*

New wastewater permitting rules to raise costs for Texas

producers

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Water disposal costs to rise 20-30% in Delaware formation

- B3

Insights

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Costly new infrastructure, permit delays to hit small

operators

most

By Georgina McCartney

HOUSTON, June 10 (Reuters) - New guidelines on

permitting for wastewater disposal wells in Texas are

threatening to drive oil producers' costs higher as companies

face weak crude prices, marking the latest challenge for the

industry that has seen output growth slow as it matures.

The U.S. is the world's largest oil producer, with output

surging to a record 13.4 million barrels per day (bpd) over the

past decade as technological advancements allowed companies to

tap its vast oil reserves. Growth is slowing, however, as the

best resources are depleted, pushing operators into less

profitable drilling locations that produce more water.

New rules by the state's energy regulator, the Railroad

Commission of Texas (RRC), which took effect June 1, aim to

focus produced water disposal permitting efforts on ensuring

injected fluids stay in the disposal formations in the Permian

Basin, the country's largest oilfield.

They follow concerns that produced water, a byproduct of oil

and gas extraction that operators inject into the ground, could

leak out of disposal wells and contaminate ground and surface

freshwater.

The new guidelines limit maximum injection pressure at the

surface and limit how much water can be injected based on

reservoir pressure.

"These stricter Railroad Commission regulations could

present operational and financial challenges for Texas oil and

gas producers, particularly smaller operators with limited

resources," said Linhua Guan, CEO of Surge Energy America, one

of the largest private U.S. crude producers with operations in

the Permian.

Produced water gathering and disposal costs will rise roughly

20-30% for parts of the Delaware formation in the Permian Basin,

where most injection happens, over the next few years, according

to water consultancy, B3 Insights. Costs could hit around 75

cents to $1 per barrel of water, B3 said.

The Delaware sub-basin produces five barrels of water for every

barrel of oil, according to Christine Guerrero, a veteran

petroleum engineer and strategic advisor to asset manager Octane

Investments.

Shallow formation pressure in the Delaware, on average,

has increased three times faster since 2018 than in the Midland

sub-basin of the Permian, according to B3 Insights. Shallow

formations were targeted as an alternative to deep injection to

mitigate

earthquakes

, which remain an issue in the Permian.

The new guidelines will likely curb some operators' local

options for saltwater disposal, requiring more infrastructure to

transport water over greater distances, and new disposal sites

in new regions, according to Jonathon VandenBrand, senior vice

president, commercial at Western Midstream ( WES ), which

operates 54 saltwater disposal wells and has 2 million bpd of

produced water takeaway capacity in the Delaware.

The guidelines could also require operators to collect

additional regional data to satisfy regulatory requirements,

with added costs potentially reaching tens or hundreds of

thousands of dollars, VandenBrand said, adding this could

increase the duration of securing permits, likely affecting

smaller operators most.

The new regulations come as producers are already grappling

with crude prices that are hovering under $65 a barrel -

a level many need to turn a profit - as OPEC+ raises its

production and U.S. President Donald Trump's trade war drives

economic concerns.

If oil prices stay low, the rising cost of water management

will stress breakeven costs in the peripheral parts of the

basin, but less in the core, explained Kelly Bennett, CEO of B3

Insights, adding that some drilling in the less profitable, tier

two and three locations will likely be put on pause owing to

weak margins.

Some groups argue the new rules are a step in the right

direction but there is more to be done.

"While the new guidelines represent an improvement and may aid

in identifying potential locations for this breakthrough, they

do not go far enough," said Julie Range, policy manager for

Commission Shift, a Texas watchdog group.