Soaring Permian water costs complicate production growth ambitions
Wall Street has taken notice of West Texas' water management needs.
Reuters recently highlighted that wastewater has become the new star of institutional investors' upstream portfolios. Wood Mackenzie pointed out that as producers and midstream players prioritize capital discipline, water management assets are the industry's new golden goose.
All eyes are on water issues as production per new well is declining in the region. TPG Capital's $1.2 billion grab of Goodnight Midstream, a water management provider, highlights the growing need for solutions.
As we explained to the Wall Street Journal, we're certain produced water volumes will grow. E&Ps are actively downspacing wells and targeting multiple intervals, resulting in increased drilling activity and more production.
What does it mean for E&Ps?
We estimate that saltwater disposal now comprises 40% of total lease operating expenses (LOE) in the Permian. As producers grapple with diminishing well production rates and other profit-killers, the E&Ps that previously took on their own water management are turning to third-party service providers.
Here's a snapshot of five top water midstream companies in the region. Using Wood Mackenzie Well Evaluator, producers and investment firms can map out the management companies that can support with water sourcing, piping, recycling and disposal.