We recently wrote about litigation around produced water and its critical mineral content. That is not the only lawsuit surrounding water management. Shale independent Stateline Operating is seeking $180 million in damages from operator Devon Energy and water treatment services provider Aris Water Solutions. It alleges that the large volume of wastewater injection led to contamination of an oil-producing rock layer, hindering crude extraction in its Permian assets.
These growing legal disputes reflect how the oil & gas industry has long grappled with the significant challenge of managing produced water. This challenge is particularly acute in the shale patch. For example, the Permian Basin, the most prolific oil play in the U.S., produces three to five barrels of water for every barrel of oil. Deep underground injection of produced water has been linked to earthquakes. On the contrary, shallow disposal carries a high risk of leaks and blowouts. This growing issue is leading to disputes among operators.
So how can operators effectively manage produced water? The water management value chain in the oilfield is expansive and can be complex. It encompasses everything from sourcing and storage to its use during operations and, finally, the disposal of wastewater, as summarized in Exhibit 1.
Exhibit 1. Water management value chain in the oil & gas industry.
The initial phases of the water management value chain is water sourcing and usage. Horizontal unconventional wells, driven by hydraulic fracturing, demand up to ten times more water than conventional vertical wells. ADI has been working in these areas with operators and water treatment providers on developing water management strategies. We have spoken to several operators in the Permian. Based on our findings, operators typically require 100,000 to 500,000 barrels of water per well for fracking. Moreover, these processes predominantly require freshwater, defined by the U.S. Geological Survey as containing less than 1,000 milligrams per liter (ppm) of total dissolved solids (TDS). It is sourced from surface water, freshwater aquifers, waste, and recycled water.
Exhibit 2. Average water use per well by type of well in million gallons.
Moving on to production, once a well is in production, it yields two types of water: flowback and produced water. Their relative quantities and timeline are shown in Exhibit 3. Each has distinct properties and management requirements. Flowback water comprises 10-40% of injected fracturing fluid. It is easier to treat and often reused due to its predictable composition and lower salinity. On the other hand, produced water is naturally occurring with oil & gas. It is complex, with high salinity, total dissolved solids (TDS), and potentially radioactive materials, necessitating treatment before disposal. Aging wells generate significantly more produced water per barrel of oil over longer periods.
Exhibit 3. Flowback and produced water volumes over the lifetime of an oil & gas well.
The volume of produced water in the U.S. is intensifying as shale plays mature. In some Permian wells, water production can reach 12 barrels of water per barrel of oil. The water-to-oil ratios ranging from 30% to 95%. Exhibit 4 illustrates this growth. It shows water production in the Permian increased from under 8 million barrels per day in 2017 to over 20 million expected in 2025.
Exhibit 4. Water production in the three key shale plays in the U.S. in million barrels per day.
The large quantities of water needed and produced from oilfield operations make water management as critical as oil & gas production today. Water scarcity, rising production volumes, stricter government regulations, and the potential for critical mineral extraction are among the key factors driving interest in produced water management. We discuss these drivers further below:
- First, sourcing freshwater poses significant environmental challenges, especially in the water-scarce Permian. Water needs are growing from industries like long-duration energy storage (LDES), semiconductor manufacturing, and data centers. These further incentivize operators to optimize water use.
- Second, oil & gas production from aging wells and tier-2 acreage is escalating. This has led to a significant increase in water cut and overall water production. These high volumes make optimizing water management crucial, transforming it from a costly burden into a potential revenue stream.
- Third, traditional produced water disposal via wells faces rising environmental scrutiny. This is driving investments in treatment, storage, and reuse within the oilfield. The U.S. EPA is also considering allowing substantially cleaned produced water for applications like power generation, data center cooling, and agricultural irrigation.
- Finally, as ADI has previously discussed, oilfield produced water contains various critical minerals, including lithium, nickel, cobalt, and manganese. The growing interest in extracting these minerals is a significant driver shaping future water management strategies.
The oil & gas industry is actively responding to these drivers. Key Permian operators like APA and EOG Resources have been investing in produced water treatment, storage, and reuse infrastructure. Their efforts are also creating opportunities for the midstream sector and oilfield services companies (OFSEs). The importance of water management is expected to increase long-term. ADI Analytics has extensively assisted stakeholders across the upstream oil and gas value chain, helping them manage this evolving water challenge and capitalize on opportunities. Looking ahead, three key operator needs are critical for water management:
- Cost-effectiveness remains paramount. Operators are highly cost-sensitive and will prioritize the most cost-competitive water management technologies and services.
- Disposal wells persist as a primary method. While likely to evolve for larger operators, wastewater disposal will remain the main form of water management for most in the near term.
- Flowback water reuse will continue to grow. Due to easier treatment and economic choices, a greater share of flowback water is being reused, with operators investing in pipelines to reduce transportation costs.
We have been actively exploring trends that are shaping the oil & gas industries and role of OFSEs. Our recent blogs on artificial lift and wireline services have delved into other critical service offerings. Similar to those offerings, OFSEs will have to address water management issues with scale, innovation, and new business and commercial models.
– Panuswee Dwivedi
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
We also host the ADI Forum that brings c-suite executives together for meaningful dialogue and strategic insights across the oil & gas, energy transition, and chemicals value chains. Learn more about the ADI Forum.
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