Water recycling is another way operators can reduce disposal costs and limit water sourcing constraints – something Canadian producers already do
With the recent rise oil prices, operators have been adding rigs and ramping up completions in the Permian Basin of West Texas – the largest and most important source of oil supply growth in the world. However, persistent operational water challenges present a material risk to companies’ future profitability and production.
A new study by Wood Mackenzie, Permian produced water: slowly extinguishing a roaring basin?, examines the growing water situation in the Permian and models the potential impact rising water volumes and increasing water costs could have on future breakevens and oil production growth.
“As operator activity continues to pick up in the Permian, we expect over 2 million barrels per day (b/d) of oil supply growth over the next five years. While attainable, the list of operational risks grows too and the least appreciated of these is produced water. The combination of rising volumes and higher disposal costs threaten to shift cost curves and pose a growing risk to oil production growth in the Permian,” said Ryan Duman, principal analyst with Wood Mackenzie’s Lower 48 upstream team.
The report models a number of scenarios covering rising water cuts and growing water management costs. In an aggressive future cost scenario, the study found that breakeven costs in the Midland and Delaware sub-plays could increase by US$3.00 to US$6.00 per barrel – potentially curbing the growth of future Permian oil supply by 400,000 bpd by 2025.
“Water risks to date have largely been described as a cost issue, but as projects continue to build scale, the risks become more serious,” said Duman.
“They could impact the ability to actually carry out operations. Investors and project partners should challenge operators on how water is being managed.”
Over the past few years, water demand has continued to increase as operators strive to improve completion efficacy, utilising almost twice as much water they did in 2015 – close to 17 million gallons of water per current well in the Midland Basin Wolfcamp.
Record drilling activity is compounded by more water used in completions and water cuts from the targeted formations rising quickly in older horizontal wells.
For the Wolfcamp formation in the Delaware Basin, water cuts have increased from an already high base of approximately 70% to 80% in the first four years of production. An initial water-to-oil ratio of roughly 2:1 can increase to nearly 5:1 by year four and eventually reach 7:1.
In the Delaware Basin, water-to-oil ratios are often twice as high as in the Midland Basin, and, in some cases, can reach as high as 10:1.
Operators are unable to cheaply re-inject all those volumes and water handling is expensive, ranging between US$0.50 per barrel to US$3.00 per barrel, including sourcing, transport, disposal and recycling. Trucking availability and the proximity of a well or pad to existing saltwater disposal wells are the biggest influencing factors on cost.
“Unlike some of the other subsurface constraints and risks facing the Permian, there are ways operators can mitigate risks from produced water,” said Duman.
“One of the best opportunities for operators to reduce water costs is by investing in pipeline infrastructure, limiting the amount of trucking and collaborating with offset operators.”
It can cost US$2.50 to truck a barrel of water versus US$0.30 per barrel to move it by pipe. Relying on trucking can result in an incremental US$1.00 to US$1.25 per barrel. This cost looks set to increase as trucking regulations become stricter, pads become more remote, and roads become congested.
Water recycling is another way operators can reduce disposal costs and limit water sourcing constraints. The potential savings range from US$1.00 to US$2.50 per barrel on total lease operating expenses.
“Recycling will become more common as projects grow in scale and treatment costs fall with increased throughput volumes and fixed overhead. In time we expect to see the proportion of recycled water volumes continue to increase as more operators understand how to best manage chemistry and use the volumes in new, offset completions. Expect producers to invest more in water management solutions, and if budgets stay relatively flat the next few years, watch drilling capital be diverted to water-related investments. Just as the level of drilling intensity in the Permian breaks basin records, so should the scale of water management solutions,” concluded Duman.
Be the first to comment