Private equity rushes in to end shale drillers' water torture
New York
DRILLERS in America's most prolific shale basins have a US$34 billion headache that private equity wants to provide a cure for.
Over the past year, private equity-backed newcomers have stormed into the nation's oilfields in a quest to build a vast new network of pipelines to help drillers handle the more than 16 million barrels of water a day produced by fracking in the Permian Basin alone.
In just the last six months, WaterBridge Resources LLC, backed by the private equity firm Five Point Energy LLC, has taken over water pipelines and disposal wells in the Permian from Concho Resources Inc Halcon Resources Corp and NGL Energy Partners LP. In North Dakota, meanwhile, Hess Corp teamed with private equity giant Global Infrastructure Partners to spin off its water unit into a separate entity.
"In the Permian alone, there's a market for half-a-dozen new billion-dollar companies in the midstream water space," said Steve Coffee, president of the Produced Water Society, by telephone. "There's tons of these billion-dollar deals to be made."
When a driller fracks a well in the Permian, it can produce 5 gallons of water for every gallon of oil extracted from shale rock. After the fracking is completed, that water has to go somewhere. The next step: Moving it to a disposal well to be pumped back into the Earth. That's where the new pipelines come in.
About 20 per cent of wastewater produced by the top 10 explorers in the Permian is now outsourced to companies like WaterBridge and Tailwater Capital-backed Goodnight Midstream LLC, while the rest is handled by the drillers themselves. But that could grow to about 50 per cent as early as next year, according to Chris Hapchuk, an analyst at East Daley Capital Advisors.
The idea is to grow the wastewater transport business into an intricate web that resembles today's oil and gas pipeline network, said David Capobianco, chief executive officer of Five Point Energy.
As producers outsource their water handling in an effort to appease investors wary of superfluous spending, the deals will keep on coming, said Patrick Walker, CEO of Goodnight Midstream. BLOOMBERG
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Energy & Commodities
Oil settles higher on supply concerns in the Mid-East, economic woes subdue gains
Seatrium unit to fully redeem S$500 million worth of floating-rate bonds early
Anglo rejects BHP takeover bid as significantly undervalued
India rice prices at three-month low on shrinking demand
Gold prices set for weekly decline ahead of US inflation data
Pricey coffee is here to stay as hoarding, heat hit Vietnam supply