Water Midstream Services Industry
[Source: Oasis Midstream S-1, May 2017]
Fluids management and production by-product management is a critical process in the oil and natural gas production cycle as several by-products are typically generated during drilling and completion of, and production from, oil and natural gas wells. Produced water is the largest volume by-product associated with oil and natural gas exploration and production.
Per North Dakota Department of Mineral Resources, approximately 452 million barrels of produced water were generated in 2016 in North Dakota from over 11,000 producing wells on average throughout the year. This is forecasted to grow in the key U.S. lower-48 production basins, including the Williston Basin, driven by the development of unconventional resource plays. Continued growth of produced water volumes is tied to the constant increase of new wells coming online and changes to hydraulic fracturing techniques.
The SWD process typically involves transportation, processing and disposal facilities, including the process of disposing of produced water in SWD wells. We are directly engaged in the gathering, transportation and disposal of produced water in SWD wells.
Freshwater, when used in the hydraulic fracturing process, is integral to the completion of wells for production. Hydraulic fracturing is a well stimulation process that utilizes large volumes of freshwater and sand (or another proppant) combined with fracturing chemical additives that are pumped at high pressure to crack open previously impenetrable rock and release hydrocarbons. Freshwater refers to water that has been treated and also to water that has been withdrawn from a river or ground water. Although some larger producers have (or have begun construction of) freshwater systems, many other producers still rely on third-party providers for distribution services. Providers range from independent, dedicated trucking providers to consolidated service companies that provide a full range of oilfield services, including freshwater distribution. Freshwater distribution also includes the supply of freshwater used during production operations to flush out existing wells in order to prevent downhole scaling.
Water Midstream Services
Produced Water. Oil and natural gas operations produce two primary types of produced water by-products:
Produced Water from the Reservoir. Produced water is water that naturally occurs in the formation that returns up to the surface over the life of a producing oil or natural gas well. Produced water must be continually separated from a well’s valuable oil and natural gas production and hauled away via truck or pipeline for a well to stay in production. Produced water is the largest by-product by volume associated with oil and natural gas production and can comprise of over 20% of the volume of total liquids produced from a well over time and over 95% of the total oilfield by-product by volume.
Flowback. In the drilling and completion stages of oil and natural gas production, large volumes of water and other types of fluids are required. Hydraulic fracturing is a key component of the completion stage of an oil and natural gas well that requires large quantities of water. After the water is pumped into the well, it returns to the surface over time. Ten to fifty percent of the water returns as “flowback” during the first several weeks following the fracturing process, and a large percentage of the remainder, as well as pre-existing water in the formation, returns to the surface as produced water over the life of the well.
Transportation of Produced Water. The produced water disposal process involves transporting produced water from an oil or natural gas well to a disposal site. The produced water is typically transported by either pipelines or trucks.
Pipelines. Pipelines, also called gathering systems, are a method for transporting produced water from the well location to the SWD facility. The initial capital costs to build the infrastructure for piping produced water are greater than the capital costs of transporting the produced water by truck, but the operating expenses after the pipeline is constructed can be significantly lower. Additionally, the net economics of transporting produced water by pipeline over the lifespan of an oil or natural gas well can be substantially superior, especially for long-lived wells.
Trucking. Trucking is the most common method of transporting produced water in the industry due to capital requirements and construction timelines for developing pipeline infrastructure. Trucking has the advantages of lower capital costs for the producer compared to pipelines and the ability to easily access multiple SWD facilities. However, operating expenses associated with trucking (such as labor and fuel costs), business interruption, costs of complying with various local regulations, insurance and costs related to road repairs and accidents can be significant. In addition, the service reliability of trucking is generally lower because uncontrollable events, such as weather and road repairs, may limit the ability of trucks to drive to the wellsite to gather production.
SWD Facilities/SWD Wells. The primary methods for handling produced water and flowback include U.S. EPA Class II SWD wells, where produced water and flowback are treated and injected subsurface; evaporation pits, where the water is evaporated at the surface; and recycling facilities, where produced water and flowback are treated in a manner that allows some portion of the water to be recycled for future fracturing processes or other beneficial uses.
In all cases, the produced water and flowback must be processed and disposed of in a manner consistent with applicable environmental regulations. The manner in which the disposal process is performed is dictated in part by local regulations that can vary from region to region or state to state. As a result of these regulatory requirements and the level of expertise required to properly process and dispose of produced water, producers are requiring increased compliance expertise and operational experience from their service providers.
Transportation of Freshwater. There are two primary methods of transporting freshwater from a source to a well location:
Pipelines. The initial capital costs to build pipeline infrastructure for freshwater distribution systems are significantly greater than the capital costs of transporting freshwater by truck, but the operating expenses for operators after pipelines are constructed are typically significantly lower. Following construction, the most significant ongoing costs of a pipeline system are personnel and pumping costs. Because Oasis’s acreage is located in large blocks in the core areas of the Williston Basin, we are able to use our pipeline systems to efficiently distribute freshwater for certain of Oasis’s well completions.
Trucking. Trucking has the advantage of lower up-front capital costs for the producer compared to pipelines. However, operating expenses associated with trucking (such as labor and fuel costs), costs of complying with various local regulations, insurance and costs related to road repairs and accidents can be significant. We currently do not plan to distribute freshwater via trucking to Oasis or any other producer.