Frack Flowback Water Opportunity Across the Eagle Ford Shale

Alex Gupta, James Lamb, Zhengwang HeAdvised by Dr. Fred Beach and Professor John Butler

The University of Texas at Austin

May 1, 2015

Introduction: Meet Team UT-Austin!

Alex Gupta, MBA CandidateB.S. Mechanical Engineering

7 years of natural gas pipeline experience

Zhengwang He, PhD CandidateB.S. Chemical Engineering

Specialize in Membrane Water Filtration

James Lamb, MBA CandidateB.S. Biomedical Engineering5 years of oil & gas field service experience

Presentation Itinerary

1. Project Focus

2. Technologies Selected for Solution

3. Business Plan and Implementation

4. Financial Viability

Eagle Ford Region Under High Water Stress

Freyman, Monika (2014) “Hydraulic fracturing & water stress: Water demand by numbers” A Ceres report.

Eagle Ford Flowback Water Chemistry

• Oil and Grease, ~200 ppm

• Total Dissolved Solids (TDS), ~60,000 ppm

• Chemical Additives

• Naturally Occurring Inorganic and Organic Compounds

• Particulates

Two-Stage Flowback Water Treatment System

1. Oil Skimmer removes up to 200 gallons/day

2. Membrane-based Filtration System– Meets reuse quality– Mobile & small footprint– 10,000 barrels/day capacity (315,000 gallons/day)

Omni Water Solutions http://www.omniwatersolutions.com/Abanaki http://www.abanaki.com/

Treatment System Operations

King, George E (2015) “Fracturing flowback: Control analysis & benefits.”

15 to 20 Day Operation

Operational Highlights (Per Well Pad)

• Processes 6.3 million gallons (67%) of flowback water

• Generates 5.4 million gallons of reusable water (i.e. enough to frack 1 well)

• Eliminates 2,330 standard truckloads

• Recovers 95 barrels of oil

Solution: Turnkey Field Services Company• Provide all water handling services during high initial flowback

– Purification– Storage– Transportation– Reuse– Disposal

• Leverage multiple existing equipment vendors to package latest technology for client-specific needs

• 2 Revenue Streams:– Flowback Filtration Processing– Crude Oil Recovery

• Offers lower water handling costs to operators than traditional methods

Traditional Well Pad Layout

EPA, Study of the potential impacts of hydraulic fracturing on drinking water resources. EPA 601/R-12/011, December 2012

Well Pad Layout With Proposed Solution

EPA, Study of the potential impacts of hydraulic fracturing on drinking water resources. EPA 601/R-12/011, December 2012Omni Water Solutions http://www.omniwatersolutions.com

Wellhead

Water Buffer

Oil Skimmer

Membrane Filtration

Frac Tank

Competitive Advantage

A turnkey service company is better positioned for long-term success compared to existing market players

Environmental and Regulatory Considerations

• Business solution offers proactive response to fracking concerns and bans across the US

• Texas legislation is moving toward mandatory flowback reuse policies due to continued state water shortages

• Solution reduces resource loading on state permitting entities (TCEQ, RRC, GCD, TDLR)

Cost Breakdown• Costs at current market price

• Charge 20% less than market price for services that are being provided– Complete disposal– Fresh water sourcing, treatment,

and one half of transport costs

• Operating margin of 42.8% to 63.5%

• Water savings of $9,300 to $31,000 per well

Cost Scenarios

• High degree of uncertainty

• Adjust costs as a function of oil price

• Costs increase proportionally to oil price

• Simulate different scenarios

Market Sizing

• Total market size proportional to oil price

• 1% initial market share

• 27% market growth

• Initial market size and market share growth independent of oil price

• market share ceiling of 10%

Nicot and Scanlon, 2012Sharr, April, 2014

Simulation

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 $(10,000,000)

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

Project Cash Flow

Free Cash Flow Cumulative

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 170

50

100

150

200

250

Oil Price

Low SimulatedHigh Reference

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16-50000000

50000000

150000000

250000000

350000000

450000000

550000000

650000000

Total Market Size

Reference Simulated

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00

$10.00

Revenue vs. Cost

Revenue Per bbl Cost Per bbl

Initial Market Share

Market Share

Growth

Results

• Mean NPV = $35,017,040• Range of $119,548 to

$61,575,785

• Mean IRR = 41.66%• Range of 4.93% to 82.38%

Funding Options

• Recommended Sources– Angel Investors– Venture Capital– Commercial Bank Loans

• Compared to projects with similar IRR:– Lower risk– Longer payback

Summary

• Service company model in Eagle Ford

• Noncommittal technology

• Fast, flexible, mobile, scalable

• Robust and profitable business

Questions?

Appendix

Hydraulic Fracturing “Fracking” Overview

Picture adapted from EPA

Water Intensive Process

Fracking Water Cycle

EPA, Study of the potential impacts of hydraulic fracturing on drinking water resources. EPA 601/R-12/011, December 2012