Aris Takes on the Permian’s ‘Wall of Water’

The Permian Basin churns out more than 20 MMbbl/d of produced water, according to some estimates. It’s a massive volume that has more than doubled in seven years with no end in sight.

There are all kinds of seismicity, takeaway, cost and regulatory concerns associated with a metaphorical, produced water tsunami. But there also are potential solutions, including long-haul pipelines, recycling, critical minerals extraction, beneficial reuse for agricultural crops and more.

Aris Water Solutions has grown into a top water solutions player in the Permian. President and CEO Amanda Brock is ringing the alarm bells about the rising water challenges, but she’s also ensuring the answers are attainable—at a cost.

Brock discussed the Permian’s water questions and answers with Oil and Gas Investor contributing editor Jordan Blum.

Jordan Blum: On a personal and professional basis, I was curious on what led you to the water niche of the energy sector? And how are you enjoying taking the lead in this increasingly important part of the business?

Amanda Brock: I guess I’ve always been in infrastructure, but the water element of infrastructure has always been ignored. It’s been unsexy. It’s been a necessary evil or a waste. As you think about where we are in focusing on the minimization of waste, whether it’s because of climatic impacts, whether it’s because of just limited resources, then you look at water scarcity and people beginning to take more note of the fact that water is not priced appropriately. I think it’s just an incredibly challenging, yet exciting area to be.

Years ago, I was invited to be the innovation speaker at Gastech in Abu Dhabi, and I thought I just had the best thing to say, which was, “If you have no oil and gas, you’re going to innovate. If you have no water, you’re going to die.” It’s as stark as that. Playing a meaningful role in the pricing, delivery and reuse of water in our current industrial environment is a wonderful opportunity to make a difference.

JB: Water is becoming less unsexy, as you said, and people are understanding the challenges more. But, as of today, how would you describe, especially in the Permian Basin, how much water challenges are still being overlooked? And is water one of the biggest hindrances to production growth?

AB: There is one indisputable fact—the Permian is arid and basically a desert. The aquifers in the Permian do not recharge. There are no large bodies of surface water. Yet this industry, particularly with the advent of hydraulic fracturing, uses large quantities of water, but then it has the benefit of also producing large quantities of water. The produced water, not specific to the Permian, but to all basins, was viewed as a waste. “Somebody, come and take it away. All I want is secure takeaway.”

In the Permian, it’s exacerbated by a couple of things. One, there was no infrastructure until more recently when the Permian began to go into manufacturing mode. Two, in manufacturing mode, the concept of this waste became more challenging. There was so much water to take away and to dispose of, and there was so much water needed to continue to operate.

For somebody like us coming in and saying, “We are going to deliver a comprehensive solution to you, which is to take your water and to recycle as much of it as we can so that you can actually use in your completions the water that is being produced by the industry.” When we started, that’s exactly what we wanted to do. When we began, it was still sort of viewed as a waste: “If it doesn’t impact my fracking chemistry and it doesn’t hinder my timing, then I’ll use my water.”

And then to where we are today, which is the demand from the operators to use as much recycled water as they can because we have proven that it is safe. It can be delivered to where they want it in the quantity and quality they need it. So, I think there is a much greater appreciation in the industry of the importance of water because, if you have no secure takeaway and if you don’t have water for completions, it’s impacting your own extraction and ability to continue to grow and exploit your minerals.

JB: I know it’s changing every day, but how reluctant still are the producers to pay the extra bucks for the infrastructure and the recycled water capacity?

AB: It is not so much the recycled water because, if you think about what water they would use otherwise, it would be brackish or freshwater that would have to be piped to them over fairly long distances depending on where they are. So, we can very cost-effectively provide them with recycled water. The bigger issue is disposal, the amount of infrastructure that is needed to address this wall of water and the cost of that infrastructure is increasing. It started with, “Please, take my waste away.” Well, that waste, finishing up last year, is now approximately 21 MMbbl/d. There’s 21 MMbbl/d of produced water in the Permian that has to go away every single day, and that is an astonishing number. By 2030, the estimate is that’s going to be 30 MMbbl/d. Water intensity is increasing. Where’s it going to go? Who’s going to take it away? Who’s responsible for it? It can’t be compressed. It can’t be flared like gas.

So, anything that constrains that takeaway or redelivery of water for completions is now being looked at. But you’re competing on LOE, right? Everybody wants to do it as cheaply as possible, but there is a growing realization, particularly with the challenges that are arising from the handling of this wall of water, that rates are going to have to go up. The bottom line is, without this water infrastructure to support their operations, their operations will be significantly impacted in a negative way.

JB: Can you describe a bit more just the scale of the infrastructure that is needed and what Aris’ plans are to fill the gap?

AB: From the beginning, we’ve always approached this as delivering comprehensive water solutions. We’ll take water away; we’ll bring water back. There are companies out there that just deal with takeaway, and somebody else comes to deal with completions. We believe that somebody who had a system that could take all this water away across a large geography could also then move water to where it was needed for recycling with the optionality to give it back to other operators who might need it at a different time. You were able to manage peaks, you were able to increase utilization and, basically, deliver a more holistic service to the companies like our customers. Our largest customers are Chevron and ConocoPhillips—Conoco also happens to be our largest shareholder. We could do that in a way that was proven so there would be greater adoption.

In our system today, we have over 800 miles of pipe. We have 1.5 MMbbl/d of recycling capacity, and we have 1.8 MMbbl/d of disposal capacity. That’s us. I’ve just told you that there’s 21 MMbbl/d. In our geographic area, we are fine, but there’s a much larger geographic area. There’s an entity called B3 [Insight] that’s predicting there will be a shortfall of disposal capacity going into the future. Companies who look ahead are beginning to say, “I have to secure avenues for disposal and to ensure that I’ve got water for completions if I am going to meet my projections that I’m telling my shareholders.” So, there’s a lot more inventory planning and infrastructure planning because there’s not enough infrastructure today to support the growth of water that is coming.

JB: Can I get you to describe the Midland versus Delaware challenges and how they vary?

AB: Some of the differences are regulatory to the extent that the northern Delaware is in New Mexico, and the regulatory environment between the two states is fairly significant. I think it is important to realize that New Mexico, northern Delaware, your land ownership and your water ownership is different. You have fee land, you have the BLM (U.S. Bureau of Land Management), and you have state. Water is an adjudicated water right. So, just because you have water below your land, it doesn’t mean you can sell it to the oil and gas companies. In fact, you can’t unless it is allocated to industrial water, and that is being limited.

In Texas, you have fee land, and you have the rule of capture, which means below the land I own, if I have water, I can suck up as much as I want and sell it to you. The likelihood of the landowner wanting you, Mr. Operator, to bring somebody else’s water onto his land is low, particularly if he doesn’t have a mineral interest. Everybody wants to maximize their assets, and so your ability to build large systems, like we did in the northern Delaware and New Mexico, is hampered. It is also, as you said, an older basin. It’s much more fragmented, not only by the land ownership, but by virtue of the mineral ownership and the ability to create systems, which lend themselves to greater efficiency.

JB: Obviously, there’s the issues with seismic events for the disposal of water, but can you talk about how that’s leading to more shallow injections and creating additional challenges? And can you elaborate on the lack of pore space?

AB: The industry has taken actions to address the seismic activity. We’ll focus primarily here on Texas. With increased seismic activity and with increased scrutiny, particularly when the seismic activity occurs in the city of Midland and it shakes people up, the Railroad Commission [of Texas] has been very pragmatic in the ways they have worked with industry to have industry-led solutions. They’re able to manage wanting to continue to get the royalty stream from the minerals, which obviously supports education and other benefits in Texas. In New Mexico, it supports massive programs. So, the industry has moved to more shallow injection.

They’ve also constrained activity in certain areas of high seismic activity. But, by virtue of moving more to shallow, working with the regulators, you have seen a positive impact on both the severity and the number of seismic events in some of these areas that we’ve been focused on. The bottom line is Culberson [County, Texas], for example, if you look at the seismic activity, it has decreased as operators have moved to shallow wells. So, it appears that deep injection was contributing more to greater seismic activity in these areas.

JB: But there’s only room for so much shallow injection as well, right?

AB: There is, especially when you have got this much water. Of course, you raised the word pore space. Everybody is focused on whether there’s going to be enough pore space. What you are looking at is subsurface geology and all of this water that needs to be put somewhere, and what will that long-term impact and effect be? The regulators are looking at that, as well. What people are doing is planning ahead. If, in fact, your pore space becomes more constrained or there is a localized impact associated with injection, where else can you go?

That helps people like us. We have a system and a big geographic footprint, so operators like to work with someone like us where you can disperse this water over large areas of disposal. That is a tailwind for us. But, long term, people are looking at if there are other places outside of the productive basin where they can send water longer distances.

That goes to the question of the long-haul pipeline. Are people looking at long-haul pipelines? And the answer is absolutely yes. They are buying land; they are permitting rights of way. They are working with the majors and others who tend to think longer term to ensure that, in the future, they have future places to disperse.

JB: Can you give an example of how far away water is dispersed now?

AB: When you have a large system or you have long pipelines, once it hits the pipeline, it’s commingled. It is a function of disbursement, but the answer is some of this water is going 20 miles or more and, in the long-haul pipelines, it might go 50 miles or more.

JB: Can I get your take a bit more on what you’d like to see changed on a regulatory basis?

AB: We want regulatory certainty. We want regulations to keep up with the pace of change, and we want regulators to be pragmatic and collaborative. In many areas they are, but this water challenge is such that regulators are concerned about what the long-term impacts and effects may be. When we are working on things such as beneficial reuse, which is one of the tools in a toolbox, if you’ve got all this water you can dispose, can you also clean this water and use it for other ways?

Well, cleaning it and using it and how you use it has to be permitted. Keeping up with what we are doing so that we know that we will be able to discharge this water and, once cleaned, that this water will be treated as clean water rather than continue to be treated as a waste with different rules. These are the things that we look forward to having certainty on, and to working with the regulators to speed up what the industry needs to be responsive, and be able to deal with these challenges.

JB: I think this fits in with some of the technology consortium work you’re doing. Can you touch on your partners there, and what you’re focused on at the moment?

AB: We did a joint industry consortium originally with Chevron, Conoco and Exxon, joined [later] by Coterra [Energy]. In phase two, to be joined by others, we have led that consortium to conduct a very large pilot with different technologies. There are technologies to clean this water to drinking water levels. Any water in the world can be cleaned to drinking water. It’s just a function of how much it is going to cost. We have tested different technologies. We are now going to larger scale with certain technologies. We know [about] what it’s going to cost us to treat water for agriculture, for aquifer recovery, for discharge environmentally into a river where it does not impact in any negative way the condition of that river. The technology is there. We’ve made great strides. We continue to work closely with our partners. We are also looking at mineral extraction. We are also looking at water credits and other ways that we can find offsets, which in fact will help pay for the extra cost of treating this water versus just disposing of it. We are very encouraged by what we have seen, and we are rapidly moving toward adding beneficial reuse if the regulations support it to be a tool in the toolbox to minimize disposal.

JB: You brought up mineral extraction. Can you elaborate on some of the minerals in the Permian, especially since it’s such a hot topic in this country?

AB: It is. Some of it is because you’ve got this water, and it’s a waste. OK, I want to make it an asset. What’s in this water that could be extracted that would be beneficial? Because, extracting it from the water, you don’t have to get a permit for that. For example, you’ve seen us talk about iodine, and we are siting some iodine facilities. Working with iodine miners, manufacturers, we will have iodine facilities in the Permian by year-end. About 7% of iodine is manufactured in the U.S. The rest comes in largely from Japan and Chile. If we keep talking about independence, and we keep talking about using what we’ve got, well, we can produce a lot of iodine that makes us more independent.

We also know there’s ammonia in the water. Well, there’s a lot of benefits for ammonia. There’s magnesium and lithium. There is indeed lithium in the water. There’s bromine, all of your chlorides, your salts. There is a lot in this water. Saudi Arabia, for example, uses seawater, and they’re extracting minerals from seawater. The water in the Permian in some places is four, five times saltier or contains more minerals than what Saudi is extracting from. There is a real opportunity to extract minerals and, if it can be done cost effectively, that’s where the focus is right now, then this will be a great business.

JB: You touched briefly on agricultural reuse. Do you want to discuss some of the longer-term potential there?

AB: We work with Texas A&M [University], and we have a DOE (U.S. Department of Energy) grant. So, we will be expanding what we’ve done to grow cotton and to grow range grass, which, by the way, sequesters a lot of carbon. We are at a point we now know with certainty that we can treat water and successfully grow non-consumptive crops. Now, it’s a function of where the economics make sense. If you think about the amount of cotton we grow in the state of Texas, and you think about the amount of insurance that is paid when it doesn’t rain and crops fail, then you begin to think, OK, what if we could grow cotton with a steady supply of water? It just happens to be treated, produced water. How do we make these economics work?

JB: Obviously, you have a lot of growth potential in the Permian. Wall Street seems to be recognizing that. But would you ever look outside the Permian? Or do you want to stick with West Texas, northern Delaware at this point?

AB: The Permian, in terms of the quality of the rock, the inventory and the low breakevens, make it a very productive place to be. It is the best basin in the country. It’s one of the best basins in the world. So, for us to leave this basin and to move into another basin, there would have to be some extraneous factors. One, did we make an acquisition that the acquired entity had other basins in their inventory? Two, do we have a customer who wants us to go to another basin and the economics work?

In terms of Wall Street recognizing this, investors are taking note that water is becoming more critical and is being viewed as a critical commodity for the industry. And they see our customers with long-term contracts, the quality of our customers, our ability to look at the volumes and the revenue and the visibility on that. We have lowered costs pretty dramatically, and we’ve hit free cash flow inflection, and we are generating substantial cash flow and, therefore, are able to return value to investors. That has certainly been recognized. You hope to be able to continue to please everybody, but we feel very good about where we are and our business and our runway and the tailwinds.

JB: The only other question is about convincing operators to pay up?

AB: Do operators want to pay for the service? The answer is no. They want to pay as little as possible and get away with it. But, there is a growing realization that they are going to have to increase rates to support the infrastructure that is needed, and to reflect the importance of water takeaway and completions to ensure that they are not negatively impacted. But there’s always going to be that tension. We have long-term contracts. But, I think with new contracts, new areas, new benches, new challenges, rates will rise.