The Current State of the Water Midstream Industry

Stephen McNair is EVP Chief Development Officer of H2O Midstream and President of UL Water Midstream. He is also a founding partner of H2O Midstream, a company owning and operating pipelines, SWDs and storage to serve multiple customers. He has held a variety of leadership positions throughout his 33-year oil and gas career primarily in the midstream sector involving gas. Stephen most recently served as the President of Pioneer Water Management, LLC, where he led the development, design and construction of a pipeline and storage system supporting Pioneer’s extensive water management business. Prior to that, he has held senior leadership roles at Conoco, Phillips, DCP Midstream, and TEPPCO.

Stephen holds a professional engineering registration in Texas and serves as an advisory board member of UT Permian Basin's College of Engineering. Stephen holds a MBA from Oklahoma City University and a B.S. in Chemical Engineering from Texas A&M University.

1. Hi Stephen. As a subject matter expert in the water midstream industry, I’m interested to know your thoughts on the concept of an integrated water management system of permanent pipelines for transporting water across different operations. What do you think about all the merger and acquisition activity as institutional investment pouring into midstream companies?

Answer: Having participated in the natural gas midstream business model evolution of the 1990s, I certainly see the same business drivers surfacing in the water midstream space:

      1) Exponential growth in volumes and costs associated with horizontal shale development,
      2) E&P’s needing to optimize/conserve capital,
      3) financial markets expecting these operating and financial efficiencies best realized by “midstream companies” with multiple customers, and
      4) E&P’s beginning to trust these full cycle “water managers” such that they can trust they are purchasing reliable and cost effective service.

2.  What are the challenges and opportunities you foresee after an acquisition spree of water management assets as many midstream players now turn their attention to recycling facilities?

Answer: I see the biggest challenge involving logistics.  As full water management service providers, we must build, coordinate and operate systems that gather, dispose, store, treat water and redeliver with multiple customers and varying volumes received and demanded. It is imperative that our operations become integrated with our customers – weekly meetings, field reviews, and longer term planning.

3. How do you feel about the possibility of water becoming a traded commodity? What is your role in that?

Answer: I think it will get there – not maybe as quickly as some suggest. I see three obstacles: fungibility, distance/geography, and operators’ willingness to interconnect systems.

  • Fungibility - we are so new to this business idea and opening of systems that a standard for quality/contaminants has not been established to trade around.
  • Distance/Geography – even by Pipeline it is expensive both capital and expense on a unit basis; there may be trading “clusters” first.
  • Interconnectivity – this is pipeline owners/operators willing to allow water from/to others to flow in/out of their system.

4. You are very well known and well-connected in the Water Midstream Industry, how are your recruiting efforts building a diverse workforce?

Answer: On the recruiting front, it is difficult to compete with the larger E&P companies regarding compensation and perceived job security.  We do have to be more creative such as offering a more attractive work environment, opportunities for more experience/development and long term financial potential.

Key Takeaways:

Takeaway #1: The biggest challenge in the Water Midstream Industry involves logistics.

Takeaway #2: The three main obstacles in the Water Midstream Industry are: fungibility, distance/geography, and operators’ willingness to interconnect systems.

Takeaway #3: Large Exploration & Production companies make finding talent within the industry highly competitive.

The water midstream industry is rapidly growing as an increasing number of companies are delivering water recycling technology and infrastructure to areas like the Permian Basin. However, with the rapid emergence of the water midstream industry comes unique challenges and opportunities.

Progressive has been partnering with many of the top water midstream operators and private equity firms in the U.S. by providing talent with proven saltwater disposal and true produced water experience. Whether you're a business looking to hire or a professional seeking work in the water midstream industry, contact us today to learn more.

Michelle Dutemple, Recruitment Consultant for Oil & GasMichelle Dutemple, MBA, is a Senior Consultant specializing in engineer staffing for Midstream Operators and Private Equity firms. She also volunteers as board member at RedM against human trafficking and as creative admin at Hope City. Michelle can be reached at (832) 900-5973 or via email at [email protected].

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