Justin Scott
Baker & Hostetler LLP Houston
Amidst the worst Texas drought since the National Drought Mitigation Center's record keeping began 119 years ago, operators in Texas' Eagle Ford shale are taking full advantage of the recently adopted Texas Railroad Commission regulations giving operators more flexibility to recycle wastewater generated during hydraulic fracturing operations. Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University's Cox School of Business, estimates that within 5 years, Eagle Ford operators will be able to recycle half of the wastewater generated during the fracing process. Current estimates place the wastewater recycling rate at 30%, up from just 1% 5 years ago. "Water is becoming a precious resource," says Bullock. "As it does, it will become more and more economical for companies to recycle."
A fact sheet from Chesapeake Energy Corp. estimates that a single Eagle Ford well may use as much as 125,000 bbl (6 million gal) of water. Chesapeake's fact sheet notes that reported water usage figures were derived from wells drilled in the early development of the Eagle Ford formation, and the continued drought and rising cost of water have caused operators to seek cost-effective wastewater recycling solutions. In 2011, ConocoPhillips announced that it had brought water usage on each of its Eagle Ford wells down to 85,000 bbl (3.57 million gal) but still estimated that at peak development of the formation Eagle Ford operators would account for 5-7% of total water consumption across the 16 Texas counties addressed in its study. "The oil and gas industry is really going to continue to move the meter on water recycling," says Bullock. "It's just a question of how fast they do it."
In early May, Austin-based oil field services provider Pinnergy Ltd. and Austin-based water-recycling company Shalewater Solutions launched a joint venture to provide water-management services to operators in US shale plays, particularly in the Eagle Ford. The joint venture claims that its Pinnergy-Shalewater Mobile Treatment Units (MTUs) are capable of treatment rates in excess of 20,000 b/d or 600 gpm. The Pinnergy-Shalewater joint venture follows on the heels of Nuverra Environmental Solutions' announcement that it was purchasing 180 acres in South Texas to develop a facility to collect, treat, and recycle liquid and solid waste from Eagle Ford wells. The Nuverra-facility is expected to begin operations in the first quarter of 2015.
Some companies, including Houston-based Energy Water Solutions (EWS), have sought to address the wastewater issue by deploying a squadron of mobile wastewater recycling units to Eagle Ford well sites. EWS's mobile units store all of the recycled fluid on the lease for use on the subsequent completion of newer wells. According to EWS, this design does away with hauling and injecting produced water and allows for in-lease transport via pipe for newer wells being completed.
In addition, Calgary, Alberta-based Aqua-Pure Ventures Inc., along with NAC Services LLC, installed the first wastewater recycling units serving Eagle Ford operators in June 2011. The Aqua-Pure facility is capable of recycling approximately 5,000 bbl of flowback and produced water on a daily basis. In addition to using the facility to recycle wastewater into distilled or treated water for re-use in hydraulic fracturing operations, Aqua-Pure sells the concentrated brine and other byproducts from the recycling process.
The rapid growth of wastewater recycling in the Eagle Ford region has been spurred, in part, by regulations adopted by the Texas Railroad Commission (which took effect in April 2013). Under the regulations, Texas hydraulic fracturing operators may recycle fracturing fluids on their own leased or owned land for use in fracturing activities or may transfer the fluids for recycling on the land of another operator without a permit. Rule 3.8 of the Texas Oil and Gas Division regulations governing "non-commercial fluid recycling," as it is defined under the rule, was designed to encourage Texas operators to "continue their efforts at conserving water used in the hydraulic fracturing process for oil and gas wells." Rule 3.8(a)(41) defines "Non-commercial fluid recycling" as "[t]he recycling of fluid produced from an oil or gas well, including ... fluids produced from the hydraulic fracturing process." Rule 3.8(a)(41) goes on to state that non-commercial fluid recycling can take place on an existing lease or drilling unit, on land leased or owned for the operation of a disposal well, or on land leased or owned for the operation of an injection well.
Finally, Rule 3.8(a)(41) provides two options for operators seeking to engage in wastewater recycling. Rule 3.8(a)(41) states that non-commercial fluid recycling can be done either by the operator of the lease, drilling unit, or non-commercial disposal or injection well or by someone who contracts with the operator of the lease, drilling unit, or non-commercial disposal or injection well. The 2013 amendments to Rule 3.8 also enable on-site, permit-free storage of fluids awaiting recycling or treated fluids in "non-commercial fluid recycling pits". Rule 3.8(a)(41) defines "Non-commercial fluid recycling pit" as a "[p]it...for the storage of fluid for the purpose of non-commercial fluid recycling or for the storage of treated fluid." An operator's use of a non-commercial fluid recycling pit is subject to various pit construction, use, maintenance, and operation requirements in Rule 3.8(d)(4).
The commission also adopted a binary approach to the permissible reuse of recycled fluids. Non-permitted recycling is addressed in Rule 3.8(d)(7)(B), which provides that recycling of any oil and gas wastes by any method can be done without a permit if "treated fluid is recycled for use as makeup water for a hydraulic fracturing fluid treatment, or as another type of oil field fluid to be used in the wellbore of an oil, gas, geothermal, or service well." Under Rule 3.8(d)(7)(B)(ii) treated fluid "may be reused in any other manner, other than discharge to waters of the state, without a permit...provided the reuse occurs pursuant to a permit issued by another state or federal agency."
If treatment of the recycled fluid results in distilled water, Rule 3.8(d)(7)(B)(iii) directs that no permit is required to use the resulting distilled water in any manner other than discharge to waters of the state. Permitted recycling is addressed by Subsection (C) of Rule 3.8(d)(7). Rule 3.8(d)(7)(C)(i) states that "[t]reated fluid may be reused in any manner, other than manner authorized in subparagraph (B)...pursuant to a permit issued by the director on a case-by-case basis." The rule goes on to state that the director's permitting decision should take into account (i) the source of the fluids, (ii) the anticipated constituents of concern, (iii) the volume of fluids, (iv) the location, and (v) the proposed reuse of the treated fluids. Fluids that meet the requirements of a permit issued under Subsection (C) are recyclable products. In addition, the commission adopted parallel amendments to the commercial fluid recycling permitting rules. Those revisions clarify the application requirements and expand the two existing permit categories to five, with a view toward more accurately facilitating the range of recycling practices utilized in the industry.
While the commission noted that hydraulic fracturing operations and mining together only account for 1% of freshwater use in Texas, commissioners quoted in the 2013 press release acknowledge that water use has been a primary concern, and that the aim of the new rules is to encourage oil and gas operators to recycle by removing regulatory hurdles.
But resource conservation is not the only incentive to expand the practice of fluid recycling. The streamlined regulatory requirements may better position oil and gas outfits to reap significant cost savings from reduced water use. Considering the often steep expense associated with freshwater and fluid disposal transportation, some industry analysts predict that fluid recycling has the potential to become a multi-billion dollar industry. As the political and regulatory environment continues its shift toward natural resource protection and use constraints, other states may follow Texas' lead in adopting pro-recycling regulations.
Justin Scott ([email protected]) is an associate in the Litigation Group at Baker & Hostetler LLP and a member of the Energy and Environmental Practice Team. Scott practices complex commercial litigation, primarily working on product liability matters. He is a regular contributor to the BakerHostetler North America Shale Blog (www.northamericashaleblog.com). Scott is admitted to practice in all Texas state courts, as well as the Federal District Courts for the Eastern and Northern Districts of Texas.