From sourcing to disposal, water is slowly becoming the largest challenge to field development in the Permian Basin, Wood Mackenzie says. In fact, failure to mitigate these issues could increase costs, with possible consequences as severe as well shut-ins.
The number of completed Permian wells is rising, and water disposal volumes are expected to double by 2022, WoodMac says. This generates increasingly large volumes of water. Even with 100% water reuse for completions, the current salt water disposal infrastructure will reach capacity in the near future. In addition, increased water trucking has led to traffic jams and damaged roads.
Moreover, water disposal costs can account for a third of total lease operating expenses in the Permian, with producers not able to cut corners on water management.
In order to pare costs and limit operational risks, operators are analyzing their water strategies and talking with external firms with water management expertise. These providers connect infrastructure, disposal and recycling into one integrated model.
While E&Ps are finding it difficult to stay ahead of the bottleneck and avoid well shut-ins, water midstream companies are providing numerous solutions as the water management challenges increase.
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In 2019, financial sponsors have explored options to get a piece of the action. Namely, TPG Capital went all in in March 2019 with its $1.2 billion investment in Goodnight Midstream, which serves operators across the Permian and Williston basins.
What is more, the water midstream space is ripe for M&A.
We have already observed more than a dozen water-related infrastructure deals in the Permian and expect the pace of transactions to pick up considerably in 2019
Wood Mackenzie noted.
Currently, the water midstream space is in need of capital in the Permian. The infrastructure business is still in its early stages of development and provides several possibilities for revenue streams.
