For many years the industry has discussed the importance of the Energy-Water Nexus. This term highlights the interconnection and critical nature of water in energy production and conversely the requirement of energy for water production. Professionals in the upstream energy sector live and work within this Nexus on a daily basis. Water is both the largest input and output within oil and gas operations, and therefore optimization of water management has one of the biggest potential impacts on fiscal performance. According to Xylem, a global water technology company, “…for an industry focused on improving margins, solving water challenges may be the best opportunity to reduce costs [and] improve profitability…”
A recent review of 59 North American-focused Independent E&Ps by Oil Pro highlighted the massive $200 billion debt that the industry has accrued in pursuit of tight-oil and shale-gas resources over the past 10 years. In recent months, oil prices have dropped to historically low values, creating a significant financial burden on many operators. Some operators have cut capital budgets, high-graded assets and pushed for efficiencies throughout all components of their supply chain. Others have not – and as many as 38 E&Ps have subsequently filed for Chapter 11 bankruptcy protection. As water often accounts for as much as 80 percent of a producer’s operating cost, the continued evolution of more efficient water management practices is critical to surviving this economic downturn.
Delivering on increased efficiency within the upstream landscape is not always easy. The Energy Water Initiative (EWI), a collaboration between 12 upstream E&Ps, including Anadarko, BG Group, ConocoPhillips, Devon Energy, Marathon Oil and Southwestern Energy, among others, published a report highlighting best practices from case studies within their US-based operations. One of the six best practices highlights the need for in-house dedicated water management teams. The role of these teams is often to liaise between the drilling, completion and production teams and to coordinate both the price and availability of a variety of water management products and services.
Today significant demand is placed on water management professionals within upstream operations. Tight margins and efficient cost controls are critical to managing service contracts for sourcing, storing, disposing of and transporting water within a company’s operations. Furthermore, an evolving component to the management of water within this ecosystem is finding and executing opportunities to trade and/or sell water and water infrastructure between peers. Further highlighted in the EWI 2015 report on best practices is the opportunity to reuse one company’s produced water as another company’s fracture fluid or enhanced oil recovery (EOR) injection fluids, essentially converting water management from a cost center into a profit center (or at least a break-even). Operating companies can save financial resources by effectively navigating the ecosystem of services more efficiently.
The main driving force in the oil and gas water ecosystem is the energy producer. Interacting with the energy producers are landowners and an array of service providers offering disposal wells, water treatment, water hauling and storage. The nature of the transactions between these players varies based upon specific needs. The diagram below is a graphic illustrating the buying and selling relationships among all the major players.
Landowners and water treatment facilities sell water to E&Ps and service companies. Service companies sell water to E&Ps.
Water treatment facilities sell water to E&Ps and service companies. They also sell disposal services to energy producers and service companies, which they can outsource to other disposal companies as needed.
Storage facilities sell disposal services to other service companies, which they can outsource to disposal other companies as needed.
Service companies sell water to E&Ps. They buy water from water treatment companies as well as landowners. Service companies also sell disposal services to E&Ps, which they can outsource to water treatment companies or other disposal companies.
Disposal well companies sell disposal services to E&Ps, water treatment and storage companies.
E&P companies have by far the most relationships of all the players in the oil and gas water ecosystem. They buy water from landowners, water treatment companies and service companies. E&Ps buy disposal services from disposal well companies, storage companies, water treatment facilities and service companies. They can even buy and sell disposal and water to other E&Ps.
Traditionally, water management takes place over the phone. Companies have to call around to compare best prices and find available water and services that fit their timelines. Unfortunately, due to the nature of the ecosystem, companies also have to constantly renegotiate changing schedules. Digitizing the process allows companies to plan ahead to make adjustments easily without having to get someone on the phone. This saves both time and money.
Sourcewater.com, a spinout from MIT’s Energy Ventures program, recognized the value of digitizing and automating water management processes in an online marketplace format to increase efficiency and improve price and availability information among many constantly shifting options, thereby conserving valuable time and financial resources in the industry without requiring any additional capital investment to do so. Internet marketplaces have revolutionized a number of industries, most obviously the travel industry, where airfare and hotel companies have been able to maximize their utilization and therefore make higher profits on lower prices by filling seats and rooms and achieving sales targets at lower sales and marketing cost. At the same time, consumers have been able to obtain lower average prices and thus spend less overall, obtaining optimal results in minutes, versus requiring hours or days of telephone calls to obtain information and make the optimal decision among many choices. Indeed, management time savings enabled by an Internet marketplace for water services procurement has become markedly more important in the energy industry as the ongoing industry contraction has left fewer people doing more work, making technology tools for time efficiencies more important than ever.
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With over 1,400 companies now registered on Sourcewater, optimization of water and water services has never been easier. The marketplace has over one billion barrels of water available for sale, recycling or disposal. Sourcewater founding CEO Joshua Adler has stated, “Our goal is to reduce the cost of water management for oil and gas producers, while increasing the utilization of operator infrastructure and service capacity. Every day, available trucking and disposal capacity goes to waste, like an unsold plane seat or hotel room. We use the Internet to create a more efficient marketplace that allows operators to pay lower prices in less time while service companies sell more of their capacity with lower sales cost. Sourcewater thereby reduces the overall cost of water management for the entire industry. It’s a win-win for the industry in a difficult time.”
Find out more about Sourcewater’s online water management platform by visiting their website, calling 713-909-4664, or emailing [email protected].