The document discusses water management strategies for the oil and gas industry. It finds that regulation can significantly reduce water consumption if it provides strong financial incentives for water treatment. A case study of a hypothetical operator in the Barnett Shale shows that treating incentives to cut costs could reduce that operator's water use by almost half. The document also examines how different well types affect optimal water management strategies and the costs associated with various strategies.

1. Collaborating for sustainable water management in
the oil and gas industry
Sarah Fletcher
Senior Research Analyst
IHS Water
sarah.fletcher@ihs.com

2. Copyright © 2013 IHS Inc. All Rights Reserved.
Significant area of US facing near-term
drought risk
2
Source: IHS Energy, NOAA
Drought report author: Brad Pugh, Climate Prediction Center, NOAA
http://www.cpc.ncep.noaa.gov/products/expert_assessment/season_drought.html
Current or predicted drought

3. Copyright © 2013 IHS Inc. All Rights Reserved.
Onshore E&P activity overlaps with areas in
drought risk
3
Source: IHS Energy, NOAA
Drought report author: Brad Pugh, Climate Prediction Center, NOAA
http://www.cpc.ncep.noaa.gov/products/expert_assessment/season_drought.html
Current or predicted drought
Highest activity US oil and
gas shales
Barnett Shale

4. Copyright © 2013 IHS Inc. All Rights Reserved.
Key Insights
• The oil and gas industry is a consumptive user of water
because most wastewater is disposed via underground injection.
• Operators make decisions about water management based on
operational constraints and service costs, both of which vary
significantly. Optimization tools should analyze uncertainty across
a field.
• Regulation can reduce water consumption if it incentivizes water
treatment. Significant incentives could reduce water consumption
by nearly half in the Barnett Shale.
4

5. Copyright © 2013 IHS Inc. All Rights Reserved.
Produced water is more difficult to manage
than flowback fluid
5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Flowback
Fluid
Produced
Water
Wastewater
management
strategies
Surface
Discharge
Centralized
Recycling
On-site
Recycling
Injection
Source: IHS Water, CAP Resources
Volume
Time
30-90 days 20 years
Flowback fluid
Produced water
Wastewater Generation
from an oil or gas well

6. Copyright © 2013 IHS Inc. All Rights Reserved.
Wells in sparse drilling areas have limited
wastewater management strategies
Source: IHS Enerdeq
Type-3:
No recycling
available
Type-2:
Centralized
recycling
available
Type-1:
On-site
recycling
available

7. Copyright © 2013 IHS Inc. All Rights Reserved.
Optimization model: Operators choose strategy based
on cost and operational constraints, not water
consumption
7
Type-1 Well Type-2 Well Type-3 Well
Flowback Produced Flowback Produced Flowback Produced
Scenario 1
(100% Water
Consumption)
Injection Injection Injection Injection Injection Injection
Scenario 2
(70% Water
Consumption)
On-site
Recycling
Injection
Centralized
Recycling
Injection
Surface
Discharge
Injection
Scenario 3
(Negative Water
Consumption)
On-site
Recycling
On-site
Recycling
Centralized
Recycling
Centralized
Recycling
Surface
Discharge
Surface
Discharge
Source: IHS Water

8. Copyright © 2013 IHS Inc. All Rights Reserved.
Field-level case study: Hypothetical operator
in Barnett Shale
8
Treatment prices
Water consumption
Well types
Hauling distances
Optimization model
0.518889309 0.973351734 0.964977288
0.023137484 0.364247456 0.598186651
0.460626867 0.070558276 0.938095721
0.419822645 0.403864883 0.918241679
0.206170182 0.580766578 0.793094256
0.83156138 0.970087239 1.117026825
0.062895305 0.873086589 0.661883838
0.036118654 0.337299306 0.622676156
0.746851888 0.172268972 1.068156185
0.073015937 0.492652985 0.674422782
0.349602714 0.17906539 0.881664509
0.342481713 0.45051848 0.87775748
0.189002127 0.612559876 0.780625883
0.229173448 0.396946575 0.809012842
0.537150335 0.643977463 0.973088406
0.153335025 0.240849643 0.752763909
0.419528876 0.549936367 0.918095322
0.009455211 0.132982437 0.562766801
0.79642461 0.361076737 1.095533587
0.513887637 0.647234963 0.96273086
0.375826598 0.046470102 0.895720123
0.26733555 0.747702419 0.833751123
0.347329691 0.134173117 0.880421746
0.800099733 0.157008848 1.097689848
Optimal strategies
Source: IHS Water

9. Copyright © 2013 IHS Inc. All Rights Reserved.
Regulation A: More wells are able to recycle
9Source: IHS Water
Treatment prices
Water consumption
Well types
Hauling distances
Optimization model
0.518889309 0.973351734 0.964977288
0.023137484 0.364247456 0.598186651
0.460626867 0.070558276 0.938095721
0.419822645 0.403864883 0.918241679
0.206170182 0.580766578 0.793094256
0.83156138 0.970087239 1.117026825
0.062895305 0.873086589 0.661883838
0.036118654 0.337299306 0.622676156
0.746851888 0.172268972 1.068156185
0.073015937 0.492652985 0.674422782
0.349602714 0.17906539 0.881664509
0.342481713 0.45051848 0.87775748
0.189002127 0.612559876 0.780625883
0.229173448 0.396946575 0.809012842
0.537150335 0.643977463 0.973088406
0.153335025 0.240849643 0.752763909
0.419528876 0.549936367 0.918095322
0.009455211 0.132982437 0.562766801
0.79642461 0.361076737 1.095533587
0.513887637 0.647234963 0.96273086
0.375826598 0.046470102 0.895720123
0.26733555 0.747702419 0.833751123
0.347329691 0.134173117 0.880421746
0.800099733 0.157008848 1.097689848
Optimal strategies

10. Copyright © 2013 IHS Inc. All Rights Reserved.
Regulation B: Financial incentives for
treatment
10
Treatment prices
Water consumption
Well types
Hauling distances
Optimization model
0.518889309 0.973351734 0.964977288
0.023137484 0.364247456 0.598186651
0.460626867 0.070558276 0.938095721
0.419822645 0.403864883 0.918241679
0.206170182 0.580766578 0.793094256
0.83156138 0.970087239 1.117026825
0.062895305 0.873086589 0.661883838
0.036118654 0.337299306 0.622676156
0.746851888 0.172268972 1.068156185
0.073015937 0.492652985 0.674422782
0.349602714 0.17906539 0.881664509
0.342481713 0.45051848 0.87775748
0.189002127 0.612559876 0.780625883
0.229173448 0.396946575 0.809012842
0.537150335 0.643977463 0.973088406
0.153335025 0.240849643 0.752763909
0.419528876 0.549936367 0.918095322
0.009455211 0.132982437 0.562766801
0.79642461 0.361076737 1.095533587
0.513887637 0.647234963 0.96273086
0.375826598 0.046470102 0.895720123
0.26733555 0.747702419 0.833751123
0.347329691 0.134173117 0.880421746
0.800099733 0.157008848 1.097689848
Optimal strategies
Source: IHS Water

11. Copyright © 2013 IHS Inc. All Rights Reserved.
Before Regulation B: Over half of Type-1 wells
recycle
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-1 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

12. Copyright © 2013 IHS Inc. All Rights Reserved.
After Regulation B: Nearly 100% Type-1 wells
recycle flowback
12
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-1 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

13. Copyright © 2013 IHS Inc. All Rights Reserved.
Before Regulation B: Recycling is rare in Type-
2 wells
13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-2 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

14. Copyright © 2013 IHS Inc. All Rights Reserved.
After Regulation B: Nearly all flowback and
some produced water recycled in Type-2 wells
14
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-2 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

15. Copyright © 2013 IHS Inc. All Rights Reserved.
Before Regulation B: Treatment for discharge
is too expensive in Type-3 wells
15
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-3 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

16. Copyright © 2013 IHS Inc. All Rights Reserved.
After Regulation B: Strong incentives needed
to make discharge widely practical
16
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Type-3 wells: Optimal scenarios across field
Base
Regulation B
Source: IHS Water

17. Copyright © 2013 IHS Inc. All Rights Reserved.
Financial incentives for treatment can cut
water consumption by nearly half
17
94% 92%
60%
55%
0
2000
4000
6000
8000
10000
12000
14000
16000
Base Regulation A
(Operational)
Regulation B
(Financial)
Regulation A
+ Regulation B
Perwellwaterconsumption(thousandbbl)
Effect of policy on operator water consumption
Well type 3 (discharge)
Well type 2 (central)
Well type 1 (onsite)
Source: IHS Water

18. Copyright © 2013 IHS Inc. All Rights Reserved.
Conclusions
• Well-designed regulation can reduce water consumption by
half. Treatment incentives are more effective than operational
incentives.
• Operators face significant variability in well-to-well water
management. Rules-of-thumb for defined categories of wells can
simplify decision-making.
• Optimization tools with simulation can be used by operators,
regulators, and NGOs to asses water management in any
location
18

19. Copyright © 2013 IHS Inc. All Rights Reserved.
Type-1 well: Hauling dominates cost in optimal case,
treatment costs prohibit produced water recycling
19
$-
$0.5
$1.0
$1.5
$2.0
$2.5
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Milliondollars
Water management cost for Barnett Type-1
well, by service
Total Storage Cost
Total Treatment Cost
Total Injection Cost
Total Hauling Cost
Total Transfer Cost
Total Acquisition Cost
Source: IHS Water

20. Copyright © 2013 IHS Inc. All Rights Reserved.
Type-2 well economics similar to Type-1, but scenario
1 slightly cheaper than scenario 2
20
$-
$0.5
$1.0
$1.5
$2.0
$2.5
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Milliondollars
Water management cost for Barnett Type-2
well, by service
Total Storage Cost
Total Treatment Cost
Total Injection Cost
Total Hauling Cost
Total Transfer Cost
Total Acquisition Cost
Source: IHS Water

21. Copyright © 2013 IHS Inc. All Rights Reserved.
Type-3 well: Treatment for discharge more expensive
than for recycling
21
$-
$0.5
$1.0
$1.5
$2.0
$2.5
Scenario 1
100% consumption
Scenario 2
70% consumption
Scenario 3
Negative consumption
Milliondollars
Water management cost for Barnett Type-3
well, by service
Total Storage Cost
Total Treatment Cost
Total Injection Cost
Total Hauling Cost
Total Transfer Cost
Total Acquisition Cost
Source: IHS Water

22. Copyright © 2013 IHS Inc. All Rights Reserved.
Interested in learning more?
IHS Water: http://www.ihs.com/products/cera/consulting/water.aspx
22
Sarah Fletcher
Senior Research Analyst
IHS Water
sarah.fletcher@ihs.com