FORT WORTH, Texas—When it comes to examining the state of water management in the Permian Basin, Kelly Bennett, co-founder and president of B3 Insight, says it all comes down to a fundamental question: what is scale in the industry, especially one as capital intensive, incredibly fragmented and driven by the self-interests of operators?

There are several headwinds for water management in the U.S., as well as plenty of tailwinds. But when it comes to growth for a water management market, there is no greater challenge than scale and consolidation, Bennett told the audience at the recent DUG Water forum at Hart Energy’s DUG Permian Basin conference and exhibition.

“The challenge lies in understanding how all of these companies and their assets fit together,” Bennett said. “They are all operating with different strategies, different assets, and their own self-interests and needs in mind. Also, at this point, [with] very different capitalization. So, consolidation is challenging.”

But necessary, Bennett said.

“Consolidated and efficient systems are going to be the way of the future. It is the only way we can address the issues the industry has to deal with over the long term,” he said.


Bennet and B3 Insight looked at the Texas portion of the Permian Basin from mid-2017 until early 2018. In that timeframe, they identified 52 companies that were providing disposal and/or operating significant scale operations for saltwater disposal.

“They amounted to the vast majority of water going downhole in the Delaware [Basin],” Bennett added.

He said there are twice that number of companies that fit into a category of small operators or small producer-owned assets that were “just managing their own material.”

DUG PERMIAN BASIN VIDEOS: See all of the video presentations and interviews from DUG Permian Basin

He mapped them out as well and, not surprisingly, they began to look like pipelines.

With consolidation being a necessary headwind to overcome, Bennet said midstream companies are going to have to force their way into the market.

“Midstream operators are going to have to go out and convince operators to give up control and be one of many in a system that they don’t manage anymore,” he said. “That’s the headwind that we’ve seen in the development of really every midstream industry. The marketers in hydrocarbons really fought that hard and it’s understandable why.”


But even when consolidation happens, one solution leads to another problem—permitting.

“Growth is going to require a heck of a lot of new permitted capacity over the next 10 years. It’s not a manageable or forecastable process at this point,” Bennett said.

“So, as we’re thinking about growing with our customers, we’re thinking about accommodating acreage commitments over the long term. We also have to have a reliable and controllable process for permitting.”

Of the last 720 permits that were approved by the railroad commission, according to Bennett, many were approved in less than 90 days.  However, he said there was a significant number that took upward of nine months and some took over a year.

“That’s a real challenge,” he said.

Permitting cycles can run long for a host of reasons. One of the most common reason is because they are submitted with incorrect or incomplete data, Bennett said.

He said he is not surprised to see that in areas such as Reeves County, there are quite a number of permits that are being returned to applicants with requests for more data as it related to seismicity and injectivity.

“Seismicity is pervasive in some part of the Permian—not everywhere—but where it is an issue, it’s a big issue. The industry can’t ignore that,” he said.

He added that the permitting process is “a real challenge for scale just because the question is: how deep can you build your infrastructure and on what timelines?”

Another interesting headwind is the difference in the way producers treat disposal.

Midstream companies will continue to be built around the assets of producers and more consolidation means less blue sky,” Bennett said.

“It means we’re going to have to understand how these assets operate and the water that’s going into them in a much more dynamic and sophisticated level,” he said.


In spite of the many challenges for the industry, there are tremendous tailwinds behind the industry right now, Bennett said.

The first is that the Permian Basin is the heartbeat and core growth driver of the U.S. oil economy. “That is a long-term trend,” Bennett said.

That also means the water challenges are not going to go away. In fact, they will be growing over next 10 years in a very meaningful way, according to Bennett.

“There’s also a reality that a lot of producers built out systems to support the early part of their production but most E&P companies don’t really want to be in the business of operating their own internal midstream companies,” he said.

“It creates revenue opportunities for their shareholders to divest of those assets and therefore some really interesting buying opportunities for midstream companies.”

Into The Future

To Bennett, it’s very clear that E&P-owned and some of the smaller systems out there are going to merge into funded startups.

“There are some really great companies with deep capital benches to leverage that are building out some great asset bases,” he said. “We’ve already started to see the recapitalization phase with large institutional investment in some of these funded start-ups to help take them to the next level.”

He sees “tremendous interest” from the private equity sector as well. While some are taking passes at these companies for now, the attitude is still pretty much wait-and-see, according to Bennett.

“I think part of the reason is as you look at, for example, the net water balance, the issue is that the market is really going to need a full-cycle approach to water management,” he said.

In the end, it goes back to the initial fundamental question of how “we start consolidating all of those different capabilities and services under one house.”

The answer, he said, is still a little bit of an unknown.