Editor's note: This story was updated at 9:58 p.m. CST on April 15.
FORT WORTH, Texas—The annual DUG Permian Conference and Exhibition got off to an early start on April 15, one day before the main event with simultaneous pre-conference sessions focused on three increasingly important discussions when it comes to the Permian Basin: sand, water and minerals.
Mark Houser, CEO, University Lands, opened DUG Water by saying the Permian Basin “is a gift we didn’t really deserve” as an industry, point to a time when companies thought the basin was finished. Little did they know.
But with the oil and gas production comes high-saline water, and disposal has been a source of conflict in the industry. It’s also become big business. “Produced water is big business and its only getting bigger,” Houser said.
Houser talked consolidation and efficiency in his opening keynote. He said that means there is a need for a “well-connected infrastructure for disposal.” He said consolidation can help create efficiency in disposal.
B3’s Kelly Bennet said the water challenge has the potential to derail the Permian’s growth, particularly in the Delaware Basin. Among the top challenges are scalability of water midstream systems, seismicity and a reliable process for permitting.
He says the challenges will continue to grow despite the “tremendous tailwinds behind the industry right now.”
He added, “water midstream will need to evolve to keep up.” He said the industry needs a full-cycle approach, which consolidation will help.
“The question is can we consolidate all of those capabilities under one house,” he asked rhetorically.
J. Michael Anderson, CEO, Layne Water Midstream, said there is an “expanding need for water expertise.” He said it’s not in the standard repertoire of E&Ps and it’s only going to get harder for them.
He compared current water midstream to oil and gas 25 years ago, when midstream was done mainly by producers until it got too big and the midstream opportunity opened up.
He also said there will be more private equity investment into the water midstream space. He also said there will be IPOs. “What is the going to be the valuation of the water midstream market,” he asked.
Robert Rubey, Goodnight Midstream, agreed saying, “We are nowhere near the capitalization needed. [The industry is] going to need a lot more capital to build out the system to address the water challenges in the Permian Basin.
During a morning panel, Sourcewater Inc. CEO Josh Adler announced for the first time that his company has acquired WellSite Navigator, an oilfield services app for smart phones.
“We have enough sand already—logistics are what really matters today,” said Jim Wicklund of Stephens Inc. while kicking off the DUG Sand discussion.
Wicklund said over the past two years E&P customers have become the choice customers and sand companies must be full-service suppliers. “It’s time for the sand business to grow up and offer full service,” he said. “The E&Ps want a breadth of service and a breadth of offerings.”
Eric Nystrom, Covia Corp., said the capacity of drilling rigs has outpaced completion crews. Active frac crews have been declining since mid-year 2018, he said. That’s a 12% drop.
Sand demand in the Permian Basin is 30 million tons this year, according to Nystrom. More than half of the total U.S. market is Northern White Sand. But it’s been losing significant market share since 2917.
The shift to in-basin sand use in the Permian has been dramatic, said Hunter Wallace, Atlas Sand. He added, 21 operating sand mines have come online in the Permian Basin over the last two years.
“It’s been like the California gold rush,” he said.
Laura Fulton, Hi-Crush Partners, said overall frac sand demand is growing across all basins. “The sector is quicker to rationalize production and is constantly optimizing transportation,” she said. That’s because the industry has learned its lessons of the downturn, she added.
Meanwhile, Rhett Bennett, Black Mountain Sand, said the sand sector has responded to the drop in prices for its products with innovation and flexibility. He also pointed to the advantages of in-basin sand and efficient supply chain as difference makers.
During the minerals track, Bob Ravnaas, CEO, Kimberly Royalty Partners CEO, said the Permian is a tremendous basin to be in, but noted if it gets too pricey he will look at other U.S. shale basins for mineral deals. Kimbell currently holds approximately 11.1 million gross acres across 28 states.
But one basin he’ll steer clear of is D-J Basin. for now. “Not a lot of headwinds for the minerals and royalties space, but the one headwind I’m seeing is regulation,” he said noting CO SB181 and recent New Mexico legislation.
Will Cullen, LongPoint Minerals, said private mineral rights is the key to the U.S. industry comeback. “Government controlled oil and gas rights kill innovation,” he said.
He also pointed to SB 181 in Colorado as a trouble spot for mineral rights. He said other trends in the mineral market include greater involvement by institutions in the minerals space and consolidation.
Meanwhile, Lynn Frank, CFO, Pegasus Resources CFO, said he’s not necessarily competing against all the big public guys on every minerals deal. “Having relationships is going to benefit us more than fighting over every little deal.”
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