The Nickel Report

An interesting confluence of issues may facilitate the creation of an improved regulatory framework for the beneficial use of produced water from oil and gas operations. Water supply and produced water management have the attention of many oil and gas companies for a variety of reasons. Concern over water supply and severe drought has lead a number of states and municipalities to look for sources of water outside the traditional sources of groundwater and surface water. At the same time, environmental groups are concerned over drought impacts to surface water and wildlife. Given the abundance of produced water in some formations, it may be possible to reuse produced water within oil and gas operations and beneficially use produced water outside of oil and gas operations. What are the issues surrounding produced water and how are they impacting the development of regulatory programs governing the use of produced water?

A simplistic description of produced water is that it is water brought to the surface along with oil and gas during production. This water is then separated from the oil and gas. The typical method to handle the produced water has been disposal through deep-well injection under the Underground Injection Control (UIC) program, which is authorized under the federal Safe Drinking Water Act (SWDA). Some produced water has also been used for what is known as “enhanced oil recovery,” where a field is flooded, restoring it to better production. In some parts of the country produced water has been discharged as wastewater under the National Pollutant Discharge Elimination System (NPDES) program, which is authorized under the Clean Water Act (CWA). However, EPA has, in the past, taken actions to limit discharge under the NPDES program due to concerns that the handling of produced water is not appropriately covered under the regulations.

Several issues are challenging oil and gas companies to look at water management. For example, drought issues in some of the most prolific oil producing states in the country have resulted in the adoption of regulations to encourage recycling and reuse of produced water as a way to limit the use of fresh water. In addition, many companies have sustainability programs along with sustainability reports that include sections on water management. More recently, produced water abundance has created an issue. Certain formations, such as the Permian, have large amounts of water that is produced along with the oil and gas; in the Permian, as much as eight barrels of water can be produced for every barrel of oil. These issues, among others, have lead industry to look for new technologies and legal mechanisms to address water management.

Another challenge that has caused some in industry to examine alternate methods of managing produced water is the current question as to whether deep-well injection of produced water may be associated with seismicity. Experts have reached different conclusions. Several states, including Texas, Oklahoma and Kansas, have made efforts to study this complicated issue. Definitive conclusions are difficult to reach due to diverse geologic conditions, the proliferation of injection wells in a given area, and the presence of other potential causes, including naturally occurring seismic activity. Regardless, in response to potential seismicity concerns, states like Kansas and Oklahoma have adopted programs that can result in reduced volumes of injection to deep wells or a complete shut in of wells, and the Texas legislature has funded a study called TexNet Seismic Monitoring Program to study the issue. Even though the causal link between seismicity and deep-well injection continues to be debated, the mere concern over potential seismicity may result in reduced disposal capacity in certain areas.

Issues surrounding produced water volumes, deep-well injection, new management approaches and water scarcity have caused the US Environmental Protection Agency to look at regulations that impact oil and gas water management. As previously reported in the Nickel Report, EPA has initiated a study of Oil and Gas Extraction Wastewater Management and is revisiting two Effluent Limitation Guidelines, or ELGs, that cover the discharge of oil and gas extraction wastewater under the NPDES program. One aspect of the study will be whether oil and gas wastewater can be discharged to surface water and under what circumstances. Currently, oil and gas extraction wastewater cannot be discharged to surface water except for wastewater discharges west of the 98^th parallel that meet certain effluent limits under the Agricultural and Wildlife Water Use subcategory. It remains to be seen whether stakeholders and EPA can agree to other authorized wastewater discharges.

States, regulators and groundwater advocacy groups have long had an interest in the development of programs that will result in the enhanced reuse of produced water in the oil field. There is also an interest in the potential beneficial uses of produced water outside of the oilfield. Such beneficial uses could include industrial reuse, domestic reuse and agricultural reuse as well as groundwater and surface water augmentation. For example, in 2015, the Groundwater Protection Council (GWPC) prepared a report called Produced Water Reuse in Oklahoma: Regulatory Considerations and References. The report examined the myriad issues related to the development of new programs and revision of existing programs to authorize the beneficial use of produced water under federal and state laws. The GWPC concluded that the major federal laws impacting the beneficial use of produced water were the CWA and SDWA. These acts have similar counterparts at the state level, and Oklahoma has a number of different agencies with jurisdiction over produced water. In addition, legal issues that are typically regulated at the state level, such as water ownership and liability, were issues of concern. The GWPC also referenced tribal issues that should be considered. In another example, the EPA and the State of New Mexico issued a draft white paper in November 2018. It is illustrative of the complexities between state and federal laws that intersect with produced water. At the state level, the Oil Conservation Division, Oil Conservation Commission, Office of State Engineer and New Mexico Environmental Department all have a role to play under several different state laws. All the different agencies and laws will need to come into alignment to create an improved regulatory framework.

Another challenge facing industry, states and municipalities in regard to produced water is the cost associated with treating water for reuse. For industry, the treatment of produced water is currently more expensive than deep-well injection and the development of new technologies is also expensive. However, many major oil companies have formed teams dedicated to water management issues, and it is likely this will lead to the development of new technologies. States and municipalities may also face increased expenses. Nonetheless, the potential opportunities associated with reuse of produced water has resulted in a growth in the number of companies focused on new technologies. It is well understood that the expense associated with adoption of these new technologies must be recognized, and any new or modified regulatory framework will need to allow for changing technologies to be readily advanced.

New technologies are being developed, but, just as critical, it has become apparent that there is an interest in building infrastructure. Some large companies are doing it themselves. Other companies use oil and gas services companies to supply water and treat, transport and dispose of produced water. Oil and gas services companies have traditionally used mobile or temporary infrastructure to supply water and transport, treat and dispose of produced water. But, as discussed in another recent blog, midstream oil and gas companies, companies that handle logistics, transportation and storage of material related to oil and gas production, are now focusing on water assets, including infrastructure. These developments related to technology and infrastructure should enable the beneficial use of produced water, assuming the legal landscape can be modified to authorize it.

Yet, the legal issues are complex and will require modification in order to authorize the use of produced water. Organizations such as the Environmental Council of States and the GWPC have looked at opportunities for the beneficial use of produced water, as have Texas, New Mexico, Oklahoma and California. EPA has looked at a number of programs as well. In addition to the CWA and the SDWA, the Resource Conservation and Recovery Act (RCRA) and common law theories also come into play. The federal acts have similar counterparts at the state level and each state has a number of different agencies with jurisdiction over produced water. Currently, at both the state and federal level, the beneficial use of produced water is only authorized in very limited circumstances.

At the federal level, the NPDES program will require revision in order to allow beneficial uses such as stream flow augmentation. If beneficial use of produced water requires injection either above or below underground sources of drinking water, the UIC program may require modification. The SDWA also covers public water systems, and any beneficial use that results in potable water will need consideration. Some stakeholders, particularly environmental groups, tribes and academia, have expressed concerns that constituents in produced water are not adequately understood, and these concerns will require debate during the development of any revised regulatory framework. Finally, it remains to be seen how produced water will be classified under RCRA.

In addition to the federal laws, each state has its own suite of statutes that enables different agencies, each with jurisdiction over the beneficial use of produced water. Further complicating matters, some states have primacy over the enforcement of the NPDES and UIC programs but not always as they relate to oil and gas operations. Water rights are also an issue. Legal issues surrounding water rights are handled state by state, and, for the most part, each state handles water rights very differently. Given the state-centric nature of a number of legal complexities surrounding the development of an improved regulatory framework for the beneficial use of produced water, EPA’s previously announced policy shift to return to cooperative federalism should enhance the chances of progress.

Sometimes a confluence of issues can result in the sufficient alignment of stakeholders such that legislative and regulatory reforms can be made. It remains to be seen if the variety of issues surrounding water supply and produced water management will be enough.