Water: managed resource or business wild card? This question is increasingly on the minds of unconventional energy executives. In this article we explore what is required to transform water from an ever challenging operational concern into a tractable business solution. Its cornerstone is an enterprise wide water resource management system of record. Such a system, geared for full accountability while supporting and enabling continuous performance improvement, is the key for turning your water wild card into a manageable process and competitive advantage.

The fundamental role water plays in unconventional energy is incontrovertible. A few observations underscore this point:

• Capital Expenditure (CAPEX) for a typical shale gas or tight oil well is $5-$7million. Up to 10% is water management $200-800K.
• A well's Operating Expense (OPEX) is roughly $50-70K per annum. As much as two-thirds can be water management - $1million over lifetime of the well.
• IHS outlooks for drilling and completion activity through 2022 shows that 79% of E&P activity is expected within plays facing moderate to high drought risk
• In one case study an operator used less water in response to local drought conditions and their wells are now underperforming - costing the operator in the range of $10-12 million per well in lost revenue.

When water management considerations are combined with external stakeholders including communities where these wells are located, regulators, shareholders, and the general public, the business case for water managed as a resource has to be compelling. But, what would systematic water resource management look like?

The core of any such system should be a comprehensive, enterprise-grade water 'system of record'. The over-arching goal of such a system is to foster continuous improvement across unconventional asset portfolios within a business framework that is fully transparent to accountable decision-makers.

Water System Basic Components

• Granularity. The meaningful level of detail should model wells, sites, and equipment with all major interconnected water flow-paths.
• Flexibility. The dynamics of the unconventional energy business are such that the system should accommodate a wide variety of site and well configurations, quickly configured without significant effort. Flexibility should also include an accommodation of other potential environmental issues, e.g., air and greenhouse gas emissions, etc., as needed.
• Tracking. Water volumes, qualities and cost should be tracked from cradle to grave over the lifetime of each well--i.e., development, production and abandonment. This includes external and produced water, chemical additions, treatments, and disposal.
• Accessibility. The system should provide secure access to operators, managers, environmental specialists, and corporate entities. Full internal and external audit support should be provided.
• Change Management. Physical changes to a well or site, as well as operating policies, water sourcing, evolving regulatory obligations should easily be accommodated with historical records of configuration and system versions.
• Analysis. A built-in computational framework not only supports water inventory balances and cost analyses, but is flexible enough to be able to generate and support any performance metric.
• Reporting. A flexible reporting infrastructure is available that can be used both for ad hoc, corporate, or regulatory DMR reporting purposes.

An unconventional water resource management system would work in conjunction with water operations systems located at different sites or associated with centralized major asset plays. Since these are geographically dispersed, remote and increasingly mobile interconnections are envisioned where field data is uploaded into a secure cloud-resident computing environment for the system components described above.

The benefits of enterprise water resource management are many. Full accountability helps to tip the balance in favor of unconventional energy investment by taking water concerns and issues off the table. The opportunity to analyze water performance across all assets using the same management system will accelerate the adoption of best practices and optimize performance. Ultimately a well-managed and properly scaled water resource system will be the avenue for reducing risk and improving cost margins that will outstrip ad hoc reactive measures. These benefits easily and quickly translate into a sustained competitive advantage.

Posted 1 July 2014

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.