Just as surging Permian Basin production has transformed water management, the sudden and deep industry downturn could send the produced water business in yet another direction.
Produced water volumes are expected to fall to nearly 20 billion barrels annually for a market value of $28 billion, IHS Markit said in a report. This is down nearly 4 percent from 2019 levels, driven lower by plunging oil prices and oil demand.
“During this current decline in drilling activity, impacts on the water midstream sector will vary from company to company. No doubt the demand for frac water will wane along with an accompanying falling-off in the volume of produced water,” John Durand, president of XRI Holdings, told the Reporter-Telegram by email. “In terms of impacts to the water midstream sector, it is impossible to generalize. The overall impacts will be highly dependent on the financial health and viability of the individual water midstream company itself and whether it has a sound balance sheet that is not overburdened with debt, particularly during a protracted commodity price decline. A key consideration is also the makeup and the financial strength of the collective portfolio of companies in a water management company’s E&P client base. Still another very relevant factor will be the quality and tenor of a water midstream company’s contracts and the nature of those contract structures. Make no mistake, these times will be difficult and highly dependent on the influences and considerations mentioned above as well as the duration of the downturn. Although impossible to predict the extent, it would appear there could be quite a bit of consolidation and rationalization of assets throughout the energy sector, with the water midstream sector being no exception.
