Top shale oil producer Pioneer Natural Resources Co (PXD.N) has found an unusual way to both save water and cut costs for its wells: tapping the treated runoff from toilets, sinks and showers in west Texas.

Pioneer has signed an 11-year, $117 million deal with the city of Odessa, Texas that will guarantee it access to millions of gallons of treated municipal wastewater each day, for use in nearby oilfields. Deliveries of the so-called effluent, are expected to start at the end of the year.

As crude oil has slid to its lowest level in six years - currently about $40 a barrel - oil and gas companies pumping from shale rock have tried to cut every unnecessary penny from their operations. Water acquisition and transportation can be up to 10 percent of the cost of drilling and fracking a well, according to consulting firm IHS.

Producers are also trying to mitigate long-term risks of water scarcity in the arid Permian Basin of West Texas, where the top U.S. oilfield is situated.

Oil and gas companies operating in area, including Pioneer and Apache Corp (APA.N), have long sought cheaper, more environmentally sound sources of water to use for fracking.

For example, both companies have drawn some of the water they use in their operations from the Permian's brackish aquifers, which contain water unfit for drinking. Both companies also have worked to recycle water that is used for frack jobs or found in the ground while drilling.

During hydraulic fracturing, or fracking, million of gallons of water are blasted, along with sand and chemicals, into a well drilled through shale or other rocks. The high-pressure slurry cracks the rock, allowing oil and gas to escape and exit the well.

Pioneer is the first oil and gas company to sign a long-term wastewater supply contract with Odessa, a city of about 110,000 people. The Dallas-based company recently began construction on a pipeline network that will transport the treated water from the city's sewage plant to one of its oilfields about 20 miles away.

"The money has been approved," said Stephen McNair, president of Pioneer's water management group.

Pioneer's goal is to eliminate the use of fresh water in fracking in 5 to 10 years, said McNair.

The municipal reclaimed water the company intends to use comes from sewage plants that treat human waste and water from activities that include bathing and food preparation, according to Texas regulators.

City officials say the deal will provide a steady stream of revenue and reduces truck traffic.

"We didn't think we were making our highest and best use of our effluent water, we were using a lot for irrigation," said Larry Long, the Odessa city attorney who helped to negotiate the deal with Pioneer. "We thought it had more value going to the oil companies," he said, noting that it would allow potable water currently going to the oil fields to be put to other uses.

EOG Resources Inc (EOG.N), which has wells in the Eagle Ford formation in South Texas, is considering using water from wastewater treatment plants, according to its web site. And Anadarko Petroleum Corp (APC.N) uses treated water purchased from the city of Aurora in Colorado, according to a spokesman.

Alpha Reclaim, a private Houston company owned by BNN Energy that supplies reclaimed water to oil companies in Texas, has dealings or contracts with about 30 cities in Texas, including Big Lake in the western part of the state. The firm is looking to grow its water business, including its use of reclaimed wastewater.

"We see a lot of opportunity," said Mark Ritchie, a vice president at Alpha Reclaim.

Source: www.reuters.com

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