The new Texas wastewater regulations could increase costs for oil producers

The new guidelines for permitting wastewater disposal wells are likely to increase the costs of oil producers, as the crude price is low. This will be the latest challenge faced by an industry that has seen its output growth slow down as it matures. U.S. oil production has soared to a record 13,4 million barrels a day (bpd), thanks to technological advances that allowed companies to tap into its vast oil reserves. The growth is slowing down, though, as the best oil resources are exhausted, forcing operators to drill in less profitable locations where more water is produced. The Railroad Commission of Texas, Texas' energy regulator, has issued new rules that took effect on June 1. They aim to ensure injected fluids remain in the disposal formations of the Permian basin, which is the largest oilfield in the United States.

These concerns are a result of fears that produced water - a byproduct from oil and gas extraction that operators inject underground - could leak out of disposal holes and contaminate surface and groundwater.

The new guidelines set a maximum surface injection pressure and limit the amount of water that can be injected, based on the reservoir pressure.

According to Linhua Guan of Surge Energy America - one of the biggest private U.S. oil producers operating in the Permian Basin - "These new Railroad Commission regulations may present financial and operational challenges for Texas oil producers." According to B3 Insights, water consultancy, the cost of produced water will increase by 20-30% in the Permian basin, particularly for the Delaware formation, where the majority of injection occurs, over the coming years. B3 Insights said that costs could reach 75 cents up to $1 per barrel. According to Christine Guerrero a petroleum engineer with over 30 years of experience and a strategic advisor at asset manager Octane Investments, the Delaware subbasin produces 5 barrels of water per barrel of oil.

According to B3 insights, the pressure on the Delaware's shallow formation has increased, on average three times faster than the Midland subbasin of Permian since 2018. This is due to the huge amounts of water injected into the Delaware to help induce earthquakes.

According to Jonathon VandenBrand of Western Midstream who operates 54 saltwater wells in Delaware and has a 2 million bpd produced water takeaway capability, the new guidelines are likely to limit some operators' options for local saltwater disposal. They will require more infrastructure in order to transport water longer distances, as well as new disposal sites. VandenBrand added that the guidelines may also require operators collect more regional data in order to meet regulatory requirements. This could result in additional costs of up to tens of thousands of dollars.

New regulations are being introduced as oil prices are still hovering below $65 a barrel, a level that many producers need to reach in order to make a profit. OPEC+ is increasing its production while President Donald Trump has increased the U.S.'s

Trade war

Economic concerns are a result. Kelly Bennett, CEO at B3 Insights explained that if oil prices remain low, the increasing cost of water will put pressure on breakeven costs for the peripheral areas of the basin but not in the core. She added that drilling in less profitable tier 2 and 3 locations may be halted due to the weak margins.

Some groups say the new rules represent a positive step, but more needs to be done. The new guidelines are a step in the right direction, but they don't go far enough, said Julie Range, policy director for Commission Shift. (Reporting and editing by Liz Hampton, Marguerita Choy, and Georgina McCartney from Houston)

(source: Reuters)