Phillip: Hi, I’m Phillip Jefferson and this is The EnergyMakers Show. And today’s topic: produced water, seismicity, and disposal well risk. My guest: Laura Capper, CEO and founder of Cap Resources and The EnergyMakers Advisory Group. Hey, Laura. Welcome to the show.

Laura: Great to be here, thank you.

Phillip: So, induced seismicity, produce water and disposal well risk. That is a mouthful. Tell us a little bit about what all that entails and what exactly it means, and how you became an expert in what I’ve gathered to be somewhat of a controversial sector?

Laura: Yeah, it’s an interesting topic these days and it really all ties back to water use in oil and gas. We got started in about 2007 studying that market, and you can imagine it’s evolved substantially because that’s about when we started fracking, started using much larger volumes of water to drill and complete a well. So, all this ties around to how much water we’re using, how we’re using it, when we’re done with it what we do with it. So, produced water accompanies all oil and gas drilling. So, if you’re an operator and you’re going to drill an oil well or a gas well, roughly for every barrel of oil you produce you might produce between two, to say, eight barrels of water along with it.

You don’t get a choice, when you produce that oil that water is going to come up with it, and so you have to deal with that water just the way you process the oil. So, that’s become kind of an industry in itself, and it turns out the way we deal with roughly 40-45% of that produced water is that we put it into disposal wells, which are underground injection wells. That’s what’s causing some of the seismicity that you’ve heard about in the news recently in Oklahoma, a few cases in Texas, a couple in California that have bubbled up. It’s all tied together with this water use, how much we’re using and how much we’re injecting back underground.

Phillip: So, when you talk about seismicity, are we in the same category as earthquakes? Are these two things distinguished?

Laura: The term seismicity is really just another description, maybe a more scientific description of earthquakes. But simplistically, basically, underground you could have a fault with energy forces coming in on that fault, and when you change the stress fields or change the pressure field, the energy, that fault can slip. In that slipping, that’s what releases the energy that you feel as an earthquake. So, they range from minute things you would not in a million years feel. As a matter of fact, when you frack a well, you’re fracturing, right? Creating little, teeny, faults or micro fissures. Those are little, teeny, teeny, teeny earthquakes.

Phillip: Wow, interesting.

Laura: Typically, you would never feel them. Onto the really large ones, say the one that happened in Japan that was just disastrous several years ago.

Phillip: But that had nothing to do with the disposal well, right?

Laura: Oh my gosh, that’s correct. That had nothing to do with the disposal well. There’s a lot of fallacies in this space, so let’s make that very clear. No, the earthquakes that are happening that are related to oil and gas operations are generally the lower magnitude earthquakes and there’s been relatively little consequential damage, but there’s been a little bit. We’ve had four 5.0s in Oklahoma, so that’s enough to be a concern.

But we have a scale that we keep track of those earthquakes by the amount of energy that they release. Most of the ones that we’ve studied in our report pertain to oil and gas operations and are generally on the very low end of the scale. Although, there have been a handful that have been of concerning levels. So, we’ve got to get our arms around this issue.

Phillip: So, are we seeing increases in induced seismicity because we’re disposing more water as we’re producing more, or what’s causing it exactly?

Laura: So, first off, for an earthquake to happen there need to be about 12 geological characteristics in place before that can happen. The fault has to be aligned a certain way, certain stresses, a lot of geologic characteristics have to be all in place. These geologic characteristics aren’t in place every place, so some places are never going to see an earthquake because those factors aren’t in place. If all those conditions are ripe to begin with, and then you start putting more water on top of it, that could, in turn, trigger an earthquake.  So, water plays a role, but what we can tell is that it’s really kind of the long-term effects of injecting after all these years. One year, after another, after another that these volumes have kind of built up over time that is causing these stresses where we’re more susceptible to earthquakes.

Phillip: So, from what I gather, these earthquakes aren’t necessarily causing houses to fall and it seems like it’s somewhat infrequent, so what’s the real risk to an operator then?

Laura: Right. As I said, the damages are not consequential. There have been no consequential damages in Texas. It’s been fairly minimal in Oklahoma. Some older buildings were impacted by some of the higher magnitude events, but the issue is the concern it causes in the public’s mind. If somebody is uncomfortable, or doesn’t feel secure in their own backyard, we’ve collectively got a problem. So really, it goes to speak to kind of operators’ social license to operate. We want to be a good citizen, we want everybody relaxed about our operations, we’re doing the right things for the environment. So, if there’s any discomfort level, it’s something we need to address. Regulators are driven by that as well, right? They have to balance their objectives. They’ve got to maintain state revenues, but they’ve got to make sure everything is operating extremely safely, and then they’ve got to serve their public, their constituents, too. So, if any one of those three things is not going right, they’ve got to be addressed by the regulatory boards.

So, a pragmatic concern is that one way regulators can try to stem seismicity, as they’ve done in Oklahoma, is to restrict certain injection volumes, restrict certain areas. So, that creates a financial stress for the operator. So, what we’re trying to do in our report is just kind of stay ahead of all that. If you know that this area could develop into a problem, four or five years down the road, you’ve got plenty of runway now to maybe focus on another area, change your behaviors, kind of self-police rather than waiting for something to go wrong and then having the regulators come down on you. The mindset these days is more, let’s self-police. Let’s stay ahead of the curve.

Phillip: What is the level of risk that we’re seeing right now associated with some of these earthquakes?

Laura: We have been injecting into certain disposal well formations for so long they’re showing fatigue.  That could manifest itself in a couple of ways. One of the ways is seismicity.  Another issue is that some of these formations are starting to show different pressure behaviors that indicate we’re not going to be able to keep injecting that formation in the same way for much longer. So, that’s kind of sending early signs to industry, we may need to change some of our strategies as we go forward.

Phillip: So, kind of back to the water being injected into these disposal wells; is every time we’re injecting water back into the ground with these disposal wells, is it causing seismicity every single time?

Laura: No, far, far from the truth. In fact, we’ve been using disposal wells for probably around 100 years now. I think we have 100,000 disposal wells operating across the US.

Phillip: Geez, wow. Ok.

Laura: These events have been very, very recent. Really, since 2000 is when most of our focus studies started. So, they’ve been fairly recent and very geographically constrained. So, you might have a hundred square miles over here, and not one disposal well has ever been associated with a seismic event. Then you dial over to California, or you dial over to Oklahoma, that has a lot of different environmental characteristics; different geology, different amounts of water, different drilling and completion practices, and there you might see concentrated pockets where you’ve had a great deal of earthquakes.

So, it varies very much by region. Texas has had a persistent history of very spotty earthquakes, but they’re pretty far apart and pretty far between. So, if you were to contrast Texas and Oklahoma; Oklahoma in recent time frames has had three, four thousand earthquakes that are above, say, that felt level, maybe a 2.5 or 3; whereas Texas has had hundreds in comparison.  So, there is huge variability regionally and there are earthquakes in other states, too.  We’ve had them in Arkansas, we’ve had them in Colorado, but typically they’re geographically constrained.

Phillip: That’s interesting because when I was trying to prepare for this interview, the only thing that I could find in terms of research that every time I stumbled across a report, it seemed like I was reading a Ph.D. thesis. They’re very, very technical. It was very difficult to understand for someone not familiar with it. So, you mentioned that you are doing a report with your company.  Tell us a little bit about what that report is. What makes it different? Are you focusing on Texas? Which region are you focusing on because these reports that I’ve come across, they all seem to be very regionalized, and I guess now that sort of makes sense. So, explain yours a little bit more.

Laura: Sure.  So, we started picking up, really about 2007 that there could be issues with disposal wells, because we were just putting more and more water into them. So, we really started kind of pulsing the market early on, and then in about 2011, seismic events started occurring and we started correlating those with some behaviors that we’re seeing.  You’re absolutely right, there is brilliant research out there and we’re kind of groupies of these Ph.D. seismologists. And what they’ve done is they’ve done extremely deep dives in a particular area. So, Barnett is a great example around the Dallas-Fort Worth airport.  A huge amount of research has been done there with a lot of available scientific data that has basically determined that most of those activities seem to be correlated with injection disposal.

So, a whole lot of data, takes months, and months, and months to do a really deep dive to figure that out. And there have been hundreds of those studies. So, we might have looked at 30 different researchers in Texas and compiled all of that in our chapter on Texas seismicity.  What’s different about our study, I think, is that oil and gas operators are used to keeping a very close eye on their own wells. That’s their business, that’s what they do well. But they might not keep as close an eye on the wells next to them. And in this world, all these wells could be sharing the same injection formation. So, what we’ve done is we have tried to do a broad characterization of all these injection formations by looking at the behaviors of all the wells that are injecting into them. So, to my knowledge, nobody else had done that; really try to build kind of a reservoir wide picture of what’s going on with all these injection wells. It turns out, if you’ve got, say, 800 wells maybe injecting into a shallower formation in the Permian, and let’s say 800 of them exhibit similar characteristics, you’ve probably got a pretty good picture of how that overall formation is behaving.

So, we kind of built this thing as a guidebook for operators. Maybe you don’t have the luxury of assigning a full-time geologic and geophysical staff to study these issues for a couple years, as my group had did. This is more of a reference book, so you can kind of flip a page and say, ok, what’s going in this formation, this depth? Is it the pressures I’m comfortable operating at? Is it at the volumes I think it can accept? And if not, maybe also through this guide I can see some other formations that might be more receptive.  It’s much more of a fly over study trying to give you a big picture. What’s really going on with all of our disposal well infrastructure?

Phillip: Ok. And since everything is so regionalized, as I’m kind of starting to learn from you, and each basin, it seems, has different characteristics and is producing different amounts of water. Because it seems like a big deal with these large volumes. How are we watching that unfold?

Laura: Well, and that’s a lot of what motivated us to do this report is because when you see signs of stress in industry, and that the markets are a changing, that also creates opportunities. So, maybe the incumbents that are doing things the same old way might get a little hurt in the process. The Johnny-on-the-spot folks that see a new opportunity and move fast could be pretty lucrative. So, in this case, if you’re an operator, and you’re finding in the areas I’m disposing into, either I’m having more seismicity that I’m comfortable with, or I’m seeing signs that some of these formations are starting to pressure up a bit, I don’t have a whole lot of choices. So, I’ll want to minimize my water, right? I’ll want to recycle everything I can, so I have as little as possible to get rid of.

So, number one is recycle what you can. That’s an economic decision. Recycling is not free, so there’s a cost level that will make sense for you. And then, of the water that’s left, you need to deal with it somehow. If you can’t put it in a disposal well that’s a very cheap, and shallow, and close to you, because that formation isn’t accepting water in the same way that it used to, then I’m either going to have to find a different formation, so that could be an increased completion cost. I might need to complete to a new zone, as an example. I might need to drill a new disposal well someplace else, further away, so now I’ve got the cost of a new well, plus I’ve got to transport my water to that well, so either truck or pipeline. What we’ve found is that about half of the spending in oil and gas water management really evolves around taking produced water, handling the transportation cost, and then getting it to a disposal well.  So, about half of our water, excuse me, half of our water management costs are going there. It’s a huge number.

So, the stresses that are going on, if we increase that sector even by as little as 20% cost, that has a 10% overall bearing on our cost in oil and gas. So, it’s a huge thing these water management costs are important. Most of it’s going to transportation. So, it’s really opened up an entirely new market in oil and gas. Instead of midstream, with oil and gas pipelines, it’s midstream with water pipelines. We’ve tracked about 60 companies now that are in that space and competing very aggressively. It’s going to be a big market. In fact, I hear this phrase a lot, water is the new oil. It is as important as the oil. Water is so important to us that we need to master that. We need to have this under our control.

Phillip: So, is this, because I know you said you’ve been working on it for several years now, is this available? Can people get this report now, or when will it be available if not?

Laura: Yeah, this has been a labor of love. It turns out that we ran into lots of data issues, we had to do lots more data cleansing than we thought to make sure we had the story right, and I’m really pleased to say now we have an incredibly rigorous report.  Every area that we’ve looked at we’ve kind of sliced it, diced it different ways to make sure that all the data is hanging together, and it presents a pretty compelling picture of where you might have higher risk exposure and where it’s much safer to operate. Yes, we are done with this report and it is available. We’re starting to release some of the more interesting findings from the report. I’ll be talking at some upcoming conferences at some of our findings, but it’s out there now.

Phillip: Well, I’m glad that we still got people like you out there because it’s not something that is necessarily an issue that seems to be it’s causing damage or life threatening, but it’s allowing our industry to be corporately responsible, and to be kind of ahead of the game in terms of doing the right thing.

Laura: Absolutely, and that’s the whole point of this report is we’ve got a lot of runway. We’re seeing early signs of these things, so we have ample room to change our behaviors.

Phillip: Well, keep doing what you’re doing, Laura. I really appreciate you for coming on the show and having this discussion with me.

Laura: Thank you.

Phillip: And that wraps up my discussion with Laura Capper, founder and CEO of CAP Resources and The EnergyMakers Advisory Group. And I’m Phillip Jefferson, and this is The EnergyMakers Show.

For a complete copy of the industry report visit www.energymakersag.com