Permian Basin 2017

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PERMIAN BASIN: MIDSTREAM 64 | November 2017 | for unconventional development because it was designed for production from wells in the Dela- ware sands or Wolfcamp verticals, Latchem added. "Most of the processing capacity was legacy assets from the New Mexico shelf or Central Basin Plat- form. In contrast to what happened in the Dela- ware, there was not a big processing gap when the Midland Basin expanded. The Spraberry was very prolifi c so they already had a lot of midstream development. The early Wolfcamp could be han- dled from that." Rushing to fi ll the void Like nature, the midstream abhors a vacuum. "We are now helping fi x the situation in the Delaware," Latchem noted. "It is safe to say that Lucid has had the most rapid expansion in New Mexico; one of our sister companies has been doing the same in Texas. "We have worked with the same engineering company and fabricators for our fi ve plants. We like to align ourselves with partners and that extends to crews and equipment. We have heard that there is some tightness in skilled workers in some spots, but we don't see it. The relationships we have devel- oped benefi t us and our counterparties." Construction for Comanche II is well underway and is ahead of schedule, said Stephen Luskey, chief commercial offi cer and co-founder of Brazos Mid- stream. "We are in the process of permitting for Comanche III, which will be nice to have all three plants at the same location." This is the dawning of the Age of Aquarius, at least in the Permian Basin midstream. WaterBridge Resources, a portfolio company of Five Point Capital Partners, has just closed an arrangement with several major producers to gather, process and distribute or dispose of produced water in the southern Delaware Basin. At the end of August WaterBridge acquired another produced-water management fi rm, EnWater Solutions, active in the southern Delaware Basin. WaterBridge said it plans to expand the existing EnWater gathering business into a full-cycle, closed-loop water system. The value of the deal was not disclosed. Stretching through Reeves and Pecos County, Texas, EnWater's current assets include fi ve saltwater disposal wells with more than 100 miles of gathering line and nearly 150,000 bbl/d of permitted disposal capacity. By year-end 2018 WaterBridge expects to reach more than 300,000 bbl/d of dis- posal capacity and 200 miles of interconnected gathering pipe. "Drillers have been racing around this track in the Permian, knowing they were approaching a wall—at the end of the track—their water supply and disposal needs," said David Capobianco, CEO and managing partner of Five Point. "We've been talking about this for a while, and the growth in unconventional development has fi nally brought that wall into view, forcing the drillers to seek immediate solutions." First, long horizontal fractures need 350,000 to half a million barrels of water, Capobianco explained. "All of that comes back in 90 to 180 days, and then there is the produced water. For each barrel of oil produced, Permian wells also produce three to eight barrels of water. And with 10 to 12 pay zones, we are talking about 40 to 60 wells per square-mile section. That much water simply cannot be managed with temporary measures such as trucking. Producers in the basin are looking at production rates growing to 30 MMbbl/d to 50 MMbbl/d of water. We have crossed the tipping point and reached capitulation. Water in the Permian has to be managed with permanent infrastructure." Under the business model, WaterBridge is paid to provide fracture water and then also is paid to take away fl owback and produced water. "We see it as a convergence of the services sector and the midstream," he said. He also noted that several operators have received private-letter rulings from the Internal Revenue Service confi rming that water operations fi t into the existing exemption enjoyed by master limited partnerships in the midstream that handle hydrocarbons. n —Gregory DL Morris Deals Enhance Permanent Water Infrastructure

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