Are We Here for a Good Time…. and a Long Time?

There is a dilemma that must be addressed as we enter a new inning for the water management business. We operate in an industry now predicated on immediate to short-term returns on capital, yet the water issues facing the industry may dictate capital expenditures that require a longer-term perspective.

This thought began to crystallize earlier this year when I had the opportunity to moderate a conference panel on the future of oilfield water management. The panelists came from Pioneer Natural Resources, Select Energy Services, and Diamondback Energy and our goal was to ‘look over the horizon’ at how water management may function in the future and consider the implications of changes along the way. How do we think about the long-term implications of rapid evolution in the water management market and how should we incorporate this analysis into today’s decision making, especially when significant investment is required to achieve long-term goals?

I was lucky to have a group of very thoughtful panelists and I think that each of us derived real value from granting ourselves permission to look past the impending business requirements and risks of the next handful of months. It forced us to consider things that even a detailed engineering plan would miss. We uncovered policy complications not obvious today that need to be addressed, scientific research gaps, commercial structures that might need to evolve, roles that do not exist in oil and gas companies today but may well be needed in the future. The nature of new investment, who should pay for it and implications for cost were routinely examined. We often circled back to a challenging reality: it takes time to recover capital and develop value in infrastructure, and the ability of infrastructure to provide long-term service (stay utilized and generating profit) is paramount. Yet at the same time, there is a reticence to engage in major long-term contracts for some proposed infrastructure projects. This gap between what is needed to secure project financing and what oil and gas companies are willing to subscribe to can be the reason a needed project fails.

The challenge of planning for the very long term when near-term needs and risks drive nearly all decision making may slow our ability to generate the solutions we will need in the future. In an industry where most management teams are on the hook to provide near term returns and thus often think in terms of quarterly results, let alone rolling annual terms, is it possible for oil and gas companies (and the water management companies that support them) to plan on a decades-long scale? Do investors fully understand the importance and value of the infrastructure that water management companies have built over the last half decade? There are many indications that they don’t. Solutions are intimately intertwined with scientific and technological innovation and development, regulatory and policy evolution (or devolution); all arenas a rapid state of flux. This heaps uncertainty on top of uncertainty, adding to risk in general, yet most of the industry agrees that this innovation (even if it proves expensive) is critical to its long-term success.  

I’m looking forward to delving into this discussion at our upcoming Ripple Effects Summit in Fort Worth. There is much to do understanding the water management needs of the next few years and reconciling them with a longer-term vision for oilfield water management.