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Permian needs $9-billion worth of new wells – but not for crude, says analyst.

HOUSTON – As much as $9-billion will be needed over the next decade to dispose of produced water in the world’s busiest shale field, according to Raymond James & Associates Inc.

The scale of the challenge is significant: drillers typically pump 30 Olympic-sized swimming pools of water into an oil well to fracture the surrounding rocks. In return, as much as 10 barrels come rushing back out for every one barrel of crude, Raymond James analyst Marshall Adkins said in a note to clients on Monday.

Given that recycling efforts aren’t robust enough to handle the 17.5 MMbbl of dirty water produced daily in the Permian Basin of West Texas and New Mexico, oil companies have to do something else with all that salty slurry, Adkins said. After all, so-called produced water is 10 times saltier than seawater.

“Most investors are simply unaware of the fact that as crude production grows, produced ‘dirty’ water grows even faster,” he wrote. “As the Permian Basin shifts further into manufacturing mode, the water growth we project will create the need for nearly 1,000 additional salt water disposal wells by 2030.”


Saltwater Disposal Revenue

Saltwater disposal wells generate revenue through fees collected for each barrel of water received for disposal and the sale of oil collected from the water delivered to the Facility. For example: a disposal facility that receives 20,000 barrels per day would generate $400K+ per month in net income factoring 0.5% oil concentration.

Permian Basin H2O

The Permian Basin is actually a water play that happens to produce more oil than anywhere else in the U.S. For every one barrel of oil produced, as many as ten barrels of water are also recovered. This waste water is sent via truck or pipeline to nearby saltwater disposal facilities for disposal.

According to Baker Hughes, as of April 2021 the U.S. Rig Count closed at 439 active rigs with 227 (52%) in the Permian Basin alone. The Energy Information Administration (EIA) predicts that 42,000 new oil and gas wells will be drilled and completed from 2018-2023 in the Permian Basin alone.

These new oil/gas wells will drive the saltwater disposal industry from $2.6 billion (2018) to $4.6 billion by 2023. The total capital spent on water management in the Permian Basin is expected to increase from $12.5 billion (2018) to $22.2 billion by 2023.

The Permian Basin is split into three distinct areas: the Midland Basin, Central Basin and Delaware Basin. The Delaware Basin produces a higher water to oil ratio than the Midland Basin according to the Texas Railroad Commission. The Delaware Basin generates 4-8 barrels of water for every one barrel of oil produced or more while the Midland Basin generates 3-5 barrels of water per barrel of oil on average.

The Permian Basin produces more than 4.8MM barrels of oil per day and 15-20MM barrels of water per day currently. Water production across the trend is expected to increase to 25 million barrels per day by 2023 which presents a significant opportunity to capitalize on the growth ahead.


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