Don Warlick, WarlickEnergy

New horizontal completions require significant volumes of water to fracture shale formations. Typically there may be four million gallons required per well, and in extremely tight shale formations, such as the Eagle Ford in Texas, a unique frac job could call for as much as 13 million gallons. State regulators in Texas are now more focused on forecasted water use in E&P as well as other applications.

When a severe drought hit Texas in 2011, local authorities, trying to preserve water reservoirs, looked to the hydraulic fracturing business as a place to impose water use restrictions. This was done despite the fact that the energy industry in the state has been exempt from many water conservation rules. As a result, on February 1, 2012 a new regulation requires Texas operators to disclose the amount of water required to frac each well (that and other data is now reported at www.fracfocus.org).

So how do upstream oil & gas water needs align with landowners' water rights, water supply, and oversight by regulatory entities and what does it mean for the industry in Texas...and the rest of the country?

Texas landowners historically have been able to pump as much water as they want. In March 2012 the Texas Supreme Court reinforced that notion when it handed down a decision on groundwater rights:  Landowners legally own the groundwater underneath their land and they may be entitled to compensation if state or local regulations limit the amount of groundwater that landowners can use. Many areas are managed by groundwater conservation districts which are empowered to regulate groundwater and to protect future water availability.  Surface water, on the other hand is largely owned by the state and held in trust for citizens. Additionally, many river basins will have their own authorities.

Drillers in Texas buy/lease property to drill wells or contract to buy well water from private individuals. They are allowed to draw as much water as they may need from aquifers because Texas water laws favor oil corporation water rights. However, officials in Grand Prairie, Texas recently declared restrictions that limit water use in industrial and construction operations and prohibit water use for gas well operations (recycled frac water is OK). There is always the chance that other municipal entities could go that route. So far, the new rules have not slowed oil and gas drilling.

Looking to the future, E&P companies operating in Texas are finding workarounds. Some examples:

• Pioneer Natural Resources is tapping water from non-drinkable aquifers to develop its acreage in the Permian Basin.
• Breitling Oil & Gas trucked over three million gallons of water to a drill site 50 miles away saying transportation costs were a small part of the $3.5 million fracing cost for the well.
• Some companies negotiate with nearby towns to use their sewer effluent for fracing.
• The Corpus Christi Water Department is working with the City Council to allow them to lease water from Lake Corpus Christi to companies working in the Eagle Ford. Also involved is the South Texas Water Authority based in Kingsville, Texas.

And, as often happens, adverse conditions lead to innovation:

• More E&P's are utilizing portable processing plants to recycle water in the field. For example, Newfield Exploration recycles more than 80% of the water used in its Granite Wash operations and plans to expand its model to the Eagle Ford and the Anadarko Woodford by sharing facilities with Chesapeake Energy, Linn Energy, Plains E&P and Cordillera Energy.
• Devon Energy has used a mobile distillation system approved by the Texas Railroad Commission to supply recycled water in fracturing certain wells.

• Select Energy Services acquired The Western Company of Texas Inc., a water transfer company with operations in the Bakken, Barnett, Eagle Ford, Granite Wash and Haynesville, as part of a plan to become a leading water solutions provider.
• Chesapeake has a special group dedicated to water issues, working with state and local water resource managers to identify least impactful water sources, permitting and constructing water acquisition and conveyance facilities and exploring water reuse and treatment technologies.
  

Summary:  There are new dynamics to fluids and water management in the upstream oil & gas industry. Both straightforward and innovative solutions are being rolled out to help address challenging issues that impact the development of North American shales.

About the author

Don Warlick is president of WarlickEnergy in Houston, a Houston-based energy intelligence firm. The company publishes a series of special reports on each of the leading US unconventional shales and also provides market research services addressing North American and International oil & gas markets.