This week a majority of the U.S. Senate voted to approve the Keystone XL pipeline, but it failed to meet the 60-vote threshold. And I had a chance to speak with Jud Hill at Citadel Energy, a fluid management company in North Dakota.
News Roundup for the Week of November 17, 2014
- Sen. Mary Landrieu (D-LA) hunted for the last vote needed for her Keystone bill.
- The Economist wrote that the North American energy boom is changing geopolitics.
- Both the New York Times and Washington Post criticized Congressional Republicans on climate change.
- FuelFix reported producers will be focusing on the most reliable fields.
- The Senate Keystone vote came up one short.
- The Washington Post reported that the Forest Service has backed off a proposal to ban fracking in the George Washington National Forest, but it will also stop allowing any new drilling.
- The Philadelphia Daily News editorial board argued that the city should take action to become an energy hub, in light of a possible sale of the city-owned gas utility.
- President Obama said he will veto several EPA-limiting bills put forward by Republicans.
- The FiveThirtyEight blog had an interesting take on the Keystone vote.
- Market Realist detailed dropping natural gas rig counts.
- National Geographic wrote about coal plants being switched to gas.
- Times Israel wrote about a project in Israel.
- China is still struggling with shale, reported Bloomberg Businessweek.
- The New York Times looked at a recent report on reducing methane leaks.
- A West Virginia pipeline continued to drive debate.
- Reactions to the Keystone vote include: PolitiFact finding President Obama’s statements to be “mostly false,” the Wall Street Journal saying the pipeline’s fate will likely be decided in Nebraska, and The Economist calling the debate “hyperbole.”
Here are the closing arguments from the Senate Keystone vote.
Interview with Jud Hill, Managing Partner at Citadel Energy (Starts at 11:40)
Citadel Energy provides fracking fluid management services to oil and gas producers, primarily in the Bakken Shale region in North Dakota. I had the opportunity to talk about the company’s work with Jud Hill, who is an executive with Citadel. Jud has had a very interesting career path.
Jud grew up in Pittsburg, studied engineering in college, and earned a master’s degree in environmental engineering. After school, he went to work doing “greywater recycling,” which meant taking domestic waste water and cleaning it up enough that it could be used to water the grass on golf courses. He also did some work around oil and gas production on Alaska’s North Slope. He worked on some other projects handling hazardous waste and waste water, and then founded his own company. After he sold off his company, he became a banker and worked in private equity. It sounds like he ran a water funds at a couple different private equity firms, where he invested in water technology companies around the world. And that led him to Citadel.
Jud seems to credit much of his success to his engineering background. He strongly encourages young people to study the sciences, particularly engineering, biology, chemistry, or pre-medicine. He sees a lack of scientific understanding at times in business and also in government regulators. People skills are also very important in business, he said, perhaps even more important than technical skills like accounting. Courses in human behavior, psychology, or salesmanship might be more useful to a student than advanced business courses. He also said that anyone who wants to become an investor should spend some time operating a company so they know what it is like to “get your nose broken” in business. He said that his scientific background and experience operating a business helps him relate to companies he has invested in.
Citadel, Jud explained, offers a range of services along the “water value chain.” The company provides fresh water for fracking operations. That is called sourcing or provisioning. Citadel also and manages and disposes of waste. Citadel is working to create a hub-and-spoke system, where oil and gas producers are always a short distance away from both fresh water and waste management facilities.
Jud said that sourcing fresh water is all about providing reliable and safe service and minimizing the distance between the water source and where it is used. Short distances minimize “windshield time,” which is the time the water spends on the road in a truck. Minimizing windshield time is important because it cuts transportation costs. Water delivery is also safer and more reliable over shorter distances. Moreover, taking trucks off the road can improve producers’ relationships with nearby communities.
Citadel sees the Bakken as unique because it is a relatively new field, perhaps only in the second or third inning of its “game.” That means producers are still building out infrastructure and learning to optimize yields. Many areas in the Bakken have two-lane roads that are packed with trucks of all sorts. Weather is also a barrier to entry, as temperatures are below freezing for much of the year. It is a challenge to keep water from freezing and trucks on the road.
Producers in the Bakken are finding it economical to place many wells at one surface site, and then drill out in many directions (the American Petroleum Institute has a good graphic on this). This consolidation is good for the environment, because it limits surface disruption and requires fewer holes through the aquifer. It also makes good business sense, as a fixed location can be serviced more economically. Citadel is taking advantage of these centralized wells by connecting them to pipes and eliminating the need for trucking fluids. For fresh water, it can be as simple as stringing a fire hose between a water source and the wells.
On the disposal end, Jud explained the two main types of water wastes. First, oil and gas wells have always produced some waste water. A significant percentage of what comes up the well is this “produced water,” and that will continue throughout the life of the well. This long-term flow of water is part of why Citadel is finding it economic to install waste pipelines in some locations. Fracking, of course, also creates “flowback water.” That is the freshwater that is forced down the well to fracture the shale formations, and most of that water flows back up to the surface before the well settles into producing oil or gas.
Citadel collects both flowback and produced water. It sounds like the company is typically paid by the volume of water it takes away. It then cleans the water to create a “clean brine,” which is basically saltwater. If the economics ever make sense, Citadel can recycle the brine or distill it back into fresh water that can be sent back to producers. That type of recycling is happening in some places where water is scarce, but in the Bakken region the saltwater is typically disposed of in a salt water disposal (SWD) well. This has been the traditional method of disposing of brine for a long time. In the Bakken, disposals are typically made into the Dakota formation, which is a layer of sand about a mile below the surface. Jud noted that the disposals are both heavily regulated by the government and overseen by the production company. Most oil and gas producers, he said, have an inspection and review program that Citadel must pass before it can do any work.
Jud said his company is also working on waste solids. This includes both drilling muds and “tank bottoms,” meaning all the solids that settle to the bottom of a storage tank. Citadel runs this solid waste through a centrifuge to pull out the water and oil, and then disposes of the remaining solids at a landfill set up for that type of waste. The water that is removed gets treated like any other waste water, and the removed oil is sold as Bakken crude.
It was a very interesting to hear about what is going on with fracking fluid managment and how one company is facing down the challenges in the Bakken. If you want to learn more, please check Citadel out online at www.citadelep.com.