Salt Water Disposal Institute (SWDI)

Amerex Resources Corp. and Dr. Bruce Langhus have created the Salt Water Disposal Institute (SWDI) which is charged with establishing coordinated Commercial Salt Water and Fracwater Disposal facilities catering to the oil and gas industry.

The Institute draws together many years of underground injection experience, regulatory experience, environmental experience and financial expertise into a think-tank of singular capabilities. Amerex proposes to leverage the SWDI to assemble a leading corporate entity for managing saltwater and frac flow-back water across Oklahoma, Texas, and Louisiana in a network of disposal wells, water trucks, and operations staff. The operating company’s scope will be large enough to spread operational risk across a network of commercial disposal wells and also big enough to exploit economies of scale for maintenance and regulatory compliance. Staff of the SWDI will consist of full and part time personnel as well as outside consultants with expertise in remediation, geological, engineering and operational backgrounds.

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Why the Salt Water Disposal Institute?

Background of Salt Water Disposal Institute
The oil and gas industry unavoidably produces huge amounts of waste salt water. The state of Oklahoma, for example, produces 22 bbls of saltwater for every barrel of oil and that number keeps increasing every year as its oilfields age. This water has no market and it must be managed safely and economically to preserve the oil and gas industry. Water injection into deep permeable formations is the best management option. State and Federal regulations make deep injection safe and protects the fresh water zones. Oklahoma itself has over 33,000 injection wells per the Oklahoma Corporation Commission UIC records but only 218 Commercial Salt Water Disposal (CSWD) wells – those that can accept waste water from any oil and gas operator. This growing sector is where Amerex Resources seeks to exploit with the SDWI and this saltwater disposal network.

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Oklahoma Market Analysis (SWDI)

Oklahoma is the fifth largest oil producer in the country; its industry is over 130 years old. This mature industry produces millions of barrels of saltwater each year. Oil and gas producers do utilize their own disposal wells for injecting these waste waters, but an increasing number of producers are maximizing the capacity of these wells, are losing their permits to utilize these wells, lack the infrastructure to dispose of additional waste water and hence must utilize Oklahoma’s 218 commercial disposal wells.

The SWDI concludes from this analysis of Permits to Drill and Completion Reports issued by the Oklahoma Corporation Commission that additional demand for commercial saltwater disposal in 16 counties is forthcoming. Commercial wells exist in almost every county of the state but volumes of waste water managed by each well varies considerably across the state.

Statistical analysis’ by the SWDI has identified the 16 counties with the largest commercial saltwater disposal well business; 73 commercial wells in these 16 counties disposed of a total of 64.7 million bbls in 2010. In this disposal process, “skim-oil”, the crude oil that is entrained in the waste water is skimmed at the disposal well, separated and sold.

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Texas Market Analysis (SWDI)

Texas is the largest producer of oil in the country and the Eagleford Shale is its hottest play. Statistical analysis’ by the SWDI has identified the 14 counties that comprise this primarily horizontal well play. As in Oklahoma, Eagleford Shale oil and gas producers utilize their own disposal well for injecting waste water. However with a record 250 active drilling rigs in the Eagle Ford, waste water disposal supply is not met by the increasing demand and hence the approximately 55 commercial disposal wells must be utilized.

As current oil and gas leases are due to expire in 2012 oil and gas producers must increase the number and pace of drilling activity to protect their leasehold positions.

The market demand analysis by the SDWI concludes consistent increasing demand for commercial disposal as the Eagle Ford play continues to expand in each of the 14 counties identified.

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Business Plan for the SWD Portfolio

Business Plan
Amerex Resources is determined to drill and acquire a balanced portfolio of 25 Commercial Salt Water Disposal Wells throughout 30 identified and increasingly productive counties in Oklahoma and Texas. In each case, location, disposal zone capability and proximity to drilling activity are important factors. The execution of the plan will be accomplished by a resident team of geologists, engineers and regulatory specialists with over 100 years of industry experience.

Amerex has identified the first new Commercial Salt Water Disposal well location to be drilled in Garvin County, OK. An updated Commercial Saltwater Disposal Well Analysis has been included for your review. An existing Commercial Salt Water Disposal well and facility has also been identified to be acquired. “Skim Oil” and salt water hauling present two additional revenue streams. The acquisition of the trucks and saltwater tankers are projected to represent up to 50% of total Commercial Saltwater Disposal revenue in Oklahoma.

Amerex Resources has also identified its first investment in the Eagle Ford Shale play in South Texas. This specific investment includes 3 active disposal wells in the heart of the trend which dispose of a combined 4.7 million barrels annually, 70 frac-tanks and 32 tanker trucks with existing contracts with the major oil and gas producers in the Eagle Ford Shale trend; producers that have been clients of the company for more than 25 years. Combined with this investment comes a new disposal well permit to drill a new Commercial Saltwater Disposal well permitted for 20,000 barrels per day of salt water disposal. As in Oklahoma, “Skim Oil” and salt water hauling will derive additional revenues of up to 100% of salt water disposal alone.

With new modernized facilities and upgraded existing facilities, Amerex Resources and The Salt Water Disposal Institute will set the standard for Commercial Salt Water Disposal with the various state Underground Injection Control programs.

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Commercial Saltwater Disposal Underground Injection Issues

Underground Injection Issues                                                                       May 10, 2012
The Saltwater Disposal Institute (SDI) specializes in economical, safe management of oil and gas wastes, primarily waste water via deep-well injection.  We publish this blog in order to shed light on regulatory trends, public attitudes, and industry responses.


Disposal Well Protests:
Injection wells, especially those associated with the Shale-Gas play, appear every day in the national news media.  Injection wells have lately drawn local protests from citizens fearing environmental impacts.  One well in particular is perhaps an indication of the changes in America’s attitudes.

One of Amerex Resources joint venture operating partners received a permit for a commercial Class II disposal well in southern Oklahoma, one of a few states who distinguish commercial and private disposal wells in the oil and gas sector.  A private well can only accept waste from the operator’s producing wells while the commercial well can accept waste water from any oil and/or gas well.  The proposed well specified in the permit, having received no protests from industry nor public, was not drilled prior to the permit expiration.  This operating partner has recently filed for a new permit but this new application has received over 1,300 protests, mostly in the form of petitions initiated by residents.

South-central Oklahoma is heavily involved in the oil and gas industry and contains over 6,000 producing wells that averaged a total 200,000 bbls per of oil per month.  The county in which the Commercial Saltwater Disposal well is located is home to over 1,000 injection and disposal wells that must manage approximately 20 Million bbls of salt water every month.  27,000 people reside in the county where oil and gas is the 4th largest employer (although in the past five years that sector’s employment has grown by far the fastest).  Oil and gas jobs pay wages more than twice the regional average (OK Commerce Dept, 2012).  Despite these facts, many people in the county’s largest town have protested the second application for the disposal well.

The new application was initiated in March, 2012 at the Oklahoma Corporation Commission (OCC) office.  Suitable public notice was done and the protest period was over in May, 2012.  None of the 11 oil and gas operators in the area of the well objected but a great many private citizens filed protests.  A voluntary public meeting hosted in April to air the details of the application and to allow citizens to make themselves heard.  Dr. Langhus and Dr. Marian Smith, both with Odin Oil and Gas and consultants to Amerex Resources, were contracted to represent our operating partner in this action. The following issues were brought up by citizens at the meeting:

  • The disposal well will damage fresh water resources the same as old water-floods did in the 50’s and 60’s.
  • Truck traffic would severely impact the municipality and its residents.
  • Tanker-truck accidents could result in salt water spills that would represent significant environmental and human-health threats.
  • Noise from the operation would be intolerable to neighbors of the well.

It should be emphasized that none of these complaints concern permitting issues under the jurisdiction of the OCC.  The issues of concern are outside the authority of the Underground Injection Control (UIC) Program as it is defined in statutes and regulations, however, they have captured the attention of citizens and have become a great deal more important than technical permit issues and for that reason alone they must be addressed by disposal well applicants.

Historical pollution and impacts to water resources are serious subjects that are on the minds of residents.  Anyone associated with older water floods and loss of water resources in the past is anxious to assure that nothing like this happens again.  In the case of Oklahoma, many old water-floods caused the loss of water wells.  Oklahoma has been the home to many water-flood projects since the ancestor of Exxon-Mobil installed the first in 1931 in Rogers County.  Water-floods typically contain several injection wells that return produced water into oil-producing reservoirs.  They can have the advantage of increasing oil production but can also have the dis-advantages of leaks in injection wells, producing wells, and surface pipelines.  In the past, water-floods have impacted soil and water resources around the state, resulting in expensive remediation efforts by operators.

Marathon Oil Company operated several water-floods in the vicinity in the 50’s, 60’s, and 70’s.  The formations being flooded included a number of Pennsylvanian sands including Tussy, Deese, Hart, Pontotoc, Layton, Dewey, Hoxbar, Tuley, Robberson, Skaggs, Newberry, Douglas, Cisco, and others.  Injection pressures needed to be up to 2,500 psi to get water into the tight Pennsylvanian sands.  Injection at such high pressures puts a strain on injection well casing, production well casing, and pipelines. This resulted in leaks, surface releases, and subsurface releases, some of which were not detected for long periods of time.  Long-term leaks led to contamination of aquifers in the area and abandonment of numerous water wells.

Oklahoma’s history with water-floods led to increased scrutiny by state regulators, especially the OCC whose oil and gas authority was established in 1914.  The OCC operated for most of its history as a reactionary entity that only took action in response to specific complaints from industry or citizens. Modern environmental regulations in the 1970’s and 80’s prompted the OCC to adopt prohibitions and controls on various activities in the oilfield.  Part of those new regulations were aimed at deep-well injection, culminating with the endorsement of the OCC as lead agency for the new Federal Underground Injection Control (UIC Program); new UIC regulations aimed to prevent impacts such as those seen in the old water-floods.  Today’s water flood and disposal wells are subject to numerous regulations designed to prevent leaks and impacts to Oklahoma’s surface and groundwater.

Environmental bonds are required of every operator in the state.  In addition most operators carry insurance to cover unforeseen impacts.

Truck Traffic is not controlled by the OCC but rather is the jurisdiction of the state, county, or municipality.  Nonetheless, it behooves the operator to manage traffic away from residential areas and along well-maintained county roads.  The meeting drew many comments about potential truck traffic in the town and in particular through residential neighborhoods and by an elementary school.  Drivers of trucks delivering to the Commercial Saltwater Disposal well will, however, be instructed to avoid that route and use a different exit off I-35 and one of two routes that avoid the town.

Salt water toxicity for humans and other animals is very low (NaCl MSDS, Nov 2010) .  For humans the self-limiting effect of offensive taste will restrict intake of salt water well before toxic doses are reached.  Livestock will drink salt water if fresh water is not available but they are able to tolerate significant amounts of brine.  Some varieties of farm animals are able to exist on 1% (10,000 ppm) salt water – this is indeed the basis for the Federal Statutory definition of “Drinking Water” being less than 10,000 ppm total dissolved salts.  Hundreds of other organic and inorganic compounds can occasionally be found in produced salt water but their concentration is usually very low.

Citizens at the public meeting were concerned over the possibility of “hazardous wastes” entering the commercial disposal well.  These wastes would be any liquids that are not associated with oil and gas production such as routine industrial waste water.  The nature and source of these worrisome wastes rests on the regulatory framework surrounding oil and gas waste material.  In December 1978, EPA proposed hazardous waste management standards that included reduced requirements for several types of large volume wastes. Generally, EPA believed these large volume “special wastes” are lower in toxicity than other wastes being regulated as hazardous waste. Subsequently, Congress exempted these wastes from the Resource Conservation And Recovery Act (RCRA) Subtitle C hazardous waste regulations pending a study and regulatory determination by EPA (42. U.S.C. § 6901). In 1988, EPA issued a regulatory determination stating that control of E&P wastes under RCRA Subtitle C regulations is not warranted (53 Fed Reg: 25446; July 6, 1988).  Since then, E&P wastes have remained exempt from Subtitle C regulations with subsequent modifications and guidances.  Federal EPA and state environmental regulatory agencies have remained steadfast in recognizing the fundamental differences between E&P exempt wastes and routine industrial wastes.

Amerex’s operating partner has also proposed that the Commercial Saltwater Disposal well will be staffed 24 hours a day, will have secure, computer-monitored and controlled connection valves, will have no open pits available to rogue waste haulers, will manifest all loads arriving at the plant, and will equip the well with full-time sensors to monitor specific gravity and conductivity in order to intercept any non-exempt liquids from entering the well.  Hauling industrial waste in tankers meant for oil and gas waste is against Oklahoma law and a trucker doing so risks losing his livelihood.  This operating partner could risk heavy fines and shut-downs for taking ineligible wastes and risks the capability of its well from unknown down-hole reactions that could plug the Arbuckle Injection Zone in the vicinity of the borehole.

Citizens expressed concern over radioactive constituents in the waste water but this has not been an issue in Oklahoma’s oilfields.  While almost every substance in nature carries some radioactivity, the vast majority of plants, rocks, fluids, and animal tissue is very low.  Some situations are different and are fraught with dangerous levels of radiation – transcontinental airline flight above the shielding effect of the atmosphere carries the risk of high levels of radiation and some ore bodies contain high concentrations of uranium or radium.  Oklahoma’s oilfield waters have not been shown to be radioactive above local background levels.

Sound levels surrounding the disposal well will be higher at some times than at others.  While the horizontal in-pipe pumps used by our operating partner are much quieter than industry-standard open-air triplex pumps, this operating partner has volunteered to install sound-walls where appropriate to deflect noise from neighboring residences.  These walls are common to oil and gas wells built in a suburban environment.

Summary:
The prudent operator will anticipate substantive objections to SWD operations and calm those fears with industry-standard or innovative solutions.  The next installment of this blog will elucidate some of the solutions applied by Amerex Resources to address and alleviate public fears about commercial disposal wells.

About the authors:
Marian M. Smith, Ph.D. is a reservoir geologist with experience in petroleum reservoir and aquifer characterization as well as geological and environmental education.  She brings valuable public speaking skills and instructional experience to Odin Oil and Gas and the SDI.

Bruce G. Langhus, Ph.D. is a petroleum geologist with over 45 years’ experience in oil and gas business including water-flood design and operation; Class I, II, and III disposal well location, permitting and operation; and injection well remediation.  Dr. Langhus has been the Class II Program Manager in Oklahoma, the second largest UIC program in the country.  He was a founding partner of ALL Consulting, a successful geotechnical consultancy in Tulsa, OK.  Dr. Langhus is now part of Amerex Resources with prospective disposal well and facility acquisitions in Texas, Oklahoma, Kansas, Montana, and North Dakota.

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Water Disposal Facility Placement

One would argue that location is preeminently important, however that is not necessarily correct. Capacity trumps location when this factor is argued in light of costs and efficiencies of hauler fleet costs and potential pricing breaks at the disposal site. Moreover, routing to sub-standard or capacity compromised facilities can increase costs and liability issues for the oil company, while hampering scheduled production rates on the producing well site. If your holding tanks are full…you are losing money.

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Eagleford Shale, Texas Salt Water Disposal

Capacity and convenience are the operative words to describe the issue best.

With many leases in the Eagleford Shale Held By Production and soon to expire without additional drilling, puts mounting pressure on the 55 disposal wells in the area, many already pushed to capacity or incapable of handling the coming new water disposal needs.

After thorough due diligence of the area, Amerex is considering an acquisition or joint venture investment to capture a substantial amount of new water disposal business in the area.

This specific plan includes the acquisition of; 3 active disposal wells in the heart of the trend which dispose of a combined 4.7 million barrels annually, 70 frac-tanks and 32 tanker trucks with existing contracts with the major oil and gas producers in the Eagle Ford Shale trend; producers that have been clients of the company for more than 25 years. Combined with this plan comes a new disposal well permit to drill a new Commercial Saltwater Disposal well permitted for 20,000 barrels per day of saltwater disposal.

Amerex Resources and the Saltwater Disposal Well Institute will set the standard for Commercial Saltwater Disposal with the Oklahoma Corporation Commission and the Railroad Commission of Texas.

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Salt Water Disposal Basics

Overview of downloadable primer on water disposal:
With all the emphasis on “Drill, Baby Drill!”, the opportunities represented by an appropriately managed water disposal facility can go unnoticed by potential partners. In fact, most partners have not seen the financial dynamics of the other side of the oil development equation: the infrastructure- and industry-support side, which more equally aligns partner interests with those of the hydrocarbon producers themselves.

Some basics
Despite all the hype, most oil drilling or development investments do not yield the year-over-year ROI depicted by the projections. In certain circumstances involving runaway price volatility, it could be so yet most benefits are a combination of some cash-flow and deductions, and sometimes gain on sale, albeit unusual without a strong partner or the aforementioned substantial price volatility.

The upshot is that should you require liquidity in this type of investment, it becomes increasingly unlikely given the nature of the depletion in oil and gas wells. That is, as time goes by the asset becomes worth less than the sum total of its required investment. Coupled with entropy and mostly underground intangible assets, you have a business model that emphasizes the need for large production rates to recover cost quickly, not over an extended period of time.

Enter the Water Disposal side of the equation. In this model, partners have a substantial and tangible above ground set of assets. These assets are likely to deliver some depreciation along with the intangible underground asset…a well not engineered to find oil but to dispose of water. Provided that this facility has the requisite capacity to handle the long term needs of a substantial market for the local disposal of water, a partner is presented with the potential for a yield curve that can remain on target over a lengthy period of time. Should liquidity become an issue, the partner has a business which is less likely to have the large ups and downs of a typical participation in a drilling or reworking project which would compromise liquidity options.

Some owners of Water Disposal Facilities, both public and private, refer to them as “Cash Cows”. We won’t go that far in our description, except to note that with a strong management outreach to a variety of producer/disposers, an excellent location, stable or increasing oil prices, and a state of the art facility…the potential of strong year over year ROI’s is more likely here than in most exploration and production activities.

Find out more in our paper entitled: [DOWNLOAD PRIMER]

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