What influences the balance in the Permian?

The production of salt water is a necessary by-product of oil production. Only in rare cases do you get 100% oil flow from a well, and even then a reservoir will eventually “press”, making further production useless and uneconomic. The U.S. Permian Basin has been the source of the largest increase in daily U.S. oil production over the past decade, if not slightly more. That EIA chart Below illustrates, other shale reservoirs are in decline or barely holding on to past performance.

What hasn’t attracted much attention until recently is the amount of water produced along with oil and gas. It is a prodigious amount, ranging from 3 or 4 to 12 barrels of water per day, along with every barrel of crude oil. In its raw form, produced water must be disposed of or recycled in some way because of its salinity, which can be several times that of seawater.

Injection well disposal in permeable layers has been the preferred method for decades due to its low cost relative to the various recycling technologies available. Picture below taken from a WSJ article from April of this yearhighlights the exponential increase in the number of these injection wells since 2010.

In recent years, several troubling aspects of this proliferation of injection wells to manage the 3.2 billion barrels of salt water mentioned in the article that have been injected deep into the Delaware subbasin of the Permian alone have come to light. . These include surface subsidence, seismicity and the effect this injected water has on reservoir pressure in the injected areas. The increase in seismicity is the impact receiving the most attention at present, due to the increasing intensity of shaking induced by injected water.

Related: Why China’s Green Energy Push Worried the Western World

Christine Guerrero, Petroleum Engineer and Strategic Advisor at Octane Investmentscommented, in a webinar titled, The moment of the Permian watershedthat there has been a “Tsunami” of water produced in the Permian, with a current water production of 19 mm BoWPD. Even if oil companies convert much of their frac water requirements to recycled brine, this 19 mm BoWPD is well above what the industry can consume in daily frac operations. Two-thirds of this water must then be re-injected – often into shallow reservoirs, which can increase pressure and lead to increased seismicity, which Christine discussed in her presentation.

Citing Energy Information Agency-EIA forecasts of a 27% increase in oil production over the next five years, Christine noted that “operators will have to find other ways to handle larger volumes of water at significantly higher costs for to maintain the Permian. global manufacturing dominance.” She concludes that “Seismicity is our Canary in the coal mine.”

What happens to the produced water?

As mentioned, the production of highly saline water with crude oil is a reality and part of the process. At lower levels of drilling intensity, prior to 2010, disposal of injection wells was really the only option and created no real problems. As drilling activity began to increase in the 2010s with the shale revolution, oil companies recognized that drilling practices would have to be adapted to the new reality.

Chief among these changes has been the tendency to convert the base brines of the fracturing fluids into these produced brines. Majors like Chevron, (NYSE:CVX) made big steps towards recycling produced brines in their operations, just like others. But that only scratches the surface.

With approximately 5,000 new wells drilled in the Permian on an annual basis, the industry can then absorb approximately 6.5 mm of BoWPD into its fracking operations. This leaves approximately 12.5 mm of BoWPD to be removed, moved to other locations by pipe or truck, or treated to a standard where it could be used in agriculture.

Reinjection has historically been attractive to operators because it is the least expensive method of treating produced brine in excess of what the industry can absorb. The increase in seismicity now seen in the Permian will require new solutions for much of this brine. As noted in the WSJ article, the Texas Rail Road Commission-TRC following a magnitude 5.4 earthquake in Reeves County, imposed injection restrictions in the area. In addition to increased seismicity, there are legitimate concerns about overpressurized escape wells breaking seals in older wells, allowing hydrocarbons to leak out and contaminate adjacent freshwater aquifers. This concern was discussed in the linked WSJ article –

“A growing concern for residents and scientists is that wastewater could migrate into the aging, unplugged wells that dot the Permian by the thousands and contaminate drinking water sources or escape to the surface, where the fluids could damage farms.

Advocacy groups have called on the federal government to review how the state regulates water injection in the region. The Environmental Protection Agency said it would review the groups’ petition.”

Trucking to a location not currently affected by seismic activity is also an option, albeit one that brings more cost and air pollution to the basin. (The Permian was signaled by EPA for noncompliance with air quality regulations.) It is one now used by operators in New Mexico. Disposal wells are more strictly regulated in New Mexico than in Texas, resulting in some 2mm BoWPD being shipped to Texas. With the scrutiny this issue is now receiving from regulators, it’s hard to imagine that this situation will be able to persist much longer.

Finally, we have the treatment/recycling options to clean and desalinate the produced water to a standard that can be used in agricultural applications. Through a process of chemical clarification and reverse osmosis membrane filtration, contaminants and even salts can be removed from the produced brines. This comes with substantially increased costs, but operators may not have a choice if they wish to maintain production.

Fortunately, most of them have embraced this technology. This is good as if the EIA is correct about a 27% increase in production over the next few years, the volumes of water produced will only increase. Also of note, as companies begin to develop Tier II and III areas, water production will begin earlier and trend toward the higher end of the range.

Your takeaway food

Over the past couple of years, I’ve discussed the potential limits to shale growth, particularly in the Permian, in a series of OilPrice articles. Among the issues we looked at were the depletion of Tier I inventory, the driving force behind a lot of M&A activity over the past few years, the decline in drilling activity, and the role technology has played in keeping production high . last Let’s discuss the impact that increased gas production could have on oil drilling.

So far, none of these have done more than cause Permian production to decline. Facing increased amounts of produced water and the associated increased seismicity that Christine Guerrero and the WSJ article documented may be what tips the balance in the Permian.

By David Messler for Oilprice.com

More top reads from Oilprice.com