Q&A With Arnie Little on the Water Midstream Industry: "If We Build It, They Will Come"
Arnie Little is a 40-year veteran of the oil and gas services and midstream produced water management business. He previously served as the Corporate Vice President of Sales and Marketing and Regional Vice President of Operations for the Mid Continent of Nabors Completion and Production Services. When this executive team was dismantled due to the merger with C&J Services, Little re-joined many of the previous members of this executive staff once WaterBridge Resources was founded.
At WaterBridge, he served as the Vice President and General Manager of the Oklahoma Division, focused in the Arkoma Basin. He was responsible for re-training a core team that had been members of an E&P company staff, with little or no service company mentality. This team was responsible for the development and growth of a 50K bbl/day operation that initially incorporated over 110 miles of water gathering line, 96 miles of gas injection line with 5 SWDs and 3 transfer stations. Later, Little helped start Triton Water Midstream and, through his contacts in the market, originated several projects in both the Anadarko Basin (Stack and Scoop) and the Permian Basin (Midland and Delaware Basins). Little has a Bachelor of Science Degree in Business Administration from Cameron University and is a 2006 graduate of the FBI Citizens Academy.
1. As Midstream players are shifting their attention to recycling facilities, what are the challenges and opportunities in developing recycling programs?
Answer: The biggest challenges as I see them are twofold:
- Lack of regulations mandating that produced water be recycled for beneficial reuse is the 800 pound gorilla that nobody wants to address. There is only so much fresh water in the hydrological cycle and every time a massive frac job is pumped involving millions of gallons of fresh water, this water leaves the cycle since it becomes contaminated with fracking chemicals and formation water.
When it comes back around the form of flowback water from the initial production of the well, it is unfit to be discharged back into a stream, lake or pond. As the well continues to flow, oil, gas and formation water all come to the surface. The oil and gas are separated from the water and the water is sent to a salt water disposal well. Depending on the Basin, anywhere from 2 to 10 barrels may be produced per barrel of oil.
- Which brings us to the second challenge. Lack of water recycling technology that is competitive with disposing of the produced water into a SWD. I believe that most, if not all E&P companies would prefer to recycle and reuse produced water in the drilling of new wells and especially for fracking, if the economics are justified.
That being said, some are making attempts to recycle and reuse at least a portion of their produced water. Currently, only cursory remediation of produced water is being used. This consists of lowering the TSS (total suspended solids) content to an acceptable level, based on the E&P company’s metrics that plans on reusing the water. Free hydrocarbons are removed and the water is usually treated with a biocide to kill bacteria. This water still has the same TDS (total dissolved solids) as it did when came out of the formation. It contains various salts including sodium chloride, along with several divalent cations such as barium, calcium, magnesium, etc. Removing or reducing the TDS of the produced water is where it gets expensive.
The solution currently employed involves blending the “recycled” produced water with fresh water at some ratio that allows the frack chemicals to work effectively. The technologies as we know them today are all cost prohibitive when compared to gathering and disposing of the flowback and produced water into SWDs.
2. As we see the proliferation of treated water storage, what is your secret to keeping this water in optimal condition?
Answer: I don’t know if there are any secrets involved. It’s more a matter of logistics that involves being able to move the water from the wellhead to an acceptable storage location and then back to the point of reuse. The best way in my mind to move or transfer this water is through dedicated pipelines.
Pipelines will take trucks off the roads, thus reducing the opportunity for catastrophic accidents, spills, expensive road maintenance due to deterioration and damage from the heavy trucks hauling the produced water. In round numbers, for every 110 barrels of produced water that is pumped through a pipeline, you can say you took a truck off the road. So, if you pump 50,000 barrels of water through a pipeline, it would be the equivalent to 454 truckloads.
Once the water is gathered at the wellhead and transferred to the pipeline, it has to go to a holding facility. Depending on regulations, this could be above ground impoundments such as tanks that have been specifically designed to store water with high chloride concentrations. Or, it could be stored in below ground, lined pits. The lined pits seem to make the most sense from an economical perspective as you can build impoundments that will hold millions of barrels of water. The only issue is being able to monitor and contain leaks into nearby fresh water aquifers.
In order for the produced water to be consider for reuse, it will have to go through some sort of remediation. Cleaning this water up will require another pit to store the “clean” water in. Biocides will have to be maintained at a level high enough to prevent bacteria and algae growth. Then the water will have to be blended with fresh water to meet the specifications of the end user, which may entail a third pit, or at least a tank battery capable of handling large volumes. This blending can sometimes be done on the fly at the location, just prior to the frac. Again, transfer through dedicated pipelines seem to make the most economical sense.
3. As an International SME in the Water Midstream Industry, what are the main challenges and opportunities you face in meeting the demands of producers?
Answer: There is an old adage that says: “When it’s time to perform, the time to plan is past”. I think as an industry, we did not do a very good job planning on the volume of water that would accompany the increase in wells drilled and the resulting barrels of oil/gas produced.
The obvious challenge is now that the water is here, what can we do with it? We have to be able to move it from the wellhead to a final resting place (SWD) or to a temporary holding facility for recycling and reuse. It is a logistical nightmare. While it would have been prudent and effective to drill SWDs and build recycling facilities prior to the drilling of all these wells, it just doesn’t seem to happen that way. Since it didn’t happen that way, we now see opportunity.
The opportunity is for the midstream water management companies to figure out how and where to locate facilities and pipelines to gather and transfer this water. The challenge lies in being assured that if you invest in the SWD, the facility, and the pipeline that they will come. Remember the movie Field of Dreams? “If we build it, they will come”. The producers need a place to go with their water. Some have even gone as far as to invest in their own SWDs, facilities and pipelines, only to realize that this is not their core business and that they have millions of dollars in capital tied up that may have been better spent on drilling and completing wells. Again, there is an opportunity for the water midstream companies to work with the producer and “liberate” that capital expenditure they have tied up in water management and redeploy it as operating expense to drill and complete more wells.
Going back to the Field of Dreams…we know there is a big, if not huge, demand for SWDs, facilities and pipeline. Most of the capital that has been expended for these operations has come from private equity. Literally billions. That being said, there seems to be a reluctance to invest in this market without a contract for water. It is a chicken and egg thing. Or, putting the cart before the horse. PE is reluctant to invest (even with SWD permits in hand) without a water contract from a producer. Producers don’t want to commit acreage or give minimum volume guarantees in order to get the infrastructure built. So, we have a bit of a log jam.
All of that being said, there is obviously still need for more pipeline gathering capacity, surface facilities and SWD’s. With the right management team, there is still great opportunity for private equity firms to invest in produced water management operations and realize above average returns. As long as we produce oil and gas, there will be water to manage. We may have an abundance of oil because of shale production, but we have an overabundance of water as a result of it!
With the number of midstream water management companies currently occupying this space, many are chasing the same barrel of water. They are applying for SWD permits in the same locale, negotiating with the same landowners for right of way, etc. I think we may see some cooperation within the water management groups, much the same as we see in midstream oil and gas. It only makes sense for these companies to cooperate and share assets, allowing them to meet the needs of the producers at lower capital outlay. It also makes sense for the midstream water companies to team up with the midstream oil and gas companies and share ROW and other construction related costs.
4. How has diversity and inclusion impacted the team and company culture?
Answer: I try to build teams that are productive and loyal. As a leader you have to realize that everyone doesn’t respond to the same stimuli. You have to be able to shift gears as conditions dictate and cater to the different communication styles and personalities on your team. I have found that communication is probably the most effective tool I have in my toolbox. Keeping your team informed of what is coming next and what is expected of them seems to reduce tension and problems.
While I didn’t include it in the discussion above regarding water management and technology, one of our biggest challenges is finding “The Team.” I think it was Steve Jobs that said “It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do.” Finding, recruiting and retaining smart people is critical to the success of the team and the company. I also promote and look for people who challenge, inspire and motivate the other team members…people who are always looking for opportunities to help others make a contribution and ensuring they know we are all in this together.
Takeaway #1: Two of the largest challenges facing the industry are the lack of regulations mandating that produced water be recycled for beneficial reuse, and the lack of water recycling technology that can compete with disposing of produced water.
Takeaway #2: For every 110 barrels of produced water that is pumped through a pipeline, you can say you took a truck off the road.
Takeaway #3: There will always be water to manager as long as we continue to produce oil and gas. We may have an abundance of oil because of shale production, but we have an overabundance of water as a result of it.
If you are a water midstream company seeking talent or a professional seeking a career in this field, please contact Michelle Dutemple at (832) 900-5973 or via email at [email protected].