Mixing oil and water
Company linking aquifer to fracking fields with pipeline
PECOS — A Houston water well company, hoping to float sagging revenues and remake itself, is tapping a West Texas aquifer, building miles of pipeline and pioneering a new way to get water to the oil field.
Layne Christensen, based in The Woodlands, is completing a six-well, 100,000-barrel-a-day pipeline from Pecos to the heart of the Delaware Basin, one of the busiest and most prolific oil fields in the United States.
“It’s a really big deal for us,” said Layne chief executive Mike Caliel.
Oil and gas companies are thirsty for water. Hydraulic fracturing, the process of pumping a mixture of water, sand and chemicals into a well under such high pressures the shale rock cracks and releases oil and gas, has revolutionized the industry. But oil companies need at least 500,000 barrels of water to frac a modern well. And much of that water is now trucked rather than piped to the well.
Layne says it can provide water more quickly, more reliably and for less money via pipeline. Layne hasn’t released specific figures, but some estimate it costs as little as 2 cents per barrel per mile to ship water via a pipeline compared to at least 9 cents — if not far more — for trucking.
Technology has dramatically changed the water business in the oil and gas industry. Companies now drill horizontal wells that run 10,000 feet, or longer, and pump them full of even more water to create more pressure in the well and produce longer,
wider fractures in the shale.
Such ravenous water appetites mean customers need a different method of getting their water, said Michael Anderson, Layne’s chief financial officer.
“It can’t be done with trucks,” Anderson said. “A truck can handle 100 barrels of water. We’re talking about 650,000 barrels needed to do a completion. It’s just a different game.”
Layne executives now see a new opportunity in the Delaware, the hottest section of the hottest oil and gas basin the country, the Permian. Much of the nation’s drilling is concentrated in the Permian, which accounts for about half the oil rigs operating in the United States. The Delaware, meanwhile, is attracting billions of dollars in investment from companies such as Irvingbased Exxon Mobil.
Could generate millions
Historically, oil companies have looked to farmers, ranchers and even cities to buy water. But those sources are usually fresh water, which can be used for drinking or agriculture, and there’s a growing backlash against using it for fracking.
Layne, instead, is tapping brackish aquifers. With competitors close on its heels, Layne is trying to persuade oil and gas companies that they can more reliably and responsibly buy this nonpotable water.
It’s more than a conservation mindset. Layne, with 2,500 employees and global operations in water, mining and municipal services, hasn’t posted a profit in six years and has watched revenues tumble 40 percent in that time, from $1 billion in 2011 to $600 million last year, due in part to recent troubles in the mining industry. A new management team, including Caliel and Anderson, wants to refocus on water. It has already sold off two of Layne’s divisions, including its heavy construction business, which built sewer plants, pipelines and other utilityscale projects, and is considering a sale of its mining unit in the future.
The Pecos water facility is one part of that plan.
“Yeah, it’s a component of Layne 2.0,” Caliel said.
Layne expects to spend about $18 million into the project, designed by Houston engineering firm Lockwood, Andrews & Newnam, and quickly recover its investment. At current water prices, the project could generate more than $30 million a year in revenues if Layne sells 100,000 barrels a day.
Becoming a utility
This is new territory for Layne. Over 130 years in business, Layne has drilled more than 50,000 water wells and laid thousands of miles of pipe for customers. And while it has served the oil and gas industry for the last halfdozen years, it’s always worked for customers to find water, dig wells and build storage.
But with this project, Layne owns its own land, water, pumps and pipeline; it becomes something of a utility, executives said, charging customers for usage.
The pipeline, which the company is calling Hermosa, runs 20 miles, from a desert plain just west of this city of 9,200 to oil and gas fields to the north. It taps the Pecos Valley aquifer, which stretches for miles under the city, in the shape of bowl.
Most of Layne’s 800 acres here used to be a cotton farm. Workers, nearly done with construction, have drilled new wells, refurbished old ones with new valves, pipes, meters and controls, dug two catch basins — each the size of a small lake — and built a pump station with hundreds of horsepower.
Each well and pump is fitted with digital sensors and wireless routers, so all parts of the project can communicate with each other. If the catch basins get low, their sensors will tell the wells to start pumping.
T-shaped piping rises out of the ground at intervals along the path north, allowing customers to attach flexible hosing, with digital meters that track how much water the customers use. Layne will be able to control everything from an office in Midland or even from its Houston headquarters.
Workers were hustling this week to link the last few hundred feet of inchthick polyethylene pipe in the 20-mile pipeline. The project should deliver water to customers by month’s end.