2015 Texas Energy Innovation Challenge

Amin Kiaghadi Shanisha Smith Rose Sobel Varun SreenivasCEE PhD JD, LLM in Energy CEE PhD MBA

Freshwater Input Flowback Water Produced Water*

0

1

2

3

4

5

6

7

8

100%40% 60%

Formation Water

Ave

rage

Flu

id V

olum

e pe

r fra

ckin

g w

ell

(mill

ion

gal

lons

)Producing water from produced water

Produced water volumes are far greater than flowback water

*Assuming 2 yr well lifetime

Freshwater Resource

Fracking Well

Disposal Well

Produced Water

Flowback Water

Ground Water Municipal 27%

Surface Water

Industrial 15%

Agricultural 58%

Cleaned Produced Water

Why the Permian?

Proportion of Wells in High or Extreme Water Stress: 87%Proportion of Water Recycled: 2%

WATER RISK in the PERMIAN BASIN

High water use and water stress

Water and Fossil ResourcesEconomics: •57% of Texas’ 2012 Crude oil production

•156,000 active wells•34,000 active horizontal wells

Land features: 6.4 million acres Agricultural landPopulation: 450,000 people

1st Challenge in Treating Produced Water

30,000-200,000 mg/L TDS

Produced WaterSea WaterFresh Water

30,000-40,000 mg/L TDS

< 1,000 mg/L TDS (Salt)

Desalination is needed to treat Permian Produced Water

Potential Desalination Technologies

Our solution is not limited to this desalination approach

Thermal Separation Membrane Separation

Vapor Compression Distillation (VCD)• Ideal for high TDS and low volumes (<500,000 gallons/day)• Low initial cost• Linkable with technology

Why isn’t desalination more prevalent?

makes desalination viable by reducing energy costs

Energy44%

Geothermal Energy for Power Generation

eliminates well construction costs by using decommissioned wells

Pipeline legend: Oil Produced Water Brine Treated Water Geothermal water

Tank battery

Pre-treatment

Pretreatment

Desalination unit

storage

storage

storagestorage

Injection Well

Agricultural & Non-Potable

Municipal Use

Closed loop with fresh water energy generation

Current Process

Refinery

Geothermal Process

Annu

lus

Cem

ent

Casi

ng

Tubi

ng

VCD Desalination

unit

Insulation:

P

0.03 m/s 0.03 m/s

Ambient Temperature

Incr

easin

g te

mpe

ratu

re

Depth (ft)

Extracted flow temperature (°C)

Energy per day(KWh)

Clean Water (gallon/day)

10,000 76 7200 48,00011,000 78 7510 50,00012,000 80 7823 52,00013,000 83 8292 55,000

Depth (ft)

Extracted flow temperature (°C)

Energy per day(KWh)

10,000 76 720011,000 78 751012,000 80 782313,000 83 8292

How much water can deliver?

• Geothermal gradient : 25◦C/Km • 8 KWh energy for 264 gallons clean water • Assuming 20% efficiency

A 10,000 ft. geothermal well can deliver 48,000 gallons of cleaned water per day

Implementing

The Permian Basin has the most challenging conditions so,

If we can do it here, we can Power Across Texas.

In the Permian Basin

At 0.5%, 600 wells are eligible

for retrofit.

Business ProposalService provided • Take produced water, treat and deliver clean waterScope of operation • Produced water from 7 producing wells treated with 1 geothermal well at

competitive price• Clean water sold to agriculture industry and municipalities• Evaluated for Operation in the Permian Basin

TreatmentCost:

3.6 c/gal

In take of ProducedWater from wells68,000 gal /day

Revenue: 7.5 c/gal

Clean Water for Sale48,000 gal/day

Revenue: 0.05 c/gal

Brine for Deep Well Injection

20,500 gal/dayCost: 8c/gal

FinancialsCapital required – USD 1.88 millionFinancing –The most expensive option: 10 year bank loan at 6% interestYearly Performance

Revenue

Costs

Net Income

Projected Performance – Feasible• Net Present Value – USD 1.22 million• Cash Flow – USD 657,000/yr• Payback period - 3.4 years• Internal Rate of Return – 34 %

• Operators pay 7.5 cents instead of spending 8 cents for disposal

• Water users charged for clean water

• Treatment: 3.6 cents / gal (70% of volume)• Brine Disposal: 8 cents/ gal (30% of volume)

• USD 135,000 / year

Sensitivity Analysis

$0.07 $0.08 $0.09 $0.10 $0.11 $0.12 $0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Tax Rate= 35%

Linear (Tax Rate= 35%)

Disposal Cost for Operators

Ann

ual N

et In

com

e fo

r

Every 1 cent increase in disposal cost will lead to $114,400 increase in annual net profit

$0.07 $0.08 $0.09 $0.10 $0.11 $0.12 $0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Tax Rate= 35%Linear (Tax Rate= 35%)Tax Rate= 25%Linear (Tax Rate= 25%)

Disposal Cost for Operators

Ann

ual N

et In

com

e fo

r

Every 1 cent increase in disposal cost will lead to $114,400 increase in annual net profit

Benefits to the Society

Add 17.5 million gallons of clean water per year

for every unit of operation

600 operating units

Supply Water needs of 20,000 acres of agriculture land

OR100% of Non-potable municipal water demand

of the Permian region

Drought resistant solution.

Policy AnalysisRegulation Opportunities Barriers Solutions

Activity RRC TCEQ EPA

Drilling Permits ✓

Complaints for O&G exploration, production, and transportation ✓

Process wastewater discharged from O&G sites complaints ✓

Storm water run-off from O&G sites complaints ✓

Drinking Water – Private Wells complaints ✓

Drinking Water – Public Water Supply complaints ✓

Spills associated with the exploration, development, and production of O&G ✓

Process Wastewater (exploration, production, and transportation) ✓

Process Wastewater (not associated with exploration, production and transportation) ✓

Public Water Systems ✓

Water Rights ✓

Regulation Opportunities Barriers Solutions

Regulation Opportunities Barriers Solutions

Summary of Groundwater Conservation Districts (GWCDs) in

Permian Basin

# of Counties

GWCD Description % Area

26 With a GWCD 68%

12 With no GWCD 32%

8 GWCD 36 21%

2 GWCD 66* 5%

16 Other GWCD 42%

38 Total 100%

Regulation Opportunities Barriers Solutions

Regulation: • Public regulatory policy favoring recycling vs. disposal • Oil and Gas Regulation and Cleanup FundPublic:• Conserves freshwater • Produced water now a resource and sold as a

commodity Industry:• Affordable solution • Favorable public relations- RRC Symposium

Stakeholder Interests

Regulation Opportunities Barriers Solutions

Aquifer Depletion

Cost

Regulation

Regulation Opportunities Barriers Solutions

House Bill Senate Bill4021: Provide a tax refund to O&G companies that use alternative fluids in place of fresh water

1972, 2132: Exempting completion operations from a requirement to obtain a permit from a groundwater conservation district, but requiring it meet GWCD reporting standards, including monitoring how much water is withdrawn, and authorizing a fee for water actually withdrawn

655: Water right holder would not require a permit for aquifer storage and GWCD cannot charge fees for groundwater recovered from such a well, but required to report volumes

1248, 1856: relating to renewal or amendment of certain permits required by groundwater conservation districts

1232: requiring a study by the TWDC on mapping groundwater in confined and unconfined aquifers

1635: Relating to management of groundwater, increasing reporting and classification requirements per Texas Groundwater Protection Committee

30, 835, 836: Requiring research on the benefit of large-scale facilities for brackish groundwater desalination and sources & use of brackish water to meet state water needs

950: Expanding power of state auditor of groundwater districts

1221: relating to seller’s disclosures in connection to real property subject to groundwater regulation

1991: relating to improvements on private property for public private partnerships

1990: requiring O&G companies to report and make public the total volume of water used in hydraulic fracturing and its sources listed by type

517: requiring notice of an application for a permit to drill an injection well in the territory of a groundwater conservation district

78: relating to the matters to be considered when developing the state water plan, requiring and assessment of the best available science and technology and future water availability predictions

854: relating to the renewal or amendment of certain permits issued by groundwater conservation districts

Current Reform Proposal

• Pass Tax Credit Legislation Promoting Recycling Water. See HB 4021, filed 3/13/2015

• Increase Disposal Well Application Fees and Use Funds for Research

• Encourage Groundwater Regulation Reform Between Water Agencies

3 Recommendations

Regulation Opportunities Barriers Solutions

An innovative green solution to recycle produced water• Marriage of technologies• Decommissioned wells have renewed purpose• Net contributor of clean water into the Texas water system• Very Profitable in a short period • Proposed legislation will enhance profits• High growth potential to Power Across Texas

With our technology:• Business will flourish• Texas will have new clean water

Acknowledgements• Professors Zachary Bray, Konstantinos

Kostarelos, S. Radha Radhakrishnan, & Hanadi Rifai

• Maria Modelska• Aparna Balasubramani, Taylour Burton,

Aeman Javed, Ali Masoudi, Rinki Mukherjee, & Emily Sappington

Thank you

• David Harry and David Stuart