Water is the talk of the Basin. Where water goes, or does not go, seems to sway as many decisions as does any other factor.
By Jesse Mullins
Is it possible that any industry moves faster than the oil and gas industry? When did O&G become a “sand” and “water” industry? Sure, those ingredients have been in the mix for years, but to the level that they are now? It’s been mind-boggling. And that’s to say nothing of water treatment and recycling. Water disposal—which has always been a “thing” in O&G—is now conducted on levels never before imagined, and it is stirring conversations no one would have considered even two years ago.
Nor would most insiders in oil and have so much as even heard of something called a “water midstream” scant years ago. Now it’s a term that is on everyone’s lips. And not only that, but it is a niche that has germinated a whole crop of companies, some of which are already positioning themselves for merger-and-acquisition activity. All this in a dryland region where real property—if energy were not in contained within it—would be as inexpensive as could perhaps be found anywhere in the nation.
That’s what money can do. It can make the desert bloom.
And like anyplace where the desert blooms, water will be found.
In the aftermath of the Permian Basin Water in Energy Conference (see related article), with all of the talk and all of the heady prospects that that conference engendered, we sought out some individuals in the front lines of the water industry to tap their knowledge and plumb their insights. We talked to a researcher, a company founder, and an entrepreneur to get their perspectives on the rising tide that is the fast-expanding industry of water supply, treatment, transfer, recycling, re-use, and disposal.
PB Oil and Gas Magazine spoke with Gabriel Collins, who is the Baker Botts fellow in energy and environmental regulatory affairs; with Hunter Morris, founder of Swiftwater Energy Services, which recently was acquired by Tetra Technologies, and now is called Swiftwater, a Tetra Company; and with John Ayers, CEO of TruClear Water Solutions, a business with proprietary technology that removes contaminants and impurities from produced water without resorting to the introduction of chemicals of any kind.
Collins is at the Baker Institute for Public Policy, in their Center for Energy Studies, which is within Rice University. As part of his talk in Midland in February, during PBWIEC, Collins posed an idea that any E&P might do well to consider, where its water needs are concerned. His idea had to do with such companies “optimizing their fixed infrastructure investments,” and that’s where we took up the conversation with Collins. What, exactly, does that mean in the context of water usage?
Collins said that operators are faced with extremely high water usage at the front end of their developments, and any efforts that can help them accommodate those peaks, short of building every last bit of “fixed infrastructure” needed to handle that much water, would be efforts that would serve them well.
“The bottom line is this,” Collins said. “You’re trying to knock the peak off of the mountain a little bit. And what I mean by that is that in unconventional oil and gas development, where a company might be doing pad drilling, some of these pads in the Permian have gotten extremely big. We’ve heard recently of people drilling a 24-well pad. Even higher than that. And if [to handle your water needs] you are having to build any kind of fixed infrastructure—putting hard pipe into the ground, so to speak—for handling the water that’s coming off one of these big completion projects, then the reality, in most cases, is that you’re going to be building to a very significant upfront peak and, once that passes, then you have the challenge of trying to find ways to keep your infrastructure as utilized as possible because you’re likely to end up with a lot of surplus capacity in your pipe and in your system.”
Collins said that one of the ideas he has been exploring in his research is the prospect of greater use of recycling at the front end of these developments. He said that recycling produced water could potentially help a company optimize the capacity of its hard pipe, which is expensive, that it must construct and thereby would help the business to optimize its capital expenditures on something that is a very long-life asset.
He added: “If you’re going to build hard pipe that is going to be in the ground for 15 or 20 years, it’s obviously much more favorable if you can build it in a way that’s congruent with the likelier longer-term stream of water as opposed to building it for an upfront flow of 60,000 barrels a day from a gigantic pad and then seeing that pad level off at 5,000 barrels a day and you have all this leftover capacity that you paid a lot of money for.”
Collins said the recycling could have a particularly significant impact because it’s in the early phase of field development, where a company is doing the most drilling and completions.
“Obviously, you’re [taking] all necessary steps in terms of economics and environmental concerns—trying to save money on disposal, trying to save money on some of this infrastructure build up, trying to conserve fresh water,” he said. “But the bottom line is that recycling demand is most intense when you’re in the early innings of development on a given set of acreage.”
Collins said that the tapering down of completions activity would, over time, significantly change the complexion for any E&P trying to find outlets for its produced water.
He added: “But generally the highest and best use for that produced water—if you’re able to do it—is to find a use within the oil field, because the quality standard is not as strict, in the sense that you generally don’t have to desalinate the water, which is enormously expensive, and it’s also often going to be the highest paying use/ We’re seeing that oil companies will pay more than a dollar a barrel for water that goes into fracs, whereas in terms of a farmer, say, might expect to pay as little as about 7.5 cents a barrel.”
Scaled Up
Many of the issues dealt with in today’s Permian Basin are issues dealing with economies of scale. The return of the major oil companies, and the impact of the upsized major independents, has changed the way acreage positions are approached.
Asked if he is seeing a “manufacturing” approach taking hold in Basin operations, Collins allowed that changes are indeed happening.
“I know a lot of the operators really hate it when people say that [when they use the term “manufacturing’] because everybody talks about their own proprietary systems and their own analysis and their way of doing things,” Collins said. “I think there are manufacturing aspects in the sense that scale matters so much more with unconventional development than it does with traditional resource development. When you’re doing a shale development, an unconventional development, there are things that you do that are much more broadly repeatable, and if you get good at repetition—just as we see in any other industry, whether it’s making cars, making aircraft, making ships, making microchips, semiconductors, whatever goods you want to slot into there—you learn by doing and if you can combine that learning by doing with scale and really make the process replicable and repeatable, you can achieve much higher levels of efficiency. So I think there are very strong manufacturing overtones to successful unconventional oil and gas developments.”
The Water Midstream Factor
Asked to comment on the rise of the water midstream impetus, Collins said that the industry truly does need such midstream just to accommodate the sheer volumes of water that producers are dealing with.
“And I think there are practical aspects of this and there’s also the ‘social license’ dimensions of this because one of the quickest ways to cut down on truck traffic is get more water on pipe,” he said. “Just to put this in a bit of perspective. A seven-well pad development can, in 15 months, generate over 30,000 truckloads worth of water. So, one, it’s not physically feasible to do that [to truck that much water] and, two, it’s certainly not sociably nor politically feasible. So those cases are probably the biggest cases for midstream right now. It’s just the sheer volume of water you have to deal with. And then the other thing is that the lower we can drive down our oil and gas operating costs, the more competitive we are globally, because we’re never going to be competitive with the Saudis and with Iran and so on on a cost basis, but if we can get our economic break-evens beneath OPEC’s and foreign producers’ break evens that they need to make the budgets economically function, then we’re in a great, strong competitive position. And water—better water management—is one of the things that helps get us in that position and keep us there.”
M&A Aspects
One of the important factors that are emerging today, within the O&G water space, is the rising prospects of merger and acquisition activity.
Collins said that some of the same forces that are good for mergers and acquisitions and consolidation activity on the oil and gas production side are forces that bear equally strongly on the water resources side, particulary the water midstream side.
“One of the things that we’re going to see moving forward over the next six to 18 months here is some pretty good-sized transactions as some of these water midstream companies prepare for the next stage in their growth, whether that’s an intermediate private buyout or, in some cases, potentially seeking to get themselves listed as public companies. And so I think that will be an impetus for companies wanting to bulk up and get even bigger than they are now, and so I expect there to be some interesting developments there,” he said.
Riding the Crest
After his company, Swiftwater Energy Services, was acquired by Tetra Technologies, Hunter Morris received a new title and a role that amounts to an expanded responsibility. He now has the title of Vice President of Central U.S. Morris said he oversees of Tetra’s services in the Permian Basin as well as Swiftwater’s ongoing business in the Permian. But the additional part for him is that he now oversees Tetra’s business in the Midcontinent and in the Eagleford play. Tetra Technologies is based in The Woodlands, Texas. They are a publicly traded international oilfield service company.
The name Swiftwater has been retained. Morris said it was important to him that Tetra allow his company to maintain its brand in the Basin. He said that the brand had acquired too much good will for it to sacrifice that advantage.
“And so Swiftwater is now the water management brand for Tetra in the Permian,” Morris said.
Morris also said that Swiftwater is more than just water midstream. “We are total water management,” he said. “We do build water midstream assets, but we cover a number of different water services that serve the drilling and completions segments as well as the production side.”
Swiftwater builds water midstream gathering systems as well as water treatment and recycling for both oil and gas E&P companies as well as midstream companies. As Morris says, they specialize in everything that has to do with water, both fresh and produced, in the oil and gas market. That is, with the exception of water hauling. The company does not do any water trucking. And Swiftwater does not own midstream assets or salt water disposal wells. They build them for others.
“Water treatment, water recycling, that’s obviously a huge, growing area in the business these days with the produced water being recycled for reuse purposes, and we’re one of the leading service providers in that space out here in the Basin,” Morris said.
Exponential Growth
Morris said that over the last few years, the water business has grown exponentially because horizontal wells require much more water to frac the wells.
“The average volume per-well has increased dramatically in the last few years,” he said. “The rates at which they’re pumping the water downhole has increased dramatically. Because of that ,these wells are producing a great deal more of produced water. So that produced water, as well as the cost of fresh water, has created an environment in which not only is it environmentally friendly to recycle that water as an alternative to consuming our freshwater resources, but it’s also economically viable.
“Four or five years ago, the recycling of produced water in most cases wasn’t economically viable, and that’s for several different reasons. One, because we didn’t have the water volumes like we do today. Two, we have a great deal more infrastructure today than we did a few years ago, so that allows us to move that water around in a more cost-effective manner without water trucking. That’s what really drives up the cost of logistics, when you can pipe that water via permanent or temporary pipe. Or by laying flat hose, which is another one of our service lines. By so doing you can dramatically decrease the logistical costs of moving that water around. And that, in turn, makes it economically viable to recycle it for frac’ing purposes.”
Morris said it all works together to keep trucks off the road.
“And it also takes some of the pressure off these SWDs [salt water disposal well installations], because instead of sending that water immediately downhole, which has been the industry norm for decades, we’re keeping that water above-ground and recycling it and sending it to the next frac job.”
Testing the Waters
If “water” is the issue of the day, or the question of the day, then the answer—the answer we hear voiced more than any other—is reuse and recycling. There’s plenty to talk about where oilfield water usage is concerned, and not every conversation revolves around reuse, but when the biggest challenges rear their heads, the most reassuring solutions seem to be those that involve doing something different than just pumping produced water down a salt water disposal well.
The Permian Basin has been the epicenter of the water debate, just as it has been the epicenter of almost every other conversation in domestic oil and gas over the last decade or more. But in the Permian Basin, which is basically a desert region, the relative scarcity of water has added an ingredient of earnestness to discussions here.
Just as the rise of hydraulic fracturing has been the genesis of an entire crop of new professions, so has the intensification of the water issue given rise to new service companies and new professions as well.
One relatively new sector is the water treatment industry. Recently, PB Oil and Gas Magazine spoke with a professional in this new-ish field who appears to be poised on the brink of a potentially rewarding new direction for water treatment.
John Ayers heads a service company that has caught the eye of Chevron. Ayers’ TruClear Water Solutions Inc. has a proprietary technology that purifies water without the use of chemicals. It’s that element of “without the use of chemicals” that is the operative phrase here, because chemical use is prevalent, if not pervasive, where water treatment is concerned. And it’s the business of putting chemicals into water that makes these firms’ processes problematical for many.
Ayers’ company also describes its process as “low energy,” and that, too, is critical where water treatment processes are concerned, as will be explained shortly.
Chevron, meanwhile, has taken enough interest in Ayers and his company that they have done tests in California to ascertain just how effective the TruClear Water Solutions equipment is.
“We’ve just started our testing,” Ayers said. “We did do a pilot for Chevron in Bakersfield with very good results. We’ve got another pilot scheduled there with them for March [2019]. We’ve got about five or six pilots tests going on right now with some people handling large volumes of water. But as for Chevron, we’re dealing with an engineer who is now the head of product development for them. He was the one who was in charge of the initial test in Bakersfield. We’ve heard they are excited to possibly integrate this [purification] system into their operations, if the next round of tests goes well. We’ve stirred a lot of interest in just getting the mindset changed from ‘chemical’ to ‘non-chemical,’ which a lot of companies are looking for. A green solution. I feel we are going to be the green solution.”
Besides Chevron, TruClear is seeing interest from Crownquest, Felix Energy, and other companies.
TruClear builds units that treat 25,000 barrels of produced or impure water a day. The units are stackable. The units’ output—the purified water—has no waste involved from chemical additives, and this sets TruClear apart, Ayers says.
The business employs fewer than a dozen employees, and its offices in Midland, Abilene, and Albany are each quite small. But that could change, and change quickly, if the promising technology that TruClear touts can prove itself in the water-parched Basin.
Ayers is a veteran of the oil and gas industry, having 30 years of experience in his family’s business. He eventually became president of his family’s business (which did construction work as well as oil and gas service industry work), and expanded their operations and their holdings in Texas and New Mexico. Under his direction, the business provided a full range of oil and gas services, from site preparation to well completion. Their customers included such companies as Oxy, EOG, Diamondback, and Devon, to name a few.
Using an advanced oxidation system, TruClear’s process does more than just take the turbidity out of contaminated water. It removes iron and H2S.
“It all goes to a molecular state,” Ayers said. “The iron, the H2S—our system actually separates the oil and water and the other metals that are in the water. It removes and breaks up those particles to where they can’t bond any longer. Then, we also create our own biocides, naturally, and through those to actually kill the contaminates that are in the water and the bacterias. But we do it at a very very low energy cost. With our process, we have a very high Oxidation Reduction Potential [ORP], up in the 700+ range. When you get it to that point, what you’re getting is sterile water. It’s more than sterile water. Nothing could live in it. It deteriorates the H2S and all the other bacterias that are in the water.”
Ayers said that are in the process of manufacturing units right now. They have five units working in the field and another ten are soon to be brought out (by April).
Two of TruClear’s employees are scientists. They are the ones who developed the technology, and they came to Ayers years ago, prior to working for him, looking for a way to market their discovery. It was Ayers who saw the oilfield potential of it. The scientists had come up with their process as a way to help populations in distressed nations, where clean, potable water is always in insufficient supply. Their motto then was “Clean water for the nations,” and that is a motto that TruClear has retained, because TruClear has its eyes set on more than just oil and gas. Another motto that the company holds to is, “Doing well by doing good.”
“We knew that water was kind of the future and when we saw what the scientists had come up with, it was just really incredible,” Ayers said. “We formed a relationship with them, and we believed in them, and I guess they believed in us. So we’ve gotten to this point to where we’re pushing this technology forward. Our scientists are really, really sharp guys. And they’re continually doing R&D.”
Their system works for water purification for drinking purposes, and it has applications across a range of industries, including nautical industries, but right now the emphasis is on oil and gas, because the potential to scale up the business is greatest in the oil and gas field, at present. The other applications will come later, once a level of manufacturing efficiency is achieved.
The “low power” factor is important, too, where scaling the technology is concerned. Ayers said that power needs are the troublesome factor that affects so many water treatment companies. “Because once you scale it, it takes [increasingly] more power to make it produce,” he said.
Ayers lives in his longtime home of Albany with his wife Lorna. They are parents to three daughters, now all married. The couple has six grandchildren and another on the way. Ayers makes a commute to Abilene each day.
He stays plenty busy. The company is working with the commissioner of the fourth district of Los Angeles, to find a solution to their current shutdown there of all drilling and frac’ing activity. TruClear is also working in the Port of Los Angeles to help the port purify water coming off of ships—a step that is now mandated by law and that is creating disposal problems of a magnitude similar to that of oil companies needing to dispose of produced water.
Asked what it has been like working in oil and gas, Ayers said it has been rewarding.
“Everyone in the Permian has been really good to work with,” he said. “They’ve been real open. Oil and gas is more of a closer knit family than many might think. They’re trustworthy and hard-working. And they’re problem solvers.”
He feels he’s a problem solver himself, so he feels an affinity for that type. Takes one to know one.
“Oil and gas guys, we’re survivors,” Ayers said. “If you’ve got a problem, we’re going to fix it. When it comes to fixing the industry, and fixing the water problem, you’re in good hands when you’re dealing with oil and gas service companies and producers. Because if there is a problem at hand, they’re not going to let go until it is solved.”