For years, shale drillers have struggled with the process of disposing of wastewater from the drilling operation. Private equity firms may hold the solution, and are flocking to the drilling industry to capitalize on an emerging market opportunity. These private equity firms, including WaterBridge Resources LLC, Five Point Energy LLC, and Global Infrastructure Partners, have spearheaded the construction of wastewater pipelines and water disposal wells in oil-producing shale regions.
The Permian Basin
One oil-producing shale region is of particular interest to drillers and private equity firms alike. This region, known as the Permian Basin, sits on the western edge of the United States Mid-Continent Oil Field and spans portions of New Mexico and Texas. The subsurface Basin occupies an area of 75,000 square miles. The Basin gets its name from its concentration of rocks from the Permian geologic period, and is known for its vast oil and gas resources. Approximately 2 million barrels of oil are pumped from the Basin each day. Cumulatively, the Basin has produced nearly 29 billion barrels of oil and 75 trillion cubic feet of natural gas. Traditionally, energy producers have employed vertical drilling methods to recover oil and gas from the deposits, but new technologies such as horizontal drilling and hydraulic fracturing (fracking) have opened new areas to exploitation.
Water Problems for Shale Fracking Operations
In the hydraulic fracturing – commonly known as “fracking” — process of recovering subsurface oil and gas deposits, high pressure fluid is pumped into wells to crack shales and sandstones containing petroleum products. The released oil and natural gas is then pumped out. For shale drillers, this creates significant problems associated with wastewater production. For every gallon of oil extracted from the Permian Basin, five gallons of water are produced. Private equity firms have descended on the region, seeing a multi-billion dollar opportunity in creating a network of injection wells and wastewater pipelines. In fact, an industry group known as the Produced Water Society estimates that there may be as many as six opportunities for billion-dollar companies to handle the wastewater in the Basin.
Today, about 20 percent of all wastewater generated by fracking is outsourced to private equity-backed firms like WaterBridge and Goodnight Midstream LLC. As early as next year, about 50 of the midstream-produced water will be managed by these firms and others as more companies apply their financial resources to the problem.
Financial Overview of the Midstream Water Market
Across the United States, the energy industry has spent approximately $34 billion on wastewater management in 2018 alone. About $12 billion of that figure was spent in the Permian Basin, and the number represents a significant opportunity for private equity investors. Industry analysts indicate that the market will grow to $19 billion by the year 2023. WaterBridge, one of the leading players in the wastewater management market in the Basin, is involved in creating a complex network of wells and pipelines. The company is also purchasing wells and pipelines from shale drillers to expand its wastewater management network.
Benefits of Outsourcing Wastewater Management
For oil and gas producers, outsourcing the management of midstream wastewater has several distinct benefits. The first is that producers’ primary assets are their oil and gas production infrastructure, not wastewater pipelines. Energy investors wary of the high costs of wastewater disposal have pressured energy producers to find a more cost-effective solution. Private equity firms have capitalized on this investor pressure, developing solutions that save millions of dollars in annual costs.
Producers no longer have to spend investor funds on wastewater treatment and disposal – with wastewater that may be laced with chemicals and salt from the fracking process. Private equity-backed wastewater management companies handle all of the aspects of the management process, from treating the water and sending it back to producers for reuse to constructing pipelines, wells, and disposal systems. All told, while outsourcing wastewater management operations still costs producers millions of dollars, this is but a fraction of the costs associated with managing the problem themselves. Private equity firms have identified a unique problem in the energy production industry, and with their financial assets have streamlined the water management process, resulting in billions of dollars in savings for energy investors.