Investing In Salt Water Disposal In The Permian Basin
Companies involved in the exploration and production of oil and gas have more to think about than just oil and gas. There’s water too – and lots of it! A study calculated that for every barrel of oil that comes out of North America’s Permian Basin, there are six to eight barrels of water to deal with.
Considering the huge volumes of oil that come out of the ground at the Permian, that’s a staggering amount of water. Imagine something like 1,000 Olympic-size swimming pools every day. But the water is far from as pure as you’d find in a swimming pool. The water emanating from the wells is packed with minerals, oil residue and salt, which makes it extremely hazardous. It must, therefore, be disposed of according to strict legal guidelines.
The compulsory safe removal of this hazardous waste has led to the establishment of a whole industry: salt water disposal. As oil prices have rebounded from the lows of recent years, the Permian Basin has seen an increase in activity. And, as activity in the oil and gas industry grows, so does the demand for salt water disposal.
Huge Rise Anticipated in Permian Oil & Gas
Throughout the period of low oil prices that began at the same time as the financial crisis of 2008, many companies chose to create ‘drilled but uncompleted’ (DUC) wells. The intention is to wait for prices to rise before putting the wells into action. This led to a significant build-up of potential for the local industry, just waiting for a more favourable economic outlook.
The recent recovery in the oil price, therefore, has resulted in fewer DUC wells and more wells being put into production.
This increase in activity requires a parallel increase in salt water disposal capacity. Salt water disposal is always necessary, whatever the price of oil, but as production increases, so does the need to deal with the resulting quantities of hazardous liquid.
The Permian oil producers have to dispose of all that salt water according to precise industry regulations – which indicates a boom-time for the region’s salt water disposal sector.
Matthew Woods, Managing Director
Excess Demand For Salt Water Disposal Could Drive Up Prices
A recent study has indicated that the combination of renewed completion activity coupled with the decrease in the DUC inventory in the Permian Basin will fuel demand for additional salt water disposal capacity. However, even a modest rise in salt water volumes could create a short-term challenge for the industry. Current capacity is insufficient for a rapid increase in production. Until adequate salt water disposal facilities come online, therefore, prices for the service are likely to rise.
What Does This Mean for Investors in Salt Water Disposal?
Investors considering putting their money into to oil, but wary of market uncertainty, may choose instead to invest in the more stable salt water disposal sector. And, for the reasons just stated, it seems that the Permian Basin presents a particularly lucrative opportunity.
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