Porter Bennett, co-founder and CEO of B3 shares, his 40-year history in the oil and gas industry. Plus, why he thinks midstream companies face a difficult task to overcome producers’ tendency to want to do it themselves.
Jessica Morales, Hart Energy: We’ll start off focusing on how much the water management topic is being discussed right now. There are infrastructure concerns amongst others. What are you hearing?
Bennett: A lot of casting about for the right answer is really the best way to put it. [I look at my 40-year history in the oil and gas business] and I look at this and the way it is evolving in that context. There are so many differences. I think the technological change that is going on here is important. They are trying to figure out the right way to do it. There are concerns about seismicity and overpressuring.
There are a lot of uncertainties in the process and the companies are trying to grasp with that and I think that’s pretty good.
Hart Energy: How can midstream firms best serve producers’ needs?
Bennett: There is always going to be a tendency among producers to do it themselves. That’s just the way it is. The thing that midstream companies have to do is overcome that and that is not easy. They are going to have to be able to demonstrate that their option is more economically beneficial. It’s technically sounder. They are going to have to demonstrate the value of what they bring to the table. I think implicit in that is a lot of education. There are things that some companies are doing well, there are other things companies are doing that aren’t working quite as well and some they don’t do well at all.
A lot of the companies trying to become midstream players work with a number of different producers. By the nature of their business, they see a lot of different solutions. Bringing that education role back to the producers is really important. [With] the producer, self-directed approach and the midstream player approach…I don’t see how in the long run the producer-directed approach or the self-controlled approach is going to work as well as the midstream. You can’t get the economies to scale. I don’t think people understand the economy is a scale yet.
Companies like H2O Midstream or WaterBridge are doing a terrific job. But, they are working at a relatively constrained area. They are working in a sub-part of the Delaware Basin for example. Is that the right scale to think about these solutions on or should it be the broader Delaware Basin or maybe it’s the Midland Delaware or it’s the Permian. It’s too early in the game to know that kind of answer and how it is going to play out. A lot of what the midstream companies bring to producers is the ability to educate and recommend what works and what doesn’t.
Hart Energy: Tell us about the foundation of B3.
Bennett: It grew out of my career of 40 years. One way you can look at it is, I have been building databases and information systems that bring transparency to OPEC markets. In my first company, Bentek that’s what we did in the gas world and at the end, we brought it—to a degree—to the oil side of the business. With Ponderosa we were looking at the ability to understand oil and the complexity of the different grades of oil [and] how that affected the market and cost structure for different basins and operators. The systems were all designed to do that.
What B3 is doing now is taking that approach and bringing it to water. Water is an interesting subject in this kind of context because it is very state specific. The data sets are different across states. The way the regulatory structures work is different. It’s a much more complex undertaking. As we go through each state across the country we are assembling all the data we can get our hands on. Whether it is surface rights for water rights or whether it is water rights, disposal wells. [We take] all sorts of different data and put it into what I think is a very elegant and sophisticated information system.
Hart Energy: We have talked about the challenges in the area. Tell us what you see as positive in the Midland midstream market.
Bennett: I think it starts with the exuberance about the resource and the production trends in the basin. You can’t look at that without being impressed. It’s really pretty exciting. That is number one along with all the political/economic implications of that.
Number two is the way the industry is beginning to cope with water. There are all sorts of infrastructure challenges out here. Gathering oil and processing are challenges that are relatively easy to cope with. I think the bigger challenge is the water one because it is a resource we use in our daily lives; everybody uses it and relates to it. Whether it is right or wrong there is an underlying assumption that it’s a zero-sum game. If the oil and gas industry uses water here, it isn’t available to be used over there to grow crops. That is probably going to be proven not true.
The third thing to me is the degree of technical innovation that is going on in this industry. It really is impressive. It isn’t just the geology of drilling the disposal wells and trying to avoid seismic areas. It’s the chemistry and how you deal with the brackish water and different kinds of bacteria or solid matter that is in the flowback water. There is just a tremendous amount of research going on [and] I think that is a really positive thing.