In California, Big Oil finds water is its most prized commodity



SACRAMENTO, California (Bloomberg) -- California’s epic drought is pushing Big Oil to solve a problem it’s struggled with for decades: what to do with the billions of gallons of wastewater that gush out of wells every year.

Golden State drillers have pumped much of that liquid back underground into disposal wells. Now, amid a four-year dry spell, more companies are looking to recycle their water or sell it to parched farms as the industry tries to get ahead of environmental lawsuits and new regulations.

The trend could have implications for oil patches across the country. With fracing boosting the industry’s thirst for water, companies have run into conflicts from Texas to Colorado to Pennsylvania. California could be an incubator for conservation efforts that have so far failed to gain traction elsewhere in the U.S.

Drillers may have little choice. The state’s 50,000 disposal wells have come under increased scrutiny this year, after regulators said they’d mistakenly allowed companies to inject wastewater near underground drinking supplies. Environmental groups sued the state to stop the practice at 2,500 sites considered most sensitive.

A win for environmentalists could drive up disposal prices and delay drilling by months for Chevron Corp., Linn Energy LLC and other companies, according to a June 12 report by Bloomberg Intelligence analysts Brandon Barnes and Matthew Kerner.

Conservation Rising

Conservation is “suddenly leaping to the forefront,” said Laura Capper, founder of Houston-based CAP Resources, which advises the industry on water use. “You’re going to see a lot of retrofit programs. If they’re not already recycling, they’ll be adapting.”

Sarah Nordin, a spokeswoman at Linn, didn’t return messages seeking comment on the lawsuit. Cam Van Ast, a Chevron spokesman, declined to discuss it.

In central California’s San Joaquin Valley, Chevron piped almost 8 billion gallons of treated wastewater to almond and pistachio farmers last year. California Resources Corp., the state’s biggest oil producer, plans to quadruple the water it sells to growers, CEO Todd Stevens told investors at an April conference.

“In California, the number one issue we deal with is drought,” Stevens told the New York conference.

An environmental group, Water Defense, questioned earlier this year whether Chevron’s sales to farmers risked industrial chemicals contaminating the food chain. The local water-quality control board ordered the company to conduct tests and Chevron says it has met all the pollution standards in its permit.


The state’s geology makes it less conducive to fracing, in which water, sand and chemicals are forced underground to free deposits of oil and natural gas. Still, water’s a key resource for California drillers, who use steam to lubricate the area’s thick, sludgy reserves of crude.

An even bigger headache is what to do with the torrents of naturally occurring “produced water” that come out of wells along with oil and gas. Members of the Western States Petroleum Association, a group of major drillers including Chevron and CRC, will unearth more than 92 billion gallons of wastewater this year, based on a May survey by the association.

The water’s typically too salty to be potable, although in parts of the state it can be treated enough for use by farmers. The vast majority of the waste is either reused for drilling or injected into disposal wells.

More Recycling

That may change thanks to businesses such as OriginClear Inc., a Los Angeles-based licensor of technology that purifies wastewater by zapping it with electric pulses. OriginClear has run pilot projects for both CRC and gas producer Aera Energy LLC, William Charneski, OriginClear’s senior V.P., said in a Dallas interview.

Other companies are using technologies developed to treat petroleum-contaminated land to better cleanse their wastewater, said Barnes, the Bloomberg Intelligence analyst.

If California eventually mandates re-use of water at the well, it could energize recycling across the oil industry with other state legislatures following suit, said Chris Robart, a managing director at market-research company IHS Inc. of Englewood, Colorado.

One lesson emerging from oilfields: Operators don’t need to use expensive cleaning techniques to make wastewater suitable for drilling. Instead, less extensive but cheaper treatment is proving good enough, an insight that could help the practice take off elsewhere, Robart said.

“It’s cut out the whole high-end portion of the market,” he said. “They don’t need fancy technology. You need tried-and-true and simple and cheap.”

North of Santa Barbara, Santa Maria Energy LLC has won approval for an $8-million pipeline connecting its oilfields to a local sewage treatment plant. The company will use treated effluent from the plant in drilling operations.

Capper, the Houston consultant, has been hired to boost water recycling in one company’s fields from 20% to as much as 90%, she said.

“I don’t think they have any choice but to recycle,” she said. “It’s the right thing to do.”

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