November 2019

Water management

Perseverance and legacy
Mark Patton / Hydrozonix

(Dedicated to Belen Patton)

My mother passed away on Oct. 19, 2019, and it changed how I wanted to write this column. There are some virtues that my mom instilled in me through her resilience and persistence. Work hard, don’t stop, and you can achieve anything. With her passing, I also have been spending a lot of time thinking about legacy—her legacy, my legacy and how I honor all of that. Well, that sets the stage for a few things that I think are critical for oilfield water management.

Perseverance. Oilfield water management, as a sector of upstream oil and gas, is booming in a time that has become very challenging for our industry. Many are calling the oil and gas industry “the new tobacco.” Investors are shying away; presidential candidates are calling for bans on hydraulic fracturing, and we now have the door opening to climate change lawsuits.

In the shadow of this public relations nightmare, we’ve seen WaterBridge have one of its larger clients in Halcon declare bankruptcy, and then on the heels of that announcement, Singapore’s GIC makes an equity investment in WaterBridge, giving them a $2.8-billion valuation. TPG announced termination of their $930-million acquisition of Goodnight Midstream, only to have Tailwater triple its investment in Goodnight Midstream with an additional $420 million. Bad news doesn’t stop oilfield water management investment. Even more recently, NGP Energy Capital Management announced the sale of Oilfield Water Logistics for $489.8 million. 

You see, oilfield water is hot in an industry that is having problems. This may puzzle some people, but not if you understand oilfield water management. Produced water-to-oil ratios are increasing. What is currently around 4-to-5 barrels of water for every barrel of oil is growing. Even though drilling and completion activity is slowing, and CAPEX spending is down, efficiency is going up. Oil production isn’t expected to decline, which means even with the lack of investment in drilling and completions, there will still be produced water flowing. 

I’ve heard people say we’re in a water play that produces oil as a by-product. And when you look at a Water Midstream, they’re getting 10-to-15-year contracts. That type of stability in a growing industry is hard to ignore from an investment perspective. And that’s an industry growing while the bigger industry, oil and gas, is seeing investment dollars move away. Now if that changes, and we see an uptick in drilling and completions spending, that means even more growth and more water. 

The stability of Water Midstream contracts and the growth of produced water volumes has led them to trade at higher multiples than the oil and gas industry. A good example of this is Diamondback taking their infrastructure and forming Rattler Midstream. Rattler trades at a higher multiple than Diamondback. This shows how investors are viewing things—they would rather invest in Midstreams with long-term contracts than risk investment in energy with fluctuating oil prices that have stayed fairly depressed lately. This all bodes well for the oilfield water industry, and as a result, will allow it to persevere even in tough times for oil and gas.

Legacy. Let’s talk legacy. Part of what is holding back oil and gas right now is image. The public thinks we consume too much water, flare too much gas, have high emissions, cause seismicity, aren’t environmentally friendly enough, and contribute to climate change. I think we can challenge that image. We are seeing the recycling of produced water increase—this will reduce freshwater demand, and many operators have already eliminated the use of freshwater in favor of brackish supplies. 

In some of the cases where operators are using freshwater, it’s because they are forced to by the landowner. The oilfield water management sector can come to the rescue here, and it’s about what we want our legacy to be. In New Mexico, the “Produced Water Act” allows operators to void freshwater contracts, if they want to recycle produced water. 

It’s time for Texas to take their lead. You see that we need to maximize recycling, because it does eliminate freshwater demand—more produced water is generated than all of the water used for hydraulic fracturing. And every barrel that we recycle means that much less water being injected in disposal wells, thereby reducing the risk of seismicity.

What about flaring? We, as a company, are rolling out a flare gas emission control system that reduces emissions with produced water while evaporating it—we call it HYDROFLARE. There is an opportunity here for the oilfield water management industry. We can help eliminate some of the negative publicity by promoting our success with recycling produced water, as we reduce and hopefully eliminate the use of freshwater; some operators have already accomplished this. 

Then, we need to shout it from the rooftops until the investment community, and public as a whole begin to listen, but even if they don’t, we need to continue on the path of greening our industry. We are already making great progress, but we aren’t very good at promoting our successes. If we care about our industry, then we need to make it more sustainable. By making it more sustainable, it will be a more attractive investment, and with any growth, we will see more produced water. 

I challenge everybody in the oilfield water industry to look for opportunities to make our industry more sustainable, greener and more environmentally friendly. This can be done without increasing cost. We did it by using ozone to replace liquid oxidizers. I’m not saying increase cost, I’m saying reduce cost and decrease the carbon footprint. We, as a company, are taking this challenge seriously, because at the end of the day, what do you want your legacy to be?

About the Authors
Mark Patton
Mark Patton is president of Hydrozonix and has more than 30 years of experience developing water and waste treatment systems for the oil and gas industry. This includes design, permitting and operation of commercial and private treatment systems, both nationally and internationally. He has seven produced water patents and two patents pending. He earned his B.S. in chemical engineering from the University of Southern California (USC) in 1985.
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