Induced Seismicity in the Permian Basin

Oklahoma’s Response to Induced Seismicity Concerns

In the early 2010s, Oklahoma encountered an induced seismicity problem that appears analogous to what the Permian Basin is facing. The increase in earthquakes in 2014 and 2015 in Oklahoma was attributed to injection of produced water into deep formation SWD wells in certain geologic formations, particularly the Arbuckle formation.¹

In connection with the Oklahoma Geological Survey (OGS) 2015 declaration that produced water disposal injection was “very likely” the trigger for the majority of earthquakes occurring in central and north-central Oklahoma at that time,²  Oklahoma regulators (a) suspended operations at a number of SWD wells, (b) implemented a blanket prohibition on administrative approval of new Arbuckle disposal well permits if the proposed SWD well was located within certain “areas of interest” (an approximately six-mile radius with the central mass of an earthquake “swarm” as the center), and (c) established more stringent protocols for the use of existing and planned SWD wells, including weekly reporting of disposal volumes and pressures to state regulators.

Oklahoma’s regulatory response and reduced disposal in the Arbuckle formation appear to have resulted in a material reduction in the frequency of earthquakes in the region but did not fully resolve the problem, which the applicable Oklahoma regulatory authorities continue to monitor and manage.

How analogous are Oklahoma’s seismicity problem and the Oklahoma Corporation Commission (OCC) response to the seismicity problem and the RRC response and possible future action in the Permian Basin? We believe there are some similarities and some significant differences.  

Regulatory Focus and Action: We anticipate the RRC using the same strategy  as the Oklahoma regulators — attempting to isolate the problem and enacting rules and action plans to address it. As we discuss below, the RRC has already taken action in a few areas.

Geology: As the problem in the Permian Basin is relatively new, it is still unclear whether current seismicity issues will be determined to be limited to one or a small number of formations. If the RRC implements regulations that restrict or prohibit saltwater injection into one or a small number of formations, are there alternative formations in the Permian Basin where disposal of saltwater can occur without causing similar seismicity problems? Will the RRC allow wastewater injection into shallower formations within affected areas?

Market Forces: Contemporaneously with the OCC’s enactment of restrictions on SWD wells, lower oil and gas prices and decreased drilling from 2015 through 2020 resulted in less need for produced water disposal and SWD wells, perhaps contributing to the reduction in the frequency of earthquakes in the region just as much as Oklahoma’s regulatory focus. Market forces have shifted significantly in the past year or so, making drilling in the Permian Basin as attractive as ever. Can similar favorable results be expected in the Permian Basin in a more attractive drilling environment?

Regulatory Matters: In Oklahoma, the OCC’s primary focus was on restricting the volume of wastewater injected into SWD wells in certain areas rather than implementing rules to encourage recycling of produced water throughout the state. In contrast, the RRC has been focused on recycling as a strategy for reducing the use of fresh water for oil and gas production activities for many years. For example, in March 2013, the RRC adopted water recycling rules to encourage Texas oil and gas operators to recycle wastewater instead of inject by removing regulatory hurdles, including eliminating the need for an RRC recycling permit if operators are recycling produced water on their own leases or transferring that water to another operator’s lease for recycling. 

The RRC’s Authority to Regulate; Initial Responses

In Texas, the RRC regulates SWD wells and maintains authority to address seismic activity by modifying or suspending permits pursuant to 16 Texas Admin. Code §3.9 and §3.46.

The RRC may modify, suspend, or terminate an injection permit to dispose of waste for just cause after notice and opportunity for hearing if injection is likely to be determined to be contributing to seismic activity.³

The RRC has taken several actions in response to seismicity in the Permian Basin in the following areas over the last year, including the following.

(1) Gardendale Seismic Response Area (Midland-Odessa)

On September 24, 2021, the RRC issued a Notice to Operators (Gardendale Notice) indicating that the RRC staff had determined that SWD injection likely contributes to seismic activity in the Gardendale Seismic Response Area (Gardendale SRA). The Gardendale SRA covers areas of northeast Ector County to southwest Martin County and includes 76 permitted SWD wells. Pursuant to the Gardendale Notice, the RRC requested that operators in the Gardendale SRA voluntarily reduce SWD activity in the area in response to seismic activity and indicated that such regulations were expected to remain in place for at least a year from implementation thereof.

Specifically, the Gardendale Notice requested that SWD operators in the Gardendale SRA (a) reduce the permitted maximum daily injection rate to 10,000 barrels per day (bpd) per SWD well; (b) measure the daily injection volumes and pressures and report those to the RRC on a monthly basis; and (c) for SWD wells that have been permitted but are not yet in service (i.e., not drilled or not completed for or currently capable of injection), refrain from commencing or returning to fluid injection. In addition to the voluntary actions requested from operators above, the RRC stated that it would not issue any new SWD permits in the Gardendale SRA until further notice.

On December 1, 2021, in response to continued seismic activity within the Gardendale SRA, the RRC required seven deep SWD wells within a “focused response” area of the Gardendale SRA to suspend injection activity, effective as of December 15, 2021, until further notice.⁴

Effective as of December 31, 2021, the RRC suspended all SWD permits to inject oil and gas waste into deep strata within the boundaries of the Gardendale SRA, which affected operations of 33 disposal wells in the area.⁵  The suspension of existing deep formation SWD permits was implemented following the RRC’s determination that injection into deep geologic strata — below the top of the Strawn formation and especially the Ellenburger formation — was likely contributing to increased seismic activity in the Gardendale SRA in December 2021. However, as of February 2, 2022, it has been reported that at least 15 of the affected SWD well operators have requested a hearing at the RRC to challenge such suspension and are continuing operations pending the results of such RRC hearing.⁶

(2) Northern Culberson-Reeves Seismic Response Area

In October 2021, the RRC established the Northern Culberson-Reeves Seismic Response Area (NCR SRA) to coordinate action with industry representatives to reduce seismic activity in the region. The RRC indicated that it would implement its own seismic response action plan for the NCR SRA after 90 days in the absence of a coordinated industry response. However, in January 2022, the RRC acknowledged progress made by the industry toward developing a plan to address seismicity within the NCR SRA and extended the 90-day action period to 120 days (expiring February 22, 2022).

(3) Stanton Seismic Response Area

Most recently, in January 2022, the RRC established the Stanton Seismic Response Area (Stanton SRA) covering portions of Martin and Howard Counties in response to continuous seismic activity in the region. The Stanton SRA includes 72 permitted SWD wells. In the absence of a coordinated industry response, the RRC has indicated that it will implement its own seismic response action plan for the Stanton SRA after 90 days.⁷

Based on the RRC’s actions with respect to the NCR SRA and Gardendale SRA, whether the RRC implements permit suspensions similar to those currently in effect with respect to the Gardendale SRA likely depends on whether there is continued seismic activity in the boundaries of the Stanton SRA in the near future.

Where Will Produced Water Go if Deep Injection Is Significantly Curtailed?

If oil and gas operators in the Permian Basin are unable to find alternative methods of disposal to deep formation SWD injection, they may need to curtail hydrocarbon production pending implementation of a commercially reasonable solution. Such alternatives include (a) using shallow formation SWD wells, (b) recycling produced water, (c) treating wastewater for beneficial reuse, (d) trucking produced water to SWD wells outside of seismic response areas, and (e) building out infrastructure to use deep formation SWD wells in areas not affected by seismic activity. Such alternatives may be feasible but create other issues, including significant cost increases and additional regulatory hurdles.

Oil and gas operators should analyze feasible alternatives in the event of any regulation or other limitation that may affect operations.

Force Majeure and Potential Liability Risks

Oil and gas producers and SWD well operators will want to analyze the impact of a potential shutdown and/or limitation on the use of existing and future SWD wells under any applicable contracts, including contracts containing minimum volume commitment obligations. For example, could the shut-in of an SWD well by regulators constitute a force majeure event under the applicable contract?

What happens if an existing SWD well is shut in with no immediately available alternatives for disposal? Could oil and gas producers be forced to shut in their production in the area, at least temporarily, until such operators are able to find a place to dispose of their produced water? What, if any, effect will this have on a producer’s existing obligation to its midstream provider counterparties under gathering and transportation agreements?

If an oil and gas producer is required to suspend or greatly curtail drilling owing to its inability to economically dispose of flowback water and, later, produced water, what are the implications under the oil and gas lease, especially if it contains continuous drilling obligation provisions?
If the problem persists, for oil and gas producers with assets concentrated in seismic response areas, how severely will this affect lease operating expenses with associated knock-on effects on acquisition and disposition valuations and asset financeability?

We expect future RRC focus and potential SWD limitations. SWD well owners and oil and gas producers in the Permian Basin should consult with their legal advisers to comprehensively analyze how limitations due to regulation or otherwise may affect their operations and result in increased obligations, expenses, and liability exposure. We recommend that any such analysis include a review of any applicable contracts for force majeure provisions and preparation of operational contingency plans.

¹ Craig D. Sundstrom, Oklahoma Regulators Implement Evolving Regulatory Directives in Response to Earthquakes, 46 ABA Trends no. 6 at 5 (July-Aug. 2015).
² Id.
³ See 16 Texas Admin. Code §3.9(6)(A)(vi) and §3.46(d)(1)(f).
⁴ See https://www.rrc.texas.gov/oil-and-gas/applications-and-permits/injection-storage-permits/oil-and-gas-waste-disposal/injection-disposal-permit-procedures/seismicity-review/seismicity-response/#NCRResponse.
⁵ Id.
⁶ See SWD Operators Non-compliance Rankles Locals, The Odessa American (Texas), February 2, 2022, available at https://www.oaoa.com/local-news/swd-operators-non-compliance-rankles-locals/.
⁷ See https://www.rrc.texas.gov/oil-and-gas/applications-and-permits/injection-storage-permits/oil-and-gas-waste-disposal/injection-disposal-permit-procedures/seismicity-review/seismicity-response/#NCRResponse.