Oil and water. Conventional wisdom says they don’t mix. While that may be true in the kitchen, the natural world is a series of interactions between dynamic, complex systems. When it comes to energy, oil and water are deeply intertwined.

The modern hydrocarbon renaissance in unconventional, tight formation oil and gas development is a direct result of this connection. Water, mixed with mud, provides the lubricant to bore safely into the earth and carry cuttings back to the earth’s surface. Hydraulic fracturing is only possible through the application of large volumes of water, which serves as both a hammer to crack brittle rock deep underground, and as the medium to transport proppant to keep those fractures open. Such fractures allow tight formation oil and gas to move into the wellbore and to the surface.

Without water, horizontal drilling for oil and gas is difficult, hydraulic fracturing is not possible, and modern oil and gas production is vastly curtailed.

Corridor development brings lean manufacturing efficiencies and cost reductions to large-scale tight formation oil development programs covering large acreage positions. The schematic illustrates the water recycling system in Laredo Petroleum Inc.’s Reagan County corridor development in the Midland Basin of West Texas.

Water, water, everywhere?

Annual water use in unconventional well completions increased roughly 4,000-fold after 2002 to more than 200,000 acre feet annually with the move to tight formation oil and gas development. Consumption escalated due to the surge in horizontal wells drilled annually and substantial expansion in the volume of water used per well.

The trend was compounded by the move after 2014 to high-density completions with longer laterals, more frack stages and closer stage spacing, combined with higher proppant loading.

At the peak rig count in 2014, the oil and gas industry was using about the same volume of water for drilling and completing tight formation oil and gas wells as was being consumed annually in a city the size of San Antonio, Texas, with a population of 1.4 million people.

As in all things oil and gas, trends in water volume use in drilling are shifting once again, partly due to the evolution in water management practices in unconventional oil and gas extraction, but more because of the decline in activity associated with falling commodity prices. The total domestic horizontal well count of 12,200 projected for 2015 was 5,600 fewer than in calendar year 2014. That drop in horizontal activity implies water consumption in tight formation extraction will fall to 157,000 acre feet at year-end 2016, down 32% from a 2014 peak in excess of 230,000 acre feet.

Water usage volumes are mind-boggling. For illustration purposes, think of an acre foot of water as enough to cover a football field to one foot deep (not including the end zones). Metrics vary regionally, but one acre foot of water would serve the needs of two suburban representative households for one year. The industry uses roughly 13 acre feet of water to drill and complete a single horizontal tight formation well.

Water recyclers are increasing the scale of water processing systems and lowering per unit costs to turn produced water into freshwater for reuse in unconventional development programs. The effort reduces truck traffic and lessens competition with agricultural, municipal and industrial users for freshwater resources.

Water consumption for unconventional drilling and completion has only recently come under examination. The 230,000-acre-feet peak in 2014 represents about 8% of total water use in oil and gas extraction. The vast majority of water associated with extraction is produced water from conventional activities. This water is primarily recycled into enhanced oil recovery (EOR) programs. It remains the single largest source—and disposition—of produced water in oil and gas.

The Ground Water Protection Council, a trade group loosely aligned with the energy industry, estimates that oil and gas activities, including offshore, generate 21.2 billion barrels of produced water annually, or roughly 2.7 million acre feet. That equates to the annual water consumption of 4% of U.S. households, or approximately 5.4 million dwellings.

The disposition of those 2.7 million acre feet, whether occurring in conventional or unconventional applications, finds 45.1% of produced water injected back into producing formations as part of EOR programs. Another 38.9% is injected for deep well disposal with 6.7% dispatched to offsite commercial disposal programs. Disposition of the rest occurs via evaporation or surface discharge. In all, 93% of produced water is injected underground in onshore drilling markets, including EOR programs and disposal wells.

Points of friction

While aggregate water consumption in unconventional energy extraction is modest when compared to national levels (less than 1% of domestic industrial water consumption), that usage looms large when considering that a majority of water consumption in tight formation production occurs primarily in 50 counties nationwide, mainly in North Dakota, Appalachia and Texas. Here, local impacts are intense and constantly in sight in the surrounding communities, creating points of friction between the industry and the public. Drilling and well completion operations can require 2,000 truckloads over six to nine months to bring water in for drilling and later haul it out as flowback from hydraulic fracturing and as produced water associated with production.

Points of friction between the industry and communities have arisen from several issues in unconventional oil and gas development. The first is the perceived competition between industry and nonindustry entities for scarce freshwater sources. A large number of the 50 counties that account for the most intensive unconventional development are in semi-arid locales, many of which have experienced drought conditions over the last five years.

second point of friction involves the localized intensity of water use in unconventional oil and gas extraction. Multiple wellsites, primarily in rural areas, experience high volumes of truck traffic.

A third point of friction stems from the reality that water used in oil and gas extraction is consumed rather than returned to the water cycle. Water may be considered “fresh” when injected downhole for hydraulic fracturing, but flowback water can be highly saline, laced with chemicals (some of which are naturally occurring downhole) and destined for wastewater injection, where water is essentially removed permanently from the water cycle.

A fourth point of friction is headline-grabbing: induced seismicity from the injection of produced water as waste into underground disposal wells. Large volumes of wastewater pumped into underground disposal formations can generate low-level earthquakes when injection wells are near or along buried faults.

Links between wastewater injection and increased seismicity have been established scientifically in Oklahoma, Arkansas, Ohio, Colorado and Canada.

You say “tomato”

As a result of these conflicts, the first decade of tight formation energy development created tension as the rapidity and intensity of oil and gas extraction built up across rural areas. The speed of development outpaced the ability of state regulatory agencies to monitor the dynamic situation, especially in regions that were experiencing high-density energy development for the first time.

These points of friction were augmented by the evolution of divergent views between the industry and communities regarding fracking. For the general public, fracking is not about a mechanical process confined to a single underground lateral. Rather, the term encompasses all activities surrounding oil and gas development, both underground and at the surface.

In contrast, the oil and gas industry defines fracking as a discrete mechanical process of pumping water and proppant at pressure into a horizontal lateral a mile or more beneath the surface. This process, in the industry’s view, could not contaminate water supplies that were thousands of feet uphole, hindered by gravity from moving upwards and further protected by impermeable geological barriers.

Such semantic nuances devolved into conflicting perspectives that prevented the industry and the community-at-large from communicating effectively, since both sides viewed a common term differently.

Finding a path forward

As dissention grew, some oil and gas operators began efforts over the last half-decade to alleviate public concern. Leading-edge water management practices in unconventional oil and gas extraction evolved out of core drilling regions in Appalachia and the state of Texas.

Pennsylvania moved quickly after 2010 to create new regulatory initiatives to address fast-moving development of the Marcellus Shale. In Pennsylvania, regulatory standards today address a checklist of best practices. These include groundwater sampling before drilling commences and the use of enclosed transportable self-contained trailers to store flowback water in lieu of lined, open pits.

Also in Pennsylvania, regulatory attention was directed toward ways to ensure wellbore integrity in order to prevent contamination of groundwater as materials passed from the producing formation up through the wellbore.

In Texas, one example of regulatory evolution occurred in 2013 when the Texas Railroad Commission altered existing rules regarding the handling of produced water. The alterations allowed for the transfer of liability to third-party water recyclers who could subsequently commingle water from multiple parties. This extended the ability to participate in water recycling programs that work at scale economics to smaller operators, who otherwise would lack the financial means to participate.

The industry is beginning to respond to community concerns. A major thrust among a handful of forward-thinking E&P companies centers on centralized water management systems for multiple wellsites in large-scale extraction programs and on produced-water recycling.

Centralized water management in large-scale development programs began with Range Resources Corp. in Pennsylvania in 2009. Eventually, five oil and gas operators and representatives of various community associations founded the Center for Sustainable Shale Development (CSSD) which, in turn, developed a set of best practices in oil and gas extraction that include water management. The CSSD consortium monitors the operations of participating E&P companies and provides certification when member companies maintain practices that meet their standards, which exceed the minimum level set by state regulatory agencies.

In Texas, centralized water management, including water recycling, is in progress in both the Permian Basin and the Eagle Ford Shale. In 2015, Fort Worth, Texas-based Approach Resources Inc. debuted a pilot centralized water management and recycling facility in its Pangea development in West Texas. The system, the first of its kind, can process 330,000 barrels of water and makes the company self-sufficient in water usage, from sourcing brackish groundwater for supply, through recycling produced water for use in drilling and completing new wells.

The industry is adapting despite the fact that the capital markets provide little reward to oil and gas operators that employ best practices versus those that don’t. However, there are economic advantages for companies employing best practices in the form of cost reductions and, as Approach Resources has discovered, higher production volumes.

To minimize friction with the community-at-large, the industry is better served when it pushes efforts beyond minimum state requirements as part of a broader philosophical approach to establishing a social license, or license to operate.

he social license concept refers to a local community’s acceptance of a company’s presence. It is gradually becoming a prerequisite for conducting business that impacts a range of constituencies, including everyone from company shareholders to community residents. The concept originated internationally in mining and has become an operating principal for oil and gas development in Australia and Canada. The concept is slowly establishing a beachhead in the U.S. energy sector.

The concept ultimately addresses a series of intangibles in a complex interplay between the community and industry. It exists outside of the regulatory process and refers to industry efforts to build trust with the community through effective communication before a project begins, recurring timely dialogue with stakeholders as the project evolves and conducting operations in an ethical and responsible manner.

Meanwhile, recycling systems have come of age and offer economically competitive alternatives to wastewater injection. Water recycling is available to individual oil and gas companies to support large-scale unconventional extraction programs in arid regions, often spanning hundreds of thousands of acres, or accessed through third-party entities that enable less well-capitalized oil and gas companies with smaller acreage holdings to participate via purchase of discrete specialized services.

For those caught in the crosshairs of the water usage debate, progress seems to move at a glacial pace. But in the broader sweep of time, a suitable compromise will develop as the oil and gas community adopts the best practices of the industry’s innovation leaders.

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