Exploration and production (E&P) companies, particularly in West Texas, appear to be in a bit of a conundrum. Amid an increase in seismic activity related to Lower 48 development, producers stand to lose nearly half of their disposal capacity in key basins at the same time the amount of water they are leaving untreated is set to rise.

produced water graph

A recent analysis by Rystad Energy found that the amount of treated water in U.S. onshore oilfields rose to 1.9 billion barrels in 2021, up from 1.6 billion in 2020. Over the next five years, Rystad expects treated water volumes to fluctuate from 2-2.2 billion barrels.

When the water is treated, saltwater disposal (SWD) that is injected underground, which has been linked to greater earthquake activity, is avoided.

“However, what the expected rise in the absolute volume of treated water does not show is the amount of untreated water leftover, which is in line to reach an all-time high of 20.9 billion barrels in 2022 and then to steadily grow to 21.6 billion barrels in 2026,” Rystad senior analyst Ryan Hassler said.

In percentage terms, treated volumes reached their highest level in 2018 and 2019, representing 9.4% and 9.6% of total produced water volumes, respectively, according to Rystad. The Oslo-based consultancy’s outlook through 2026 showed that such lofty levels are not to be met again. 

In 2020, the percentage of treated water fell to 7.6%. In 2021, it reached 8.9%, and between 2022 and 2026 is set to fluctuate between 8.7% and 9.2%.

“The trend is cause for concern, especially in the light of the boom in West Texas’ earthquake activity,” Hassler said. Rystad’s seismic data indicated that earthquakes in the Permian Basin of West Texas of more than 2.0 magnitude almost doubled in 2021, to 1,929 from 1,110. Culberson County alone experienced an increase of 112% year/year, while Martin, Howard and Midland counties observed similar increases.

A tremor in late December, about 11 miles north of Stanton, clocked in at a magnitude of 4.5.

Regulatory Action

The rise in quakes also has caught the attention of Texas regulators. Last month, the Railroad Commission of Texas (RRC) suspended all disposal well permits to inject oil and gas waste into deep strata within a portion of the Permian following a series of earthquakes.

The action, which took effect at the end of December, applies to 33 deep disposal wells operated by 14 E&Ps within the boundaries of the Gardendale Seismic Response Area (SRA). The area includes northeastern Ector County to southwest Martin County.

Injections also were suspended as of mid-December in a smaller area within the Gardendale SRA, and other limitations have been put in place in Northern Culberson and Reeves counties.

Rystad said of the 33 wells, 25 were active, two were inactive and six had been permitted but were awaiting drilling services. 

Of the 14 operators, ConocoPhillips experienced the largest loss of disposal capacity, with a total of 186,000 barrels shuttered. Rattler Midstream LP followed at 150,000 barrels, and Wasser Operating LLC and Fasken Oil and Ranch Ltd. each had a loss of 120,000 barrels of permitted disposal capacity.

The RRC also has identified three additional Seismic Investigation Regions (SIR). These are regions it deems are at high risk of getting upgraded to SRA status, resulting in effective capacity reductions, moratoriums on all new permits and potential suspensions as in the Gardendale.

“All told, the Texas RRC has reduced the SWD capacity within the SRAs by half under the current guidelines,” Hassler said. “Operators and water midstreams including ConocoPhillips, Rattler Midstream, NGL Energy Partners, Coterra Energy and Chevron stand to lose upwards of 50% of their disposal capacity in key acreage positions.”

Alternatives

With oil prices seen driving increased production this year, produced water volumes also are expected to grow. Rystad expects produced water levels in U.S. onshore oilfields to return to the all-time-high of 22.9 billion barrels this year, an 8% rise from 2021.

Furthermore, new records are expected to be set beginning next year, with produced water volumes hitting 23 billion barrels. They should further grow to 23.8 billion barrels in 2026. Hydraulic fracturing activity alone is seen rising 7% in 2022, according to Rystad.

Disposed water volumes are expected to rise, too, particularly in the Permian and Denver-Julesburg Basin in Eastern Colorado. Rystad is forecasting that disposed water volumes would increase to 13.4 billion barrels by 2026, up from 11.5 billion barrels in 2021.

Given the current regulatory environment and the potential to enact even more restrictive measures, the cost of disposing of a barrel of water in the Permian may only increase, according to Rystad. Options exist outside of treatment, such as piping longer distances to under-utilized SWD wells in adjacent acreage – or even further distances outside the basin into the Central Basin Platform where minimal seismic risk exists.

“Of course, the cost dictates the adoption of such solutions,” Hassler said. “The best way to hedge against regulation and cost is to invest now in the recycling network needed to handle future barrels of water.”

In the most recent round of sustainability reporting, many operators have been more transparent about their water stewardship, according to the analyst. He said E&Ps reported standardized metrics for the investment community to analyze. In 2022, there are likely to be even more frameworks established to calculate scores on environmental, social and governance initiatives, and to benchmark operators on their water management practices, much like on emissions.

“Investments need to be made today to get ahead of the curve and position well for 2022,” Hassler said.