Jan 27, 2017

Written by Piers Wells - Managing Director, Scott Rothbarth - Data Analyst, and Forrest Webb - Lead Data Scientist

Renewed Demand Combined With Less Salt Water Disposal Capacity As We Enter 2017

Oil and NatGas Price Increase Graph

Recent low oil prices put stress on the Permian Basin petroleum industry. Projects were canceled, staff reduced, and strategies have been adjusted. During that time, however, hydrocarbon and water production in the Permian remained high, when compared to historical volumes, due to the large volume of newly completed wells from 2012-2014. Also during this period, the number of newly completed Salt Water Disposal (SWD) wells has slowed  (Figure 3) . As a result SWD pressure utilization, in the Delaware Basin in particular, has risen in response to sustained produced water disposal demand. More recently, oil prices have rebounded bringing higher rig counts and new completion activity. Permian Basin Rig Count RiseWe believe that these activity trends will continue to be demand drivers for renewed produced water volume growth and increasing demand for SWD capacity as 2017 unfolds (Figures 1 and 2).

Drilled but Uncompleted (DUC) Well Inventory Is Being Drawndown

Recent low oil prices created an incentive for many operators to drill but not complete wells. This lead to a build-up of a significant well inventory backlog in anticipation of more favorable prices and well-economics. The recent oil price recovery has already begun to reverse this trend. Our data shows that the DUC well inventory has begun to decline. In September of 2016, we estimated that there were 857 drilled but uncompleted wells in the Permian Basin. Monthly Salt Water Disposal Well (SWD) Completions in the PermianAs of January 2017, we currently estimate that the number of DUCs has fallen to 792, with the majority of completion activity occurring in the Midland sub-basin (Figure 4).

Additional Disposal Capacity Constraints Are Anticipated in 2017

While completion activity has begun to ramp back up, SWD capacity in the Permian Basin is already constrained in key areas. The average pressure utilization in 2016 for SWDs was 65 percent, and many disposal wells reported utilization approaching 100 percent. Using a proprietary predictive methodology, we have estimated available disposal volume capacity, as measured by pressure utilization, and we have forecasted those capacities based on our estimated increases in produced water volume in the coming months.Permian DUC Analysis September Through January Renewed completion activity, continued DUC inventory drawdown, and historically high legacy well produced water volumes will drive demand for additional SWD capacity.

However, given the recent slowdown in new available SWD capacity, even a moderate uptick in produced water volumes in 2017 could create near-term challenges for the industry and lead to increasing water costs until new disposal capacity comes online (the mean time from permit filling to first injection is approximately 400 days). Assuming that oil market prices continue to rebound, water production in the Permian could increase by as much as 50 million barrels per month. Based on this increased production, we estimate that approximately 70 million barrels of produced water will need to be diverted from current disposal facilities to new facilities or diverted for re-use or alternative use. 

Using a proprietary data model and predictive algorithms,Permian SWD Available Monthly Volume Capacity (July 2017) Digital H2O’s Water Asset Intelligence™ platform provides insight into water disposal in the Permian Basin. The digital, interactive mapping solution and exceptional data modeling and visualization enables cost effective and sustainable use of water in oil and gas production. Click here to learn more or request a demo of Water Asset Intelligence.