Issue #35 | “Water Midstream” Worthiness?

Oilfield Water Weekly

Wednesday December 4, 2019

If we only had a dollar for every time we’ve heard the phrase “Water Midstream” this year… we’d be rich! It’s been THE hottest buzzword in all of shale during 2019.

A handful of oilfield water management companies have presented as water midstream firms pretty much since their inception (some for multiple years). Other firms with water assets that have been categorized in ‘service’, ‘technology’, or ‘in-house E&P’ buckets in the past are now rebranding and re-strategizing / re-positioning to adopt the ‘midstream’ moniker in their names or descriptions.

Even a cursory glance at trading multiples shows why. Midstream firms trade at premium valuations to pretty much everything else in the oilfield thanks to the cash flow stability inherent in the midstream model.

But what makes a given oilfield water management company worthy of transcending into the realm of midstream, which was traditionally hydrocarbon geared? What makes water firms eligible for midstream multiples that are key to so many of the produced water deals happening in the space at the moment?

Fortunately, we’ve got some of the smartest oilfield water finance folks (from C-level execs to Investment Banking MDs) on speed dial here at Oilfield Water Connection. These folks have spent many braincycles thinking about water midstream worthiness criteria this year.

So we called on a few this morning and asked each thought leader for one sentence summarizing the key characteristics they look at to determine if a given firm’s water management asset portfolio is deserving of the “water midstream” moniker. We got a bit more than we bargained for! People are passionate about this topic.

Here is feedback from 9 senior bankers, analysts, CEOs, and investors (feedback is being shared anonymously, but these are high profile business leaders in this space). There’s also a ton of news in the weekly digest below this important feedback…

  • “Tenor and terms of the contract is the biggest difference. Key aspects include pipelines, multiple operators with multiple connected disposal wells.”
  • “I’d say there are two key criteria to qualify… one operational, one financial. Operationally, the company must be moving produced water (no source water) over pipe. And financially, the company must have “midstream-like” contracts… MVCs and dedicated acreage.”
  • “One word – ‘Contracts’. Present value of true contracted cash flow deserves a lower discount rate than spot pricing/volume exposure, which translates to a higher multiple.”
  • “Term deals – 15 year contracts – on water volumes.”
  • “Characteristics of water midstream – 1) long term contracts (10+ years) some sort of commitment from a producer (acreage dedication, MVC, etc) ; 2) integrated pipeline network of disposal / storage / treatment / redelivery; 3) multiple customers on a common system. Primarily, “midstream” is determined by the quality of the contracts. Quality of contracts is driven by trust producers have in the midstream provide, which requires an integrated network to deliver the reliability in a capital efficient manner. Multiple customers are necessary for risk diversification and capital efficiency (using the “white space”).”
  • “I think we would call something Water Midstream if it looks like a G&P contracted business. So, SWD (not freshwater delivery – we think of that as an oil service function) – and then acreage dedications, or fee-based contracts. Anything with a central delivery point into a larger diameter pipeline for deliver to a disposal well.”
  • “Our definition of water midstream assets are those which include buried pipeline infrastructure networks which move produced and other waters to be used exclusively for upstream operators supply and takeaway needs. In addition, water midstream assets include SWDs with buried pipeline networks connecting those SWDs. Finally, treatment and recycling assets (fixed and mobile), and source water wells and well field development also fall into the water midstream classification. What we do not classify as water midstream are temporary oilfield service equipment that OFS companies who predominantly or exclusively deploy above ground, such as layflat hose to stage and transfer water for fracing operations.”
  • “It is all about stability of cash flows (long-term contracted revenue with credible counterparties, preferably very long-term contacts, in economic basins). Size clearly matters as well.”
  • “Here are three key metrics I look at. One, the amount of dedicated acreage (50,000+ starts to confer real scale advantages, especially if it is relatively contiguous). Two, emphasis on integrated pipeline systems connecting SWDs in a way that allows the operator to shuttle water based on operational concerns. Three, strength and depth of contracts.”

And now, here is your oilfield water business news digest for the past seven days…


News Digest

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145 Infill Thinking members, mostly decision makers in high-level oilfield market positions, weighed in on this year-end survey. They had lots to say about oilfield water management in response to this open-ended question. These hot takes are raw, honest, and invaluable as you plan your 2020 business...

Hydrozonix Announces HydroFlare Patent Award

HydroFlare reduces flare emissions as a wet scrubber but utilizes produced water instead of fresh. This allows produced water to be evaporated while it scrubs flare emissions. Salts and associated solids can be collected as a slurry or dry solids...

2.8 Mag Earthquake Rumbles In Odessa / Gardendale Area

The U.S. Geological Survey reports a magnitude 2.8 earthquake this past Monday, 4 miles southeast of Gardendale. CBS7 has heard from people who say they felt it as far as along Faudree Road, and we at Oilfield Water Connection talked to folks who felt it as far away as West Odessa!

3.8 Mag Quake In The MidCon

USGS reports significant seismic activity near Prague, OK this past Monday...

Officials Investigate If Recent Earthquakes Are Related to Oil & Gas Activity

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Bid/Ask Gap In Big Permian Land Auction Exemplifies The Need For A Broad Reset Of Expectations

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BLM Releases Notice About Online 72-Parcel Sale Scheduled For February 2020

The Bureau of Land Management proposes to offer 72 parcels totaling 17,667.82 acres at its February 2020 quarterly oil and gas lease sale. The proposed parcels are located in Eddy, Lea, Rio Arriba and Sandoval counties in New Mexico; Roger Mills and Kingfisher counties in Oklahoma; and Cheyenne County in Kansas...

WATER TALENT POOL: John Tintera - A Tribute To A Titan

Brent Halldorson writes: "Many in our industry know John Tintera or have heard of him. What you may not realize is just how much good work John has accomplished behind the scenes over his career..."

WATER TALENT POOL: Permian Water Midstream Firm "Heavily Hiring", Recruiter Says

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WATER TALENT POOL: People On The Move...

Charles Condit is officially on board at Aureus Energy Services Inc. as Business Development Specialist...

WATER TALENT POOL: New Tallgrass Energy President Announced

Yesterday, Tallgrass Energy announced the appointment of Matt Sheehy as President of Tallgrass Energy, effective immediately. He will report to Tallgrass CEO Bill Moler and focus on the company’s commercial and business development efforts...

Oklahoma Energy Resources Board Pledges Money To Contain Saltwater Purge

Friday's order came after regulators voiced a need for a better way to handle the water, and the OERB offered to help...

TROUBLE IN SHALE: Details On This Week’s Mass MidCon Frac Reduction In Force [Free Trial To Read]

After an open records request, Infill Thinking has been able to learn some new insights about the massive MidCon reduction in force happening this week in the oilfield service industry....

TROUBLE IN SHALE: Basic Energy Services Delisted By NYSE

The New York Stock Exchange informed the company on December 2, 2019 that it had determined to suspend trading in Basic's common stock...

TROUBLE IN SHALE: Rig Count’s Been Laid To Waste, But Operator Drilling Program Outlooks Still Skew Negative [Free Trial To Read]

On the bright side, while still negative, the magnitude of this latest batch of guidance falls short of May 2019’s extremely bearish forward commentary...

XRI Fountain Quail Unveils "SpOT"​ Standard for Recycled PW

Aaron Horn has developed an elegantly simple metric to easily measure recycled PW quality - the SpOT Standard....

Water Management Takes A Leading Role In The Latest JPT Lineup...

Recent trends in water management have taken a more-comprehensive and holistic approach toward the stewardship of water as a critical resource. At this link, you'll find a list of several new articles and SPE papers that appear in this month's Journal of Petroleum Technology...

New Mexico Political Report Comments On State's Plans For Produced Water

On a chilly evening in October, Santa Fe-area residents packed into the St. Francis Auditorium for the second of what would be five public meetings held by the New Mexico Environment Department on the state’s plans for produced water.,,

Permian Citizens Asked To Use Water Only For Essential Tasks After A Major Pump Station Failure

Yesterday, the City of Odessa asked residents on the north side of town to keep their water use to a minimum after the Upper Plane Pump Station experienced a major pipe failure...

Sourcewater Awarded by Frost & Sullivan for Its Digital Water Intelligence Platform for the Energy Industry

Frost & Sullivan recognized Sourcewater, Inc. with the 2019 North American Enabling Technology Leadership Award...

Senate Confirms Brouillette, Former Ford Lobbyist, As Energy Secretary

The U.S. Senate on Monday confirmed Dan Brouillette, a former top lobbyist for Ford Motor Co (F.N) who believes fossil fuels will power a large part of world energy needs for many decades, as President Donald Trump’s second energy secretary...

The Art Of A Water Midstream Deal [Paywall]

This feature article on the H2O Midstream/Sabalo transaction was written by the CEO of one of H2O Midstream's technology partners and a sponsor of our May 2020 conference, Mark Patton at Hydrozonix. The new recycling facility (named it El Dorado) is commissioned later this month. Not only will it cut recycling costs in half, but chemicals have also been eliminated from the process...

Bakken Regulator Exponentially Raises Estimates For Produced Water Spill

The initial estimate of approximately 500 barrels of produced water spilled in an October pipeline leak was based on observation of surface impacts at the time of the release by Marathon Oil. The updated volume of 32,826 barrels is the result of the ongoing investigation that included an analysis of meter readings.

Another Bakken PW Spill Reported This Week

The North Dakota Department of Environmental Quality (NDDEQ) has been notified of a produced water spill caused by a leak in an abandoned disposal well at the Lignite Gas Plant in Burke County. The gas plant is operated by Steel Reef, LLC.

How A New Industry Could Compliment North Dakota’s Excesses, Including Excess Produced Water

“Currently the water to oil ratio is a little over one, meaning that for every one barrel of crude oil produced, there are over one barrel of brine produced in the Bakken. This comes out roughly to 2 million barrels per day of water being produced …and this comes from the North Dakota Pipeline Authority,” said Krieger....

How Does Lithium Mining Work?

There are two main sources of lithium: mines and brine water. Most of the world’s lithium (87 percent) comes from the latter source...

Produced Water: Growing Disposal Challenge Or Untapped Resource?

Question looms large as US regulators consider weakening discharge rules to help manage increasing volumes of produced water...

HE Frac Water Heater Headed Out In The Frigid Northern Oilfield

What's in the sea can? Fuel savings,that's what!

Blockchain: It Took A Wyoming Cowboy To Get It Done

Blockchain can take all of this data, manage it seamlessly and provide unhackable data that is objectively verified. These last two points are crucial to the growing movement of applying oilfield produced water that has been cleaned onto the land. That requires traceable, third-party verifiable data. Blockchain is the key to all that.

And Finally... A Letter From The Other Side Of The Aisle ['Understand Those Who Challenge You'... Did Sun Tzu Say That?]

Democrat Angel Peña works for the Conservation Lands Foundation in Las Cruces. He has some strong opinions on oil and gas production and the role water plays in it...

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