How can we make oil&gas production safe for the environment?

How can we make oil&gas production safe for the environment?

Ukraine has actively began to explore and develop oil&gas field in order to move closer to energy independence. Accordingly, more and more deep drilling and completion services such as hydraulic fracturing has been implementing. Despite the fact, that such technologies are very effective in the production process, ecology and waste management require a serious attention here. Around 80% of total waste generated by oil&gas production - is produced and flow-back water. The ratio here can be very different, but during the lifetime of a well and in nearly depleted reservoirs this ration can be 98% of produced water and 2% of hydrocarbons.

Serious responsibility is also need to be taken for the water used in hydraulic fracturing operations. Based on USA experience, where fracturing is performing the most, in order to frac tight sand gas well around 2 million gallons of water may be used, and for some deep horizontal wells this volume can reach 5 million gallons for one job. For example, 5 million gallons – is the amount of water consumed by 3 hectares field of corn in US during one season! Good to remember, that frac flow-back water become very dangerous substance for further application, therefore it is need to be treated. Fortunately the solutions are available!

We had the opportunity to visit worksites of Canadian company Formula Fluid Systems and talk to its CEO Jason Clemmett, CTO Kyle Greene and Operational Manager Red Sherwood. The company works for oil&gas production operators and provides solutions for waste water management, which at the same time helps to make hydrocarbon productions save for the environment.

- Tell us please about your company and what kind of service you provide for oil&gas industry?

- We are produced water and flow-back treatment company. We don’t really get outside oil&gas applications. We’ve had opportunities to thou - Kyle Greene our Chief Technology Officer has tremendous amount of experience in water treatment in all capacities: municipally, industrial, etc., but we are specialized only in oil&gas sector. So,the work we are doing right now is strictly focused on produced water and flow-back water recycling or re-use. Our technology are very cost-effective comparable to others available on the market, and we can handle high volume water in amount anywhere from 2500m3/day up to 10 000m3/day through the scaling up more volume of tankage. For example, currently at one of our job we operating with 2500m3/day and for us in order to rump up to 5000m3/day is just matter of adding 4-5 more tanks (thousand barrel tanks).

- Who is your biggest customers and where is the main area of your operations?

- We have pretty wide range of our customers. There is definitely lots of water treatment going on in oil sands production around Fort MacMurray and on Duvernay Formation (Canada), also we have clients on Permian Basin in Texas. Basically, where is the fracking or ultra-deep wells, there is also tremendous use of water, so our area of operation covers pretty much all such locations in North America. For example, we work for Canbriam Energy, Paramount Resources, ConocoPhillips, Chevron is also doing water treatment with us and so on. Basically we don’t really work for a lot of junior players since the smaller companies don’t usually have capital or just the need to recycle that high volumes of water. Here we talk about companies with couple wells in their portfolio.

- What is the water treatment and why this service is important for any oil&gas company who order it?

- In oil&gas industry the water management is extremely important because the oil&gas companies essentially deal more with the management of water than the oil – they produce more water than hydrocarbons, they have to take that water which is coming out from the production and manage it by disposing or re-using. Before the was pretty much only one method for disposal – separate such water from the oil and pump it back into injection wells. Now with the expanded technologies we are capable to take that produced water, recycle it and reach the specifications where the customers can frac wells with it. In a simple words they can have a closed loop systems of produced water and water used for hydraulic fracturing, and therefore save natural resources.

The other useful point is that with the Formula Fluid Technology the cost of treating water has dropped significantly, we can treat the big amount of water and literally clean fluid will be injected it into the formation through the deep wells. This adds the capacity to the formation itself therefore customers are able to dispose more water into each well and as a result operation cost will be reduced.

In general, treating the water is recommended because of multitude of aspects: 1 – is taking service (after-frac for example) water putting it downhole out of “safe” water cycle; 2 – taking water which comes out of production, recycle and put it back into production, saving environment; 3 – reducing total amount of water that needs to be disposal which at the same time reduces the cost of transportation it to the disposal wellsites. Basically, these cost comparatives makes water management very attractive investment to the oil&gas companies. And one other component would need to be touched – is that the Government Regulatory Agencies in Canada as well as in USA are moving into the direction towards making recycling and re-use of water mandatory. It might not be the 100% to start with, but it will definitely be 30 to 50% of used water must be processed if capable, and technologies are there for them to do it, so we feel that is coming very soon.

One other thing also is that for smaller oil&gas companies there is relatively significant capital expenditure to get to the stage of closed loop system which economically has no sense, but for bigger clients who use our recycling and re-use technology, the water handling average cost is less than $12 per m3. At the same time, if they drilled wells, fracked and just disposed the water without our services, the average price would be $40-$70 per cubic meter. We save them around $28-$58 on each cube, with the average volume of 2500m3 – this is $70 000-$145 000 of savings per day! So, the capital spends are recovered quickly and going forward - operation expanses are significantly less when they perform appropriate water treatment.

- Have you ever worked outside the North America?

Regarding market outside North America, we have not done any operation out there yet, but if opportunity comes we are definitely willing to do so. Actually, our business model is that we are technology provider, who would just co-operate with the overseas company that have people and equipment. The cost to build our equipment is very cost-effective, so building tanks, buying pumps, bringing our technologies there - is pretty easy, but we would have to partner with an existing energy service company at that area, this approach is much easier and economically more reasonable. Of course we would bring our people over for initial process’ start up, trainings and running equipment, but at this moment we don’t have the need to set up full business unit in another country.

- So basically if somebody wants to establish such service company here and co-operate with you, they won’t need to bring any heavy equipment out from Canada?

- Absolutely not, lots of the equipment we would use is probably already on the ground in the Ukraine and any country that perform drilling or services for oil&gas also uses tanks, pumps and hoses – stuff that we need for water treatment operation. Overall, our process is very mechanically-based and the only one key component of our technology – is approximately 1,5m by 3m process skid we would build over there in a matter of weeks or even days. There is also small chemical component which is very easy to arrange as well. Just to give you an idea of capital requires, let’s say to build 2500 m3/day water treatment plant with our technology involved, would cost anywhere from $1 000 000 to $1 500 000 total.

- By the way, the equipment you use are manufactured in Canada, China or somewhere else?

- Everything we used manufactured in Canada only. As I mentioned before, we can literally use any new or used tanks which already in operations on a ground. The one special item would be required is only 400bbl (65m3) sloped bottom tank, so we could manage our wasted component, but outside of that we don’t really need any specific equipment. If there are local tank’s manufacturers in a Ukraine or any country we are going to, we can contract with them and buy or rent those tanks for using. There are no corrosive or any damaging chemicals in our technology, so it is completely safe for the equipment plus using local manufactured or already existing technical units, would make our service way cheaper. Talking about our model overseas is basically find a partner, set up the water treatment process, charge some royalty or small cost per cube for the technology using, and just let this partner to run it.

- Is there any patented technology you own and offer for the customers?

- Yes, we have US patent of our process right now and Kyle (our CTO) also has access to 5-6 other patented technologies that we can offer to customers depending what the application basis and what we are planning to do. If we go overseas, we will probably have to get some legal advice on patent feasibility with regards to working in different country such as Ukraine or any other. This the matter of filing for protection over there, so we would probably go down that road if we going to work outside North America.

- What would be the cost of running the water treatment operation by qualified staff?

- For our people to go overseas and work, the day rate would be around $700/day to $1000/day. Again, here we talk about staying there for short period of time in order to train people and show how to run the process. If we talk about Canada and US, to running, for example 2500m3/day plant, we have 3 people and each get paid $800/day plus food expenses covering. For us the company’s biggest asset - is people, so the labor cost is our biggest operative cost to run the process.

- Canada is one of the biggest oil&gas operator country in the world including heavy oil and oil sands production. At the same time it is one of the most suitable county for living in terms of ecological environment. Are the any government programs that regulate it? Or human factor also take place here and people care about the environment?

- I think we classified our business as environmental service, we clean and preserve water, so any oil&gas company here that uses recycle and re-use technologies is become good looking one for the society, and they actually get taxation credits from the government on being able to utilize environmental efficient technologies. These are big factors here in Canada for most of oil and gas companies to perform water management in save way for their homeland.

- Since 2015 Ukraine has been implementing many oil&gas projects that include deep well drilling, coiled tubing, hydraulic fracturing and many other operations which can help to increase production and become more energy independent country. Does water treatment technology can help in this case and make all the process more profitable and safe?

- We are not as familiar with types of well drilled in Ukraine and how deep they are, how many stages of fracks and so on. We would probably require more information from you guys regarding wells that people drilling over there. But generally, as far as drilling, fracking, coiled tubing and other workover completion are going there, the background between our managing team is pretty expensive across the up-stream industry, so we are able to provide solutions for a lot of different things you are doing in Ukraine, but specifically with water treatment we focus more on hydraulic fracturing. For instance, when you going to build a well in US or Canada, usually not the drilling itself, but the fracking stage of that well is become the largest expense in whole process. Accordingly, the big component of fracking and the total budget you spend for this well – is water management. So, the focusing on effectively managing your water can greatly reduce an overall cost to drill and complete the well, and also very significantly diminish harm effect for the environment. Our company definitely can help with it.

- Ok, let’s say company deals with the 5000-6000m well and they are going to frac it. Basically, you can help to reduce financial expenses just managing the water in the right way, correct?

- Yes, 5000m is a deep well that would need tremendous amount of water for sure. As I said we deal with the technology of recycling and re-use, but there are also a lot of additional services needed in this case. For example, water storage and ability to move water for fracking is a big component, we are talking about 50 0000 m3 to 100 000 m3 storage sometimes. So, in order to have the ability to hold, transfer and pump such amount of water, there is multitude of services are gonna be required and not just a technology. Our company has a full capacity to be engaged in all those services for being able to manage your water effectively and accordingly reduce spends for such project.

- Let’s take couple worlds about produced water. Any well during its lifetime gives water from the formation. Does it need to be treated and can it be re-used after?

- Yes, is better to treat it. Most of our clients would like to treat produced water before they inject it into the disposal wells, some these wells are 10-15 years old and they still in brand new condition due to treated product pumped through the system. The main issue with produced water coming from different wells or even locations - is incompatibility that lead to complications with disposal or with any possible further application of it. So, understanding the characteristic of water, we can make it compatible for injection or completion operations. Generally say, we will remove all the components that interfere with further re-use of water and you won’t have above mentioned issues.

Some components it is not feasible to remove though. For example, we don’t provide the technology for total salt removal, we just provide the solution when salty or brine water can be used more effectively. This can be reached by adding specific chemicals which make the final product much more salt-tolerant.

- Flow-back water can be re-used as well, right? Can it be mixed together with the produced one?

- Yes, in full recycling systems the flow-back water actually always need to be diluted with the produced one. Regardless. We mix it in one storage and treat whole volume together.

To be honest, there are numerous of different methods for recycling or re-use. Each case is different and has to be analyzed separately in order to provide appropriate solution. The good idea would be to organize the industry work-shop with real cases provided and go through the process detailed.

- Ok, that’s make sense. Tell us please how the market has changed for you due to COVID-19 and economy crisis?

- Of course oil&gas production has decreased due to today’s world crisis, but I would say that demand of water treatment is relatively unaffected. For example, when you have 30-50 wells in a portfolio, you might stop drilling, but you always produce the water and you need to do something with it. So, our clients in Canada right now are drilling disposal/injections wells and they need to treat water prior to pump it into these wells. They would rather inject clean water versus dirty one in order to eliminate future costs for well maintenance such as cleaning it every year or workover. Definitely, in our area the water treatment are not going anywhere.

- How do you see next 5-10 years perspectives?

- Basically we touched on it a little bit before in our conversation. As of today the demand for water recycle and re-use in North America is very high because the cost to avoid it is pretty expensive. If the government in Canada and USA keep the same direction in the environmental questions and mandate or force oil companies to treat the water, there are not enough treatment companies on a market to meet such demand. So this niche is pretty promising.

- So, in simple words it is more depend on the government decision now. If the regulations come, the operators will have to pay for such services?

- Pretty much yes, although the world largest operators like ConocoPhillips, Chevron or Shell are continually treating water because of cost-effectiveness and obvious environmental impact might be caused by their activity, smaller players will have to do so as well, if government make it mandatory for the industry.

- At the beginning of our meeting we introduced you the Ukrainian oil&gas industry as a one with the very promising potential. You also mentioned about willingness to work overseas if opportunity comes. What will be the first steps for establishing your service in the Ukraine if you decide to try?

- Since the water characteristics are different all over the world, one key component before we would move to such direction – is understanding the type of water in that area and type of completion operations doing there. Our technical department does really good job for our clients at breaking down the samples through the lab and analysis, and determine what kind of treatment would be the best for each case. If the oil&gas company’s objective is to manage produced and flow-back water, then we could send an email with the list of characteristics we would need to have in order to make a treatment plan with commercial offer and process forward.

If we just talk about initial introduction of our technology at the Ukrainian market, we can prepare the presentation that will summarize all our capabilities, what we do, how we can save the oil&gas companies’ money and break through the beginning to the end of our process. Once the interest appears and potential customers want to explore the technology further, the next step for our team will be to take part in the industry workshop or conference over there and develop business opportunities at the new area.