Among the many challenges operators face in this down-market, produced water management remains their single largest operating expense. Across the board, onshore E&P’s have significantly reduced capital investment – rig counts are down and operators have high-graded assets. Yet, while ongoing declines in the price of oil further suppress drilling and completion activity, the constant stream of produced water from continuing operations may be sufficient to sustain some players in the water-services ecosystem. In times like these, only the lean will survive.
While the Marcellus is well known for regulatory constraints that limit saltwater disposal options within Pennsylvania, market forces have driven a very competitive landscape for hauling and disposal within the neighboring state of Ohio. However, today only 31 rigs are operating in the Marcellus, down almost 60% from last year. As a result, the total volumes of drilling muds, flowback and produced water generated in this region is significantly lower, creating an unprecedented over-supply of water-management, hauling and disposal services.
In this corner of the Marcellus, the future growth potential for produced water management remains inextricably linked to the price of crude oil and natural gas. At the time of print, oil prices settled below $28 per barrel, and natural gas is stable around $2.10 per million BTU. With most wells in the play reporting break-even prices around $3.00 per million BTU of natural gas, many operators have shut-in wells or wells awaiting completion. Driven primarily by the need to maintain leasehold agreements, a handful of operators have maintained some drilling and completion activity. However, recently Cabot Oil & Gas Corporation, Consol Energy, EQT Corporation, Seneca Resources and Southwestern Energy Company have all indicated plans to either halt new drilling or at a minimum further reduce active rigs. The impact of this on the water service sector in SW Marcellus is, quite frankly, devastating.
There were over 50 active rigs in Pennsylvania two years ago compared to less than 20 today. Energy insight firm IHS reports a “gloomy outlook,” indicating operators will have to cut budgets in half in order to stay afloat. In short, water services in this region will be cut short, too. Once operating at full capacity, Ohio-based saltwater disposal operators receiving wastewater from Pennsylvania are now reporting 25-50 percent reductions in volumetric input.
A leading provider of saltwater disposal services in Ohio is currently experiencing an all-too-common response to these challenging market dynamics. The total volume of fluid available in the existing geographic market has been greatly reduced. Here, some customers are engaging in direct peer-to-peer reuse of water. There is fierce competition between service providers in the region for the smaller volumes of produced water hauled for disposal. For this SWD service provider in Ohio the significant reduction in wastewater volumes and the poor outlook in future demand have necessitated significant reductions in force – most notably a 60% reduction in sales and marketing staff.
On the other side of the water-management equation, an independent producer in the region has curtailed drilling and completion activity. The operator no longer has a home for its own produced water as frack fluid makes up a portion of the water within its operations. When this operator was engaged in the manufacturing-style drilling and completion of wells within its leasehold, a dedicated water manager was a key resource to prevent interruptions to its operations. This person maintained a network of connections to service providers and was critically responsible for ensuring fracking crews had the supplies of water available for their program, while also managing produced water from wells in the region. Today, many operators are combining the role of water-management with production engineer or even office management.
The two preceding situations are typical examples of customers that the Sourcewater platform connects on a daily basis. Sourcewater enables SWD companies to list available capacity on their online exchange, enabling operators with water disposal needs to identify service providers with whom they could work.
A recent SWD customer in Ohio said, “Sourcewater is like having a sales team out there helping you. It’s like having a salesperson who’s not on your payroll.” During this downturn for the sector, Sourcewater enables service providers and operators to accomplish more, with fewer resources. Sourcewater matches energy companies with produced water and freshwater sources as well as disposal service providers and hauling.
Sourcewater is the Water Exchange for the Energy Ecosystem™, the first online marketplace for sourcing, transporting, recycling and disposing of water for oil and gas production. Sourcewater launched in 2015 and has already registered over 200 companies as users, including many of the leading E&Ps. Over one billion barrels of water are now listed online for sale, recycling or disposal. Founder Joshua Adler is a serial entrepreneur who also served as a senior official for the U.S. Treasury Department. He is a graduate of Yale University and the Massachusetts Institute of Technology, where he was a Sloan Fellow for Innovation and Global Leadership in Energy Ventures.