Summary
- New wastewater permitting rules to raise costs for Texas producers
- Water disposal costs to rise 20-30% in Delaware formation – B3 Insights
- Costly new infrastructure, permit delays to hit small operators most
(Reuters) – New guidelines on permitting for wastewater disposal wells in Texas are threatening to drive oil producers’ costs higher as companies face weak crude prices, marking the latest challenge for the industry that has seen output growth slow as it matures.
The U.S. is the world’s largest oil producer, with output surging to a record 13.4 million barrels per day (bpd) over the past decade as technological advancements allowed companies to tap its vast oil reserves. Growth is slowing, however, as the best resources are depleted, pushing operators into less profitable drilling locations that produce more water.
Get the Latest US Focused Energy News Delivered to You! It’s FREE:
New rules by the state’s energy regulator, the Railroad Commission of Texas (RRC), which took effect June 1, aim to focus produced water disposal permitting efforts on ensuring injected fluids stay in the disposal formations in the Permian Basin, the country’s largest oilfield.
They follow concerns that produced water, a byproduct of oil and gas extraction that operators inject into the ground, could leak out of disposal wells and contaminate ground and surface freshwater.
The new guidelines limit maximum injection pressure at the surface and limit how much water can be injected based on reservoir pressure.
“These stricter Railroad Commission regulations could present operational and financial challenges for Texas oil and gas producers, particularly smaller operators with limited resources,” said Linhua Guan, CEO of Surge Energy America, one of the largest private U.S. crude producers with operations in the Permian.
Produced water gathering and disposal costs will rise roughly 20-30% for parts of the Delaware formation in the Permian Basin, where most injection happens, over the next few years, according to water consultancy, B3 Insights. Costs could hit around 75 cents to $1 per barrel of water, B3 said.
The Delaware sub-basin produces five barrels of water for every barrel of oil, according to Christine Guerrero, a veteran petroleum engineer and strategic advisor to asset manager Octane Investments.
Shallow formation pressure in the Delaware, on average, has increased three times faster since 2018 than in the Midland sub-basin of the Permian, according to B3 Insights, due to huge volumes of water being injected there, helping induce earthquakes.
The new guidelines will likely curb some operators’ local options for saltwater disposal, requiring more infrastructure to transport water over greater distances, and new disposal sites in new regions, according to Jonathon VandenBrand, senior vice president, commercial at Western Midstream, which operates 54 saltwater disposal wells and has 2 million bpd of produced water takeaway capacity in the Delaware.
The guidelines could also require operators to collect additional regional data to satisfy regulatory requirements, with added costs potentially reaching tens or hundreds of thousands of dollars, VandenBrand said, adding this could increase the duration of securing permits, likely affecting smaller operators most.
The new regulations come as producers are already grappling with crude prices that are hovering under $65 a barrel – a level many need to turn a profit – as OPEC+ raises its production and U.S. President Donald Trump’s trade war drives economic concerns.
If oil prices stay low, the rising cost of water management will stress breakeven costs in the peripheral parts of the basin, but less in the core, explained Kelly Bennett, CEO of B3 Insights, adding that some drilling in the less profitable, tier two and three locations will likely be put on pause owing to weak margins.
Some groups argue the new rules are a step in the right direction but there is more to be done.
“While the new guidelines represent an improvement and may aid in identifying potential locations for this breakthrough, they do not go far enough,” said Julie Range, policy manager for Commission Shift, a Texas watchdog group.
Reporting by Georgina McCartney in Houston; Editing by Liz Hampton and Marguerita Choy
Share This:
More News Articles
