Christopher Newton is managing director at Ernst & Young LLP

  • Innovative companies are becoming more strategic in their water management to address challenges that include operational efficiency, seismicity, water scarcity and water rights;
  • Leading-edge strategies and enabling technologies can help improve water lifecycle management, driving improved operational efficiency and delivering a more data-driven approach to strategic water management; and
  • Recycling and beneficial reuse of produced water can help decrease freshwater dependence while improving goodwill and license to operate.

Water has always been a vital component to oil and gas operations. But in unconventional oil and gas development and production, it has also emerged as a primary constraint in day-to-day activities.

Active wells typically generate at least 3 bbl of water for every barrel of oil equivalent produced, and in the Permian Basin alone, roughly 20 MMbbl of oil are produced daily.   

Historically, the sourcing of water and disposal of produced water have been simple, tactical efforts with many easily accessible and available options. Today however, unconventional oil and gas operators face complex challenges such as disposal well seismicity, water scarcity and increasing pressure to adopt more environmentally responsible disposal methods. In response, innovative companies are rethinking the entire lifecycle of water management—deploying new strategies that drive value creation, support sustainable growth and enhance their license to operate.

Focus areas for strategic water management

Taking a smarter, more strategic approach to water management can significantly improve key operational variables, decrease costs and reduce environmental impacts. By developing a comprehensive water management strategy, operators can tackle specific challenges across several fronts:

Hydraulic fracturing productivity: Hydraulic fracturing requires vast amounts of water. Without a coordinated water management strategy, companies can face delays, downtime and higher costs. Streamlined water practices help ensure resource availability, reduce dependence on freshwater and lower environmental impact—boosting overall well production efficiency.

Regulatory compliance and environmental impacts: Improving water management by more efficiently handling wastewater can help companies comply with water usage regulations, particularly in water-scarce areas, which in turn can prevent fines and operational delays. Companies are increasingly recycling produced water for reuse in operations and pursuing beneficial reuse options, such as agricultural irrigation, as well as exploring options to use recycled water for cooling data centers. These actions all help reduce an operator’s environmental footprint while maintaining operations in areas with limited water availability.

Lowering cost through operational efficiency: Improved water sourcing, advanced modeling and optimized transportation and recycling processes can reduce infrastructure investment in costly assets like pipelines and storage facilities. This efficiency drives down overall operational costs and enhances productivity.

Strengthening sustainability and corporate reputation: Overusing or mismanaging water can strain local communities and agricultural needs, harming stakeholder relationships. A responsible water management strategy not only mitigates these conflicts but also bolsters a company’s social license to operate by demonstrating its commitment to sustainability, which is vital where water resources are limited.

Mitigating risks: Inefficient water management can lead to costly spills, contamination incidents or shortages that pose risks to both the environment and public safety. By establishing proper protocols for water handling, storage and disposal, companies can reduce these risks and protect their workforce and surrounding communities.

Strategies and value levers to drive improvement in water management

Strategic water management requires a tailored approach based on countries and basins. Safeguarding groundwater resources and addressing the complexities of water rights will differ significantly across countries and basins due to varying rules and regulations, and there is no one-size-fits-all approach. To design a comprehensive water management approach, companies should evaluate a number of available levers that can be applied to drive improvements:

  • Water recycling can address issues like disposal well seismicity and freshwater reliance by recycling produced water. In some cases, strategic partnerships have reduced freshwater use to nearly zero, while also creating new revenue opportunities through novel water reuse models. In an Ernst & Young analysis, one oil and gas company operating in the Permian Basin decreased the use of freshwater sources to less than 1% after forming a strategic partnership with a water midstream company to enhance produced water recycling capabilities.  

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  • Strategic water sourcing, which identifies non-potable water sources, contributes to long-term sustainability and strengthens relationships with local communities. In an EY analysis of another Permian Basin oil and gas company, the operator was able to meet 64% of its water needs for hydraulic fracturing from recycled produced water by prioritizing water sourcing.
  • Mineral extraction is being tested by a number of companies to help offset treatment costs and generate additional revenue streams. The extraction of valuable minerals from produced water includes potassium and phosphorus, which have agricultural application, and lithium, which is in high demand for energy storage.  
  • Water management control tower solutions can empower operators to determine the most cost-effective, environmentally friendly disposal options for produced water based on location and available takeaway assets. A control tower solution can serve as a centralized hub that integrates data from various sources, including IoT (Internet of Things) sensors, geographic information systems (GISs) and existing water management systems. By analyzing this data and applying AI and machine learning capabilities, these solutions can drive continuous optimization and enable operators to make informed decisions regarding the disposal and transportation of produced water.

When establishing a water management strategy, companies should align their plan with broader business goals and objectives. Leveraging leading-edge technologies can enhance operational efficiency and support data-driven decision making.

For example, by having the forecasted water volume needs of the field in a centralized place, the business can see if water recycling should be increased to meet projections. Control tower solutions with digital twin components can also be used to model the impact of operational changes from building a pipeline to how the business can run its trucking takeaway efforts more efficiently.

By redefining water as a strategic asset like other critical commodities, oil and gas companies can turn what has traditionally been a cost center into an engine for growth.

Special thanks to Gerardo Zingg and Nicole Govenlock of Ernst & Young LLP for their contributions to this article.

The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

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