Upstream Texas - Spring/Summer 2017 - 9
"We saw an opportunity
to use our balance
sheet and construction
expertise, so we
offered to build the
city a wastewater
treatment plant. In
exchange, we told the
city we would like to
buy the water at the
tailgate of the plant."
groundwater in the newly-discovered Alpine
High field in West Texas.
* Pioneer has reached agreements with
the West Texas municipalities of Odessa
and Midland that will allow the company
to obtain significant volumes of water
otherwise deemed as waste.
According to Abbott, Pioneer's deals are part
of a company philosophy to avoid using potable
water for applications that do not require it.
Sometimes, that even means turning down
perfectly good water because it's exactly that.
"We hear from people who are very willing to
sell us their fresh- or agricultural water," he
says. "Our stance is to do very little of that.
Our goal is to shrink our freshwater as close
to zero as possible because it's the right thing
to do for the environment."
According to Abbott, long-term thinking
constitutes a significant part of Pioneer's
strategy. He readily cites a number of
examples, noting that the company has:
* Vertically integrated into completions by
obtaining its own fracturing fleet;
* Acquired its own sand mines to secure a
steady supply of proppant; and
* Committed to not drastically ramping its rig
count up or down according to commodity
The company's approach to water procurement
fits right into that mindset, he indicates,
though many specifics are only feasible
because of what may constitute Exhibit A of
the company's focus on the long view.
As such, a number of Texas oil and gas
producers continue to work on finding creative
ways to slake their operations' thirst. The
Texas Independent Producers & Royalty
Owners Association cites some examples of
such activity among its members:
* As part of a pilot program, Fasken Oil &
Gas is using brackish water for hydraulic
fracturing operations to limit freshwater
* Apache Corporation announced in 2016 a
partnership with chemists at the University
of Texas at Arlington to conduct a baseline water quality study of surface and
That would be the company's Midland
Basin leasehold, much of which Pioneer
has held since its 1997 formation. For
years, Abbott laughs, many in the industry
called that property "the world's largest
uneconomic oilfield." However, Abbott
says, longtime Pioneer Chairman Scott
Sheffield proved prophetic about the
"He was adamant that it was only a matter
of time before technology caught up," Abbott
says. "Now, thanks to modern completion
technology, you can argue it is the world's
largest economic oilfield."
"Usually, a company is lucky if its inventory
offers five years of growth visibility. Beyond
that, people at the company have to take it on
faith that new projects are going to come into
the pipeline, either by discovery or acquisition,"
Abbott explains. "Depending on the oil price
assumption, one easily could say Pioneer has a
50-year horizon. That allows us to make really
Moreover, he observes, that consolidated
Midland Basin position, with its closelypacked drilling locations, offers a rare
logistical opportunity that has prompted the
company's brain trust to make significant
capital investments in water infrastructure.
That includes a sizable pipeline spine that
takes water all the way to drilling locations.
"Our management team is committed to this
because it makes sense for the long-term,"
Abbott says. "This water system requires
capital upfront. It is a lot of pipelines and
pumps and long-term commitments to the
cities of Odessa and Midland, but it gives us
a low-cost water supply for a generation of
drilling on a large scale. Water is one of the
industry's biggest uncertainties for the next
couple decades, and de-risking our execution
plan requires us to secure a supply."
The Midland and Odessa deals are structured
differently. Pioneer approached Odessa city
officials about water it was discharging
as waste, notes Abbott. "That water is
perfectly good for our uses, but not so great
as potable water."
The company and the city have inked an
11-year, $117 million agreement in which the
city of Odessa provides Pioneer with millions
of gallons of treated municipal wastewater.
"The Odessa deal was fairly straightforward,"
he says. "It was treating and discharging its
water, so we were able to enter an agreement
with the city to take ~100,000 barrels a day-
at about $0.27 a barrel."
U P S T RE A M T E X A S S P R I N G | S U M M E R 2 0 17