The Perfect 4: Putting the $ in SWD
Part 1 of a 4 Part Series
It is tough to stay afloat in today’s oilfield water market. Nonetheless, despite lower oil, gas and water production, fewer completions and greater efforts to recycle instead of disposing of produced water, the forecast for saltwater disposals (SWDs) can still be bright. With Sourcewater’s market intelligence and strategic guidance, you can restore and grow the value of your SWDs, even in the toughest market.
“To find and delineate the best disposal locations has been my toughest challenge.”
-Stephen Secrest at Petrolegacy
The solution to this challenge is to boost your SWD business using what I call “The Perfect 4.” Whether you have a new SWD to plan, or an existing SWD that is lagging behind the market, Sourcewater’s Perfect 4 will help you stay afloat. The Perfect 4 is a holistic way of assessing and enhancing SWD performance using the four primary characteristics of a high-performing facility:
- High Demand
- Low Cost
- High Flow Rate
- Low Risk
I recently interviewed a large number of water midstream companies, including pipeline operators, treatment facility operators, and disposal operators to better understand their water business challenges. Resoundingly, the common pain point for these companies was strategic selection of where they were going to build or buy new water facilities. They also tended to have similar types of personnel tasked with this responsibility.
This is a story about Brian:
Brian is a geologist. He is responsible for choosing the new saltwater disposal well locations and subsurface formations for his company. Brian’s company leased some sweet acreage in the Delaware basin and they decided to drill a new saltwater disposal well to handle the high water cut that comes from Delaware Basin oil wells, rather than contracting out their disposal needs.
Unfortunately, that new disposal well ended up only performing at half of the expected injection rate. This was not good for Brian — but it is a very common outcome when building new Delaware Basin disposal wells.
Brian is determined not to let that happen again, because his company effectively lost half of their $10 million SWD investment on the day it opened! Brian gathers information on geom, karstification, diagenesis, and even seismic form his company’s records (pictures credited to the Texas Bureau of Economic Geology).
Does Brian now have all the data that he needs to avoid making the same mistake twice? Absolutely not. Brian still needs more data because right now Brian has only a hill of data — his company’s own internal data — when what he really needs is a mountain of data far beyond what they already possess. Brian needs a mountain of data to de-risk the next $10 million disposal well investment. How can Brian build and analyze the data mountain he needs, when his company only has a hill?
To build the reliably high-performing facility Brian’s company needs, Brian should analyze from the perspective of The Perfect 4©.
The Perfect 4:
I developed The Perfect 4 as a representation of what would make an ideal and optimal saltwater disposal or other water midstream facility. The ideal water midstream facility has:
- High Demand
- Low Cost
- High Flow Rate
- Low Risk
Tying these all together puts the $ in $WD©.
For the examples I will show you, my focus is geographically going to be in the Permian Basin and mainly with saltwater disposal wells. However, the methodology itself could be applied anywhere.
Step 1: High Demand
High demand is the first step to achieving The Perfect 4. Demand can be broken down in two ways: current demand and future demand. We know we want current demand to offset our investment and we want future demand to last the entire lifetime of the well or pipeline that we are buying or building.
To analyze current demand, we need to understand where oil and gas producers, our customers, are located now and where they are moving to in the future.
Demand: Current Production
What we show above are two graphs representing water disposal and water production. The graph on the left shows the history of disposed volume over time in the Permian Basin. This comes from my paper “Spatiotemporal and Stratigraphic Trends of Saltwater Disposal in the Permian Basin, Texas and New Mexico, U.S.” published in AAPG Environmental Geosciences, December 2019. The trends on the left graph show disposal volume over time beginning in 1978, when New Mexico first began requiring monthly volumes. Texas began reporting in 1983. (The volumes from 1978 to 1983 are more than zero but too small to see at this scale.) What we generally see here is an increase in disposal volume over time with the exception of the 1980’s bust in which production collapsed.
We can look over at the graph on the right to see an analogous increase in produced water over time. On this right graph, I divided produced water into the categories of unconventional versus conventional. This is important because it indicates geographic locations of current and future production. You can assume that unconventional wells will typically occur inside of basin centers near shale plays whereas conventional wells will typically occur along the margins of shelves. Those would be the historic and highly prolific sandstone plays that are no longer the targets for new well placement. For this division, I used the published definition of unconventional versus conventional that was devised by Bob Reedy at the Texas Bureau of Economic Geology and then published by Scanlon et al. in 2017. The published method identifies as unconventional a well hydraulically fractured with 400,000 or more gallons of hydraulic fracturing fluid or that is horizontal; any well is considered conventional if it is hydraulically fractured with less than 400,000 gallons of hydraulic fracturing fluid and is not horizontal. On the right you see a very large increase of produced water beginning in 2013, which was when the Wolfcamp formation began production in the Permian Basin.
It is interesting that there is usually a higher volume produced (right) than disposed (left). This reflects that some of the volume is not disposed; it is treated and reused. The key for future production is that new wells are going to be centered in the unconventional shale play areas.
Demand: Future Production
Sourcewater offers several unique methods for seeing where oilfield water production is going in advance of traditional signals such as drilling permits and rig movements. For example, Sourcewater’s patented DirtWork Alert product scans weekly satellite imagery to show new oil and gas drilling pads as they are cleared, often long in advance of drilling permit filings. And even when the drilling permit comes before the well pad, it is the appearance of the well pad that shows the operator is serious about drilling soon, as many drilling permits are never drilled or are drilled long after they are filed. This patented methodology of using satellite intel to identify new production sites offers a competitive advantage when siting a new disposal well.
Another potential early indicator of new production — and new competition — is Sourcewater’s patented SWD Pre-Permit Alert. This system scans over 1,000 local newspapers daily to identify pre-permit legal notices for new disposal and injection wells in Texas and New Mexico. These legal notices must be published from two weeks to six months before a disposal drilling permit is filed. But the most important benefit of Pre-Permit Alert is not one or two months of early warning you get for competitive SWDs in an area — it is the fact that every smart operator knows it takes far longer to get a new SWD permitted than it takes to get an oil or gas well permitted. Oil and gas drilling permits are usually approved within days of submission. But an SWD permit can take over a year. So early warning of new operator injection and disposal plans tells you which operators expect to produce more water and where, long in advance of drilling permits or rigs.
Of course, you can also overlay new drilling permits, existing SWD wells, and rig locations within the Sourcewater platform — these are the basic standards of oilfield intelligence, but they can’t give you any advantage because everyone already has them. In today’s market you need an edge to get new produced water supplies first.
But the first step for any SWD operator looking to gather more business or strategically place a new SWD with high demand is to look for new production wells. Identifying these opportunities gives an SWD investor or SWD operating company the distinct advantage of contacting the producing operator and negotiating a contract for disposal before any competitor.
Sourcewater includes all current surface ownership in Texas and New Mexico so you can see which landowners need to be contacted for disposal rights and rights of way. In fact, Sourcewater includes all existing oil and gas pipelines too, including abandoned pipelines, so you can see where existing rights-of-way might be quickly converted into new produced water pipelines.
Demand: Pipeline Infrastructure
The next step to analyzing demand is examining the current infrastructure and the potential for new well placement near water, crude oil, and natural gas pipelines.
Sourcewater offers the only commercial maps of water midstream pipelines, with over 1,800 water pipelines mapped as of this writing. Unlike oil and gas pipelines, water pipelines are not available from any regulatory source. By overlaying these water pipeline maps with existing disposal facilities, producing wells and drilling plans you can see where there are gaps in water midstream coverage that you could fill with a new facility or a new pipeline. Water midstream pipelines in the map above are differentiated by colors according to the operator, with the magenta representing other operators outside of the top nine. What you see here is a substantial amount of water midstream pipeline infrastructure in the Delaware and significantly less in the Midland Basin, Central Basin Platform, and other subregions of the Permian. The presence of a pipeline should influence your selection of where to place your saltwater disposal well. Producing operators will want to have a partnership with an adjacent water midstream pipeline operator but the presence of a water midstream pipeline rarely dictates the selection of where to put a newly producing well. In terms of competition, putting a saltwater disposal well near a produced water pipeline is risky because producers can tap directly into that produced water pipeline. Conversely, choosing a site near a freshwater pipeline is an excellent idea. Not only can the water be used for hydraulic fracturing of the producer, but also for the new SWD, which is a win-win situation.
Given that many producing well operators are seeking water midstream acreage dedication deals, a commercial SWD operator may wonder if they can ever place a new well near a competing produced water pipeline. The answer is sometimes yes. What we show above is a map of real wells and pipelines in the Permian Basin. The bottom two red dots represent gas wells; on the upper right we show saltwater disposal wells and a water midstream pipeline in blue. The thick yellow line is a water truck route. The gas well in this map is trucking skim condensate and produced water to a disposal well that is adjacent to a produced water pipeline. In my mind, this should give a lot of hope to disposal operators that there is still potential to win customers even if a competing produced water pipeline is nearby.
If we know that a commercial SWD can be placed adjacent to a produced water midstream pipeline, the next question is how close can it be placed? We can answer this question by overlaying multiple datasets atop each other. In the map above, we show wells, pads, pits, and permits with a hypothetical produced water pipeline overlaid with surface elevation. The higher elevations are shown in black and lower elevations in white. Realistically, the produced water pipeline is going to be able to grab all the business for wells adjacent to it, but only if this pipeline lies level or downhill relative to the producing well. Producing wells will need to send their water to a pipeline via layflat. The cost of sending water level or downhill are substantially lower than the cost of sending water uphill. To send water uphill, an operator will need to invest in a power generator strong and durable enough to propel the water against gravity unless they already have access to grid (overhead) electric power, which takes years to obtain in outlying areas. This is a forever-investment because as soon as the generator turns off, the water comes flowing back downhill to the producing well. Therefore, new producing operators, such as those in the white elevations on the west side of the map, that would need to send their water uphill to the producing pipeline. They might prefer to haul their water to an SWD. The trucking costs represent a variable cost, only paid when needed, versus the large capital cost of paying for generator equipment, fuel and upkeep.
To continue with infrastructure we will analyze crude and gas midstream pipelines. A producing operator is going to want to put their wells near an existing pipeline that can handle their crude oil or natural gas production. So, if I’m a disposal well operator or midstream operator and I want to build a new facility, I would prefer to put it near an existing crude oil or gas midstream pipeline knowing that my customers, the producers, will also do this. The maps above display the crude oil (green) and gas (red) midstream pipelines. These maps show that the existing pipeline infrastructure is clustered near the primary plays in Texas (Permian, Fort Worth Basin, Eagleford, and Panhandle). Pipeline locations are an influencing factor, especially for gas development.
An additional infrastructure that is exciting to explore is abandoned pipelines (gray). Abandoned pipelines could represent future infrastructure for water midstream pipeline operators. Abandoned pipelines are appealing because they are already built, have rights-of-way established, and can be bought, repaired, tested and utilized to carry produced, treated, or freshwater, depending on their construction material. Abandoned pipelines provide the potential for new contracts to be established between producing operators and water midstream pipeline operators without the roadblocks of obtaining new rights-of-way from surface owners, and at far lower construction cost.
Back to Brian
Brian has taken the first step of assessing demand during his evaluation process. Brian is ready to take the next step of achieving LOW COST. Stay tuned for our next installment in this 4-part series.
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