for water midstream firms to chase growth. More E&Ps are starting to offload water assets and associated capex requirements. Low oil prices and weak producer cash flow are catalysts for accelerated divestitures of water systems,” Mr Duman concluded.