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The cost of dealing with permian earthquakes

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Permian oil producers face hundreds of millions of dollars in additional costs to tackle the growing problem of earthquakes in the country’s most productive oilfield.

Shale oil companies operating in earthquake-prone areas of West Texas could pay at least $207 million more to move large quantities of brine produced from oil wells to remote disposal sites where government regulators are suppressing deep-water injections. If all disposal wells in earthquake-prone areas are curtailed or closed by regulators, disposal costs could rise to $763 million, according to an analysis by Sourcenergy, a Houston-based energy data company.

“You will see much greater cost impacts, especially for Delaware basin operators,” said Sourcenergy CEO Josh Adler. “There is a lot of water and there is a lot of infrastructure, much less.”

The Delaware Basin is the western lobe of the Permian Basin in West Texas.

The cost of oil production is rising in Texas as shale companies face the cost of trucking large quantities of brine or building new water pipelines to dispose of wells outside earthquake-prone areas. At best, these high costs and logistical challenges of finding new disposal sites are a minor inconvenience. At worst, companies unable to get rid of their salt water could cut tens of thousands of barrels of crude oil production per day, hitting a net profit.

However, the cost of inaction is higher. Oil companies are already facing growing criticism from the public over greenhouse gas emissions, oil spills and abandoned wells. Earthquakes – which have a direct impact on public safety – only add to the pressure on one of Texas’ largest industries.

Seismologists attribute the increased frequency and intensity of West Texas earthquakes to the oil industry’s routine practice of injecting brine — a byproduct of oil production — into deep disposal wells. For every 4 million barrels of crude oil pumped daily from the ground in West Texas, at least four barrels of brine are produced.

A decade of brine injections into drainage wells 10,000 feet deep intensified the pressure and caused movement along ancient fault lines.

The number of earthquakes stronger than 3 on the Richter scale — enough to fracture walls and foundations — has increased 88-fold over the past three years to 176 last year, compared to earthquakes in 2018, according to data from the University of Texas at Austin. TexNet seismic monitoring and analysis by Sourcenergy.

The Texas Railroad Commission, the state’s oil and gas regulator, has taken action to limit the amount of brine that can be injected into disposal wells to reduce what it called an “unprecedented” increase in earthquakes.

In September and October, the commission ordered oil producers in two “seismic response zones” in the Permian Basin to halve the amount of brine they put into disposal wells, and imposed a one-year moratorium on new permits that would allow producers to inject brine into disposal wells in these Regions.

Last month, the commission ordered the suspension of deep brine injections in a particularly seismic zone in the Midland Basin, and the indefinite withdrawal of permits for 33 disposal wells. The action stripped 14 companies, including Houston-based ConocoPhillips and Midland-based Rattler Midstream, owned by Diamondback Energy, of the ability to dump nearly 1 million barrels of brine.

After the 4.2 and 4.6 magnitude earthquakes in the Midland region last month, the Railroad Commission said it would impose more restrictions on oil companies pumping brine into deep drainage wells in the region. Sourcenergy estimates that about 250,000 barrels per day of Texas oil production worth about $7 billion could be at risk of being cut off due to saltwater disposal restrictions.

Until more water pipelines are built, oil companies affected by saltwater restrictions will have to rely on water trucks to transport salt water away from earthquake-prone areas, a prospect complicated by a national shortage of truck drivers and pledges by oil companies to reduce carbon emissions. Trucking brine can cost up to 10 times the cost of pipelines.

“There will be a lot of trucking (for salt water), and it will be really expensive,” Adler said.

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