Earthquakes rattle Permian shale cost discipline

A recent spike in earthquakes in the US Permian basin of west Texas and southeast New Mexico is drawing renewed scrutiny to wastewater disposal methods from shale operations, adding another potential layer of costs for producers.

Back-to-back 5.4 magnitude earthquakes that struck the heart of the Permian basin in late 2022 have lent a new urgency to calls to restrict the use of wastewater injection wells, which have been linked to increased seismic activity. Oil regulator the Railroad Commission of Texas (RRC) has responded by expanding the boundaries of areas identified as most at risk and has asked producers that operate within theses areas to limit the amount of wastewater they pump underground, as well as to curb the use of deep wells.

As a result, the industry is facing higher costs, as drilling waste will have to be trucked and disposed of elsewhere. "If we continue to see the scale of the kind of five or greater magnitude events that we saw at the end of last year, you'll start to see a larger impact from a cost and a logistical standpoint for disposal," Rystad Energy senior analyst Ryan Hassler says. This threatens to impose an additional burden on operators that are already grappling with record inflation, a tight labour market and equipment shortages in the Permian basin, where production is growing at a record pace. Disposal of wastewater costs around 40-70¢/bl, while hauling it is up to four times as expensive, according to industry estimates.

Even as the RRC has stepped up efforts to tackle the increase in injection-induced earthquakes, critics have accused it of being too slow to act. "The fact that we're having such high magnitude earthquakes would indicate they are not doing enough," watchdog Commission Shift's executive director, Virginia Palacios, says. And the risk of aftershocks can extend to more than a year after the initial earthquake, making it more difficult to assess whether enough is being done now.

Familiar problem

Earthquakes linked to wastewater disposal from hydraulic fracturing (fracking) are not new for US shale producers. Drillers in Oklahoma experienced similar problems in the past decade and clamped down on injection wells, although dwindling investment in the oil and gas sector in that state also helped to stem the spike in earthquakes.

For every barrel of crude produced during the fracking process, 3-6 bl of wastewater are produced. The most cost-effective solution to date has been to drill new wells and bury the polluted water deep underground. This has been found to trigger earthquakes in some instances, by placing stress on geological faults. "These faults are sort of critically stressed — they're primed and ready to go," US Geological Survey research geophysicist Rob Skoumal explains. "And then these operations come along and push them over the edge."

Pilot programmes are under way to figure out how to reuse the billions of barrels of wastewater produced from shale operations every year. Their potential use for agriculture and lithium mining are just two ideas under consideration. And water management and midstream companies are working on ways to recycle the polluted water for drilling operations elsewhere.

At the moment, smaller operators without the resources of their larger peers have little means of gaining access to recycled wastewater because of an absence of pipeline infrastructure and the exorbitant cost of trucking it to them, but that may change over time. "Being able to build out that infrastructure would allow more operators to participate in a water-sharing type of agreement," Rystad's Hassler says. "That's kind of the trend that would help alleviate some of this induced seismicity."

By Stephen Cunningham