Concept Report / Preliminary Technical and Cost Analysis Delivery of Treated Produced Water from Indian Basin and Dagger Draw to the Pecos River, Eddy County, New Mexico

R.T. Hicks Consultants Bohannon-Huston US Filter

Scope of Work Treatment and Delivery of Produced Water to the Pecos River –#1 Below Brantley Dam –#2 at Dark Canyon –#3 at Malaga Bend Obtain Preliminary EPA Effluent Limits Conceptual Design of Treatment Facility Infrastructure Plan for All Alternatives / Preliminary Maps of Alternatives Cost Estimates for Alternatives / Compare to Existing Disposal – Injection

Indian Basin Dagger Draw Carlsbad

Pecos Water Quality

Produced Water Quality 6,500 – 12,000 Total Dissolved Solids Hydrogen Sulfide – 378 mg/L NORM – Ra – 2500 pC/L Boron – 2 mg/L Free Oil – 100 mg/L

Produced Water Cations and Anions Calcium685 mg/L Magnesium293 Sodium3,281 Potasium68 Bicarbonate1,049 Sulfate2,121 Chloride4,384

Indian Basin: 70K bbl/day Dagger Draw: 21K bbl/day About the Same Flow as Black River

Concept Study Approach – Marriage of Two Options Scale-up Existing Oil Field Technology/Methods – to 60,000 bbl/day Use Large-Scale Water Treatment Technology Approach and Modify to Meet Produced Water Chemistry Realities

Pipeline Elements Brantley Dam Alignment –16 mi –18-20” diameter –Includes pump station Dark Canyon Alignment –27 mi –20-30” diameter –Gravity pipeline Malaga Bend Alignment –51 mi –20-24” diameter –Gravity pipeline

Option A Comply with all the effluent requirements identified in the preliminary list from EPA Treat all the produced water in the area Evaluate two different sludge handling alternatives Mechanical dewatering and off-site landfill On-site sludge lagoon/landfill

Option B Meet only the TDS requirement of < 5000 mg/L Eliminate those wells with high TDS concentrations Treat (RO) approximately 85 percent of the produced water Include on-site sludge lagoon/landfill May require creative permits

Proposed Treatment Process Walnut Shell Filter Walnut Shell Filter Lime Softener Lime Softener Cartridge Filters Cartridge Filters High pH SWRO High pH SWRO Belt Press Belt Press Acid Regen System Acid Regen System NaOH Regen System NaOH Regen System FeCI3 Ca(OH)2 Na2CO3 NaOH Dewatered Sludge for Disposal Backwash Waste Spent Regenerant Waste IN Disposal Well To Pecos SWRO Reject Waste Backwash Feed Multimedia Filtration Multimedia Filtration Weak Acid Cation Exchanger Weak Acid Cation Exchanger

Option A Effluent = 500 mg/L TDS

Option B Effluent TDS = 5000 mg/L

Option C- Potash Industry? Maybe No Reverse Osmosis to reduce TDS Hydrogen Sulfide Treatment Required Petroleum residual treatment? Pipeline to Carlsbad and connect to existing lines

Pipeline Costs Pipeline Length (mi) Capital Cost ($) < 26,152,700 O&M Cost ($/Yr) 8,000 Cost / Barrel 0.04 Cost / 1000 gal 0.93 Cost / Ac-ft

Treatment of H 2 S At this scale, maybe $ $0.07/bbl At smaller scale actual H 2 S treatment is at least 20 cents/bbbl SWAG of total costs for delivery to potash industry: Cents/bbl

Existing Cost for Injection Capital costs are already amortized (about cents/bbl) O&M costs are about 5 cents/bbl Gas production is in decline, < 10 years of production remains, no additional capital for disposal Bottom Line: Treatment and Delivery must meet the 5 cents/bbl existing cost

What Did We Learn? Treatment and delivery to the Pecos River might have been economically viable BEFORE the oil and gas producers sunk large capital costs for injection However, must reduce costs below the predicted cents/ bbl for Option B The Tax Incentive (8 cents/bbl for 5 years) is not sufficient to overcome economics

Delivery to Potash Industry? Might be economically viable IF gas/water production continues for more than 10 years The Tax Incentive (8 cents/bbl for 5 years) is not sufficient, given the uncertainties of gas and water production The Government could fund the pipeline, charge for water delivery, and hope for a payback (in water transport fees, by continued agriculture, and > 10 year life.)

What is Next? Wyoming Coal Bed Methane - Big George The Next Indian Basin Gas Field New Treatment Technologies “Out of the Box” Thinking About Water Management A Willingness to Sacrifice Some Water Quality for More Water Quantity

R.T. Hicks Consultants Bohannon-Huston US Filter