Hydraulic fracturing, or fracking, has created a new U.S. oil boom, opening billions of barrels of crude reserves in the Dakotas, Texas and California.
But the process requires millions of gallons of chemical-laced water to force oil out of shale and other rocks. For some, that has spawned fears of tainted water supplies. For Sionix Corp., it’s created an opportunity.
The Westwood company has struggled for years to find customers for its water filtration systems, but now has a deal to test its novel technology at North Dakota oil drilling and fracking sites run by Continental Resources Inc., an Enid, Okla., oil company.
“It’s a good opportunity to show what we can do in this particular environment. If you can handle frack water, you can probably handle less challenging stuff,” said David Wells, Sionix’s president and chief financial officer.
Fracking injects a mixture of water, sand and chemicals into fuel-bearing shale formations at high pressure, creating cracks and allowing the oil or natural gas to seep out. The use of the decades-old process has exploded over the past few years as oil prices have climbed and companies have started to exploit reserves previously thought to be unusable or too expensive to tap.
In North Dakota, home of the Bakken shale formation, oil production rose from an average of fewer than 3 million barrels a month in 2005 to more than 16 million barrels in December.
Water used in fracking comes out of the ground mixed not only with chemicals but salt and natural underground contaminants such as barium. Even before the fracking process begins, just drilling an oil well brings up similarly tainted water, though in smaller quantities.
Sionix’s technology helps companies comply with federal regulations that require the tainted water to be either treated or carefully disposed of. What’s more, many in the industry expect further regulations as the process becomes more prevalent, leading players big and small to get into the water treatment business.
Sionix uses a patented technology it claims is cheaper and more efficient than other treatment methods, but faces competition from more established firms, including Houston-based oil services giant Halliburton. Still, analysts said there’s room in the market for Sionix and other firms with new technology, as evidenced by Continental’s contract. Sionix has a 30-day agreement with the driller that could be extended should the results prove positive.
“For Continental to be interesting in testing this, it’s definitely a good sign for their potential,” said Gail Nicholson, an energy analyst with Pritchard Capital Partners LLC in Falls Church, Va.
Sionix, founded in 1996, manufactures mobile treatment systems that can fit into standard shipping containers and be transported by truck. They filter tainted water using dissolved air flotation, which employs tiny air bubbles that cling to and remove contaminants.
Typical dissolved-air flotation systems create bubbles about 50 microns across – half the diameter of a human hair – and can only filter out particles that size or larger, Wells said. But Sionix’s system creates bubbles down to 1 micron wide, meaning it can remove much smaller particles.
“We get to those contaminants in a very efficient, cost-effective way. You would otherwise need more chemicals or a more expensive treatment system,” said Wells, though he acknowledged even Sionix at this point does not know the chemical composition of Continental’s waste water.
Sionix couples its technology with more common filtration methods, including reverse osmosis, to design all-in-one water treatment systems that can even produce potable water.
Since its founding, the company, which has only eight employees, has sold just two filtration units: one to an oil company in Arkansas that used it to treat fracking water, the other to an Ohio poultry company that used it to treat water from a methane digester fueled by chicken feces. The Ohio company ultimately failed to pay and the system was returned.
Sionix has never been profitable. It has subsisted on debt and several stock offerings, raising and spending $32 million on operations, research and development, including $2.4 million alone in the latter half of last year.
The contract with Continental will give Sionix its first revenue since 2010, possibly boosting its stock, which trades over the counter for about 8 cents a share.
Sionix hooked up with Continental through Woodinville, Wash., construction company McFall Inc., a Continental contractor that was tasked with finding a water filtration system. McFall liked Sionix’s mobile system because it should let Continental reuse its waste water for more drilling and fracking. Typically, tainted water is either trucked to treatment plants or pumped into disposal wells that are intended to keep it out of groundwater suppliers. Either way, companies are forced to draw more fresh water, thereby depleting local supplies – yet another environmental criticism of the process.
“If it works, it should save on water costs and disposal costs,” said analyst Nicholson.
Sionix is set to deliver and start operating its system by mid-April. Continental will pay for the services on a per-gallon basis, though McFall and Sionix officials would not say how much the deal is worth. Continental officials declined to comment.
As the use of fracking continues to expand, analysts expect more oil companies will want on-site water filtration systems. Along with cutting the cost of trucking water to treatment plants, on-site equipment like that offered by Sionix reduces the risk of spills, said Nicholson.
“If they can just reuse it at the site, it limits the environmental problems that can occur,” she said.
Reusing the contaminated water is an especially attractive option for companies operating in Texas and other arid climes with limited groundwater, said David Rose, a water and renewable energy analyst for Wedbush Securities Inc. in downtown Los Angeles.
But Sionix is far from the only company trying to tap into that trend. Rose said there are plenty of companies, from big names such as German conglomerate Siemens AG to small firms such as Aqua-Pure Ventures in Calgary, Alberta, Canada, that are already established.
“There are lots of players that do mobile water treatment systems. And if you’re thinking about the oil and energy market, it all depends on relationships,” Rose said. “It’s very difficult to penetrate for a small player.”
What’s more, it’s not clear how Sionix and other water service providers will fit into a still-evolving regulatory landscape.
The federal Environmental Protection Agency last year reported preliminary evidence of fracking-related water contamination in a Pavillion, Wyo., aquifer, and claims of water contamination are common in the natural gas-rich Marcellus Shale region in Pennsylvania and New York state.
Even oil industry officials have acknowledged that chemicals from fracking can get into water supplies, though they say it’s not clear fracking itself is the issue. In a widely circulated report this month in the Wall Street Journal, one natural gas company executive said incidents of tainted water in Colorado and Pennsylvania seem to be caused by improperly built wells that don’t seal aquifers from the pipelines that carry fracking water, oil and gas. The same report cited environmentalists, academics and regulators who agree shoddy wells are a source of contamination.
But environmental groups say that’s only part of the problem. They have continued to fight fracking and, in California, try to stop the practice before it starts.
The Sierra Club and Center for Biological Diversity last year sued the federal Bureau of Land Management, trying to stop the agency from leasing California shale oil lands to Occidental Petroleum Corp. of Westwood and other companies.
Deb Nardone, director of the Sierra Club’s Natural Gas Reform Campaign, based in State College, Pa., said chemical spills at drilling sites and other errors can all lead to tainted water, even if wells are properly built.
“There’s not any silver bullet,” she said. “The more technology we bring on board to treat (fracking water) is a good opportunity, but there are a lot of issues that relate not specifically to the treatment of water.”
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