It’s that time of year when conferences go into full swing and we get the opportunity to engage with the water management industry in person around myriad topics. The B3 team has been on the road constantly over the last few months, attending and speaking at conferences on diverse water, ESG, and carbon-related subjects.
Our annual Ripple Effects Summit and the Oilfield Water Connection’s Water Markets Conference, both held this month in Ft. Worth, were highlights so far this year. At Ripple Effects, our half-day, off-the-record colloquium, we brought together our largest group of customers to date for an insightful discussion about where the water management industry is headed over the next few years. Participants spanned diverse perspectives, including E&P companies large and small, water midstream companies, landowners, legal and financial stakeholders. The Water Markets Conference kicked off immediately after Ripple Effects, bringing together around 350 people. The presentation content was informative and the conversations around the event were outstanding.
We are incredibly grateful to our wonderful customers and collaborators for their continued partnership as we drive forward new ideas to help solve water management challenges.
What’s On Our Mind
The water management industry has become even more dynamic over the last year, with numerous market factors shifting quickly, broader economic drivers affecting financial markets, and legal and regulatory issues arising along the way.
Some key insights and topics are front of mind for the B3 Insight team:
Subsurface injection interval pressures are challenging Permian Basin operators. Pressured injection zones are creating drilling risk, reducing disposal capacity, and creating a risk to operators who now view pressure risk on the same level as seismicity risk. Pore space is getting scarcer in some areas and consideration of this issue is key when evaluating water management strategies. The need to transport water longer distances due to pressure will affect water management costs.
Water midstream and E&P companies are continuing to find ways to work together. Sharing infrastructure, produced water, and disposal space help mitigate seismicity in the basin and areas with disposal capacity constraints. E&P companies are sharing recycled volumes, effectively recycling more than their own company’s requirement, to help reduce produced water injection.
Operators in the Permian have rapidly increased water recycling, so much so that we had to revise our regional water balances, as we undershot reality for 2022 and 2023, year-to-date. In the New Mexico Delaware Basin, over 75% of the frac water demand is currently being met by recycled-produced water. It’s also important to note that the industry’s huge success on the recycling/reuse front has primarily been driven by large-cap operators, some of whom are now recycling so much that another year of 50% increases may not be possible. Mid- and small-cap operators are lagging and less incentivized to aggressively pursue reuse.
Landowner challenges have been a perennial topic of discussion, but these issues are coming to a head. Water management and E&P companies respect the important role that landowners play. The current adversarial dynamic between landowners and the industry is untenable and limiting the viability of reuse and important infrastructure projects. Industry must consider new ways to engage. Brokering equitable partnerships is critical for transporting water in the Permian, but as they say, it takes two to tango.
- Regulatory Challenges
Regulators are working closely with operators to find solutions that work for all parties, but this takes time, especially because the scientific understanding of some issues is evolving. Rather than enacting new rules, regulators are suggesting, and operators are responsible for presenting, solutions that work for them and satisfy the regulatory objectives. There is a broad understanding that pragmatism is key, as regulatory changes are needed to ensure safe operations and support industry needs.
- Capital Constraints
Money is scarcer and far more expensive than in the past and with significant infrastructure needs still ahead, this has implications for the economics of water management. Higher costs of capital will translate to higher fees for commercial infrastructure and greater opportunity cost for E&P investment in proprietary water platforms. General consensus says costs must go up; the only question is by how much in different parts of the basin.
Consolidation of water management systems in the Delaware Basin has resulted in a big shift away from E&P companies, with five major water midstream companies now disposing around 50% of the region’s water. The Midland Basin provides a stark contrast, with disposal still predominantly handled by E&Ps, only one of which accounts for more than 10% of regional volumes. Water management consolidation there has been driven by E&P transactions directing more water into existing E&P-owned systems. Expect more consolidation among Midland Basin water management companies to deliver economies of scale to non-basin champion operators and create optionality for large E&Ps seeking to diversify away from their own systems.
EMPOWERING SMART WATER MANAGEMENT
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