Water is as precious as oil in Permian Basin

Bloomberg:

Toby Darden stomped on the ATV’s gas pedal, carving through blustery winds to reach the far northern corner of his 37,000-acre West Texas ranch. He wanted to show off the crown jewel.

This wasn’t the spectacular views of the Davis Mountains or the herds of aoudad rams with their distinctive curved horns. It was a big hole in the ground, the first cut at a well -- not to bring oil up but water, the precious commodity of the Permian Basin drilling play.

The ranch’s water rights were front-and-center in marketing the property, which just went into contract for a hefty $32.5 million. Broken down per acre, the price is higher than any similar sale in the area for at least a decade. Not many who are familiar with these parts were surprised.

“Water is the new oil,” said Laura Capper, a Houston-based oilfield consultant. “The value of water has changed.”

The reason is fracking, a technique that helped kicked off the shale revolution a decade ago. It is the last major step to completing a well, and it is a massive consumer of water. Ranches that can sell excess supplies get a steady revenue stream, which is having an impact on rural real estate appraisals.

That was reflected in the price fetched by the KC7 ranch, named after the family that settled on the land in the 1800s and Darden’s lucky number. The property was opened to pre-bidding before an auction that had been scheduled to take place this week. The auction was canceled when none of the parties that expressed interest was able to match the offer from Paul Foster, co-founder of Western Refining Inc., which was acquired by Tesoro Corp. in 2017. Foster didn’t respond to requests for comment.

In the Permian, America’s busiest oil patch, a producer needs to blast as much as 60,000 barrels of water into a well every day, along with sand and chemicals, to complete the fracking that cracks open the tight, oil-bearing rock about a mile underground. The process takes about 10 days.

Demand for water to use in fracking in the Permian has more than doubled from 2016 levels, according to industry consultant Rystad Energy. Demand should grow to more than 2.5 billion barrels by next year, accounting for nearly half of all U.S. oilfield needs.
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There is more.

The State of Texas has also gotten involved in procuring more water for the area and has contracted with services that can reuse the water used in the drilling process and then properly dispose of it.  Water is critical to the fracking process until someone develops another way to break up the shale where the oil is located so it can be extracted.