Shale companies in West Texas will have to pay more to transport millions of barrels of wastewater that rises from oil wells and, when deposited underground, can aggravate tectonic fault lines. Following a recent spate of earthquakes, state regulators ordered companies to stop pumping as much water underground, forcing some drillers to move water further afield.
So far, the majority of the earthquakes have been relatively mild, causing only minor property damage. Because of the increasing number of earthquakes, the Texas Railroad Commission, which regulates the oil industry, has decided to close or drastically reduce the capacity of scores of so-called disposal wells in order to protect nearby communities.
Large oil companies such as Chevron Corp., ConocoPhillips, and Coterra Energy Inc. use the wells to inject wastewater into geologic formations. Due to the limitations, Permian Basin drillers have had to find alternative methods of transporting wastewater, including high-cost trucking.
According to shale executives and analysts, trucking the water to disposal wells elsewhere costs about five times as much as using pipelines. Some companies claim they can avoid trucking by sending water through a network of pipelines to seismically unaffected areas. The additional costs come at a time when frackers are already facing higher labor and supply costs.
According to market intelligence firm Sourcenergy, the annual cost for Permian producers to dump that water could rise by more than $200 million if they have to truck it all out. If companies are unable to find new disposal methods, they may be forced to reduce oil production by tens of thousands of barrels per day.
The setback may also limit some producers' ability to respond to the highest oil prices in years by increasing output. Many of those forced to truck water elsewhere will almost certainly have to relocate drilling rigs away from the areas where the Railroad Commission concentrated its cutbacks, according to executives.
"If you're forced to truck it, it's going to have a devastating impact on your lease operating expenses," said Richard Jennings, president of Atlantic Operating II LLC, a private West Texas oil producer that says it operates shallow disposal wells unaffected by the restrictions.
Oil producers pumped approximately 342 million barrels of water into the saltwater disposal wells that the Railroad Commission began restricting last fall in 2020, the most recent year for which data is available. The regulator acted in response to a significant increase in earthquakes, including near populated areas such as Midland and Odessa.
According to Sourcenergy, which analyzed state seismic activity data, the number of earthquakes with a magnitude of 3.0 or greater in the Texas portion of the Permian increased to 176 last year, up from 51 in 2020 and nine in 2019.
Seismologists in the United States have linked seismic activity to wastewater disposal in oil fields. Following an increase in earthquakes that damaged buildings and caused injuries in Oklahoma a few years ago, regulators moved to limit injections in some areas.
According to scientists, large amounts of injected water can raise pore pressure in certain geologic formations, and if faults run through those formations, the pressure pushing against them can cause seismic events.