Minimizing Bankruptcy Risk with Efficient Oilfield Water Management

A recent review of 59 North American-focused Independent E&Ps by Oil Pro highlighted the massive $200 billion debt that the industry has accrued in pursuit of tight-oil and shale-gas resources over the past 10 years.

For many years the industry has discussed the importance of the Energy-Water Nexus. This term highlights the interconnection and critical nature of water in energy production and conversely the requirement of energy for water production. Professionals in the upstream energy sector live and work within this Nexus on a daily basis. Water is both the largest input and output within oil and gas operations, and therefore optimization of water management has one of the biggest potential impacts on fiscal performance. According to Xylem, a global water technology company, “…for an industry focused on improving margins, solving water challenges may be the best opportunity to reduce costs [and] improve profitability…”

A recent review of 59 North American-focused Independent E&Ps by Oil Pro highlighted the massive $200 billion debt that the industry has accrued in pursuit of tight-oil and shale-gas resources over the past 10 years. In recent months, oil prices have dropped to historically low values, creating a significant financial burden on many operators. Some operators have cut capital budgets, high-graded assets and pushed for efficiencies throughout all components of their supply chain. Others have not – and as many as 38 E&Ps have subsequently filed for Chapter 11 bankruptcy protection. As water often accounts for as much as 80 percent of a producer’s operating cost, the continued evolution of more efficient water management practices is critical to surviving this economic downturn.

Delivering on increased efficiency within the upstream landscape is not always easy. The Energy Water Initiative (EWI), a collaboration between 12 upstream E&Ps, including Anadarko, BG Group, ConocoPhillips, Devon Energy, Marathon Oil and Southwestern Energy, among others, published a report highlighting best practices from case studies within their US-based operations. One of the six best practices highlights the need for in-house dedicated water management teams. The role of these teams is often to liaise between the drilling, completion and production teams and to coordinate both the price and availability of a variety of water management products and services.

Today significant demand is placed on water management professionals within upstream operations. Tight margins and efficient cost controls are critical to managing service contracts for sourcing, storing, disposing of and transporting water within a company’s operations. Furthermore, an evolving component to the management of water within this ecosystem is finding and executing opportunities to trade and/or sell water and water infrastructure between peers. Further highlighted in the EWI 2015 report on best practices is the opportunity to reuse one company’s produced water as another company’s fracture fluid or enhanced oil recovery (EOR) injection fluids, essentially converting water management from a cost center into a profit center (or at least a break-even). Operating companies can save financial resources by effectively navigating the ecosystem of services more efficiently.

The main driving force in the oil and gas water ecosystem is the energy producer. Interacting with the energy producers are landowners and an array of service providers offering disposal wells, water treatment, water hauling and storage. The nature of the transactions between these players varies based upon specific needs. The diagram below is a graphic illustrating the buying and selling relationships among all the major players.

Source: Eaglefordtexas

Read More Related Content On This Topic - Click Here

Media

Taxonomy

• Produced Water
• Fracking
• Oil & Gas