Business Process Automation for Water Hauling with Blockchain in Oil & Gas Industry

The production fluid extracted from an oil well contains more than just crude oil.  It includes gas, sand, and a lot of water. The portion that is water – called water cut – increases with the age of the well and often exceeds 50 percent of the production fluid.  Immediately after extraction, the production fluid is processed into its separate constituents, and the contaminated water needs to be discarded. The primary means for removal is “water hauling” which includes transporting the water with specialized 2,000 to 4,000 gallons trucks to various disposal sites.  For the major onshore U.S. shale basins, it is estimated that for each barrel of oil there are 3 barrels of water are being produced.

Water Hauling Payment Chaos

Who hauled, how much, what price, and when is payment due?  Typically, the firm managing the oil production engages with several water hauling contractors who are paid by the barrel.  The contractors have a clear incentive to embellish the quantity of water hauled.  The oil production management company receives invoices from multiple contractors and is often overcharged.  Manual invoice reconciliation is labor intensive, error-prone, and lengthy, resulting in missed discounts for early or on-time payment.  The contractors are not happy and occasionally threaten to stop service for lack of payment.

Blockchain Brings Order to the Chaos

Blockchain applies when independent companies have business transactions, but fundamentally do not trust each other.  For each transaction, it provides an immutable record which is visible to both parties of the engagement.  Typically, the companies involved form a consortium where they agree on business rules and the use of blockchain for recording and processing transactions.  “Smart contracts” embedded in the blockchain contain the business rules and are also immutable. 

Data Gumbo’s Solution for Water Hauling with Blockchain

An unusual and perhaps unique aspect of the Data Gumbo blockchain solution is the inclusion of IoT data for transaction processing.  In this case, the flow meters provide data specifying the volume of water hauled, thus preventing embellishment.  The well producer benefits with more accurate water volume counts.  With automated payment processing, the trucking companies benefit with timely payment.  Since all companies benefit, the consortium has positive reinforcement and sustainability.

Blockchain for Energy, formally named the Offshore Operators Committee (OOC) Oil & Gas Blockchain Consortium, includes ConocoPhillips, Chevron, Hess, Marathon, Noble Energy, Pioneer Natural Resources, Equinor, Exxon Mobil Corp., Repsol and Royal Dutch Shell.  It has successfully completed a pilot using sensor IoT data and blockchain technology for water hauling payment processing. The pilot test involved five Equinor production pads in North Dakota’s Bakken shale field and was done in a partnership with water disposal company Nuverra Environmental Solutions. According to the OOC, the pilot application automatically validated 85 percent of the volume measurements and reduced the payment work flow process from 3 to 4 months down to 1 to 7 days.  Due to the COVID-19 pandemic, application of the blockchain technology has been accelerated.

Access to real-time data allows the production company and truckers to better manage the water hauling activities. Access to details provides a better understanding of the transport logistics, routing, and wait times that enable better management of the produced water and prevention of production bottlenecks – further reducing costs.  The Waste Coordinator application from Galatea Technologies layers on the Data Gumbo solution and targets operating expenditures by improving various aspects including scheduling and dispatching loads, selecting the lowest-cost waste facilities, and best routes.

Recommendation

Digital transformation is rapidly expanding into nearly every aspect of business.  Water hauling with automated payment processing and business process management using blockchain has become a proven candidate.  Those involved in water hauling should consider starting a pilot for their operations.