Some investors see fortunes to be made in the U.S.’s hottest oil field—by speculating in water, not crude.
The Wall Street Journal reports fledgling companies—many backed by private equity—are rushing to help shale drillers deal with one of their trickiest problems: what to do with the vast volumes of wastewater that are a byproduct of fracking wells.
When producers blast a mix of water, sand and chemicals to release oil and gas from rock formations miles underground, they not only unlock oil and gas, but also massive quantities of briny water long buried beneath the surface. Drillers in the Permian Basin in New Mexico and Texas currently generate more than 1,000 Olympic-size swimming pools full of this murky, salty water every day.
Handling it amounts to up to 25% of a well’s lease operating expense, according to analysts.
Investors have expressed interest in this corner of the U.S. shale industry, as oil production in the Permian soars to record levels. Analysts said the region could produce more than five million barrels of oil a day by 2023, more than the current daily production of Iran.
Sensing a chance for a big return, private equity firms have invested more than $500 million into wastewater-disposal companies such as Solaris Water Midstream, WaterBridge Resources LLC, and Oilfield Water Logistics. There are roughly a dozen of these water-focused companies that analysts say could each be worth hundreds of millions of dollars.
“The math on this is really, really easy,” says Christopher Manning, a managing partner of Trilantic Capital Management LP, which has invested in Solaris Water Midstream and committed as much as $100 million to the company. “If the Permian goes up by one million barrels per day in oil production, it’s going up six million barrels in water. That’s an opportunity.”
