CEO of US oil and gas play Carrizo flags an unusual problem for drillers: Water

  • "Mad Money" host Jim Cramer sits down with Carrizo Oil & Gas President and CEO Chip Johnson for an update on key U.S. oil markets.
  • Johnson highlights an issue his extraction and production company is working to fix in the Permian Basin.

The Permian Basin, the largest shale oil-producing region in the United States, is on a path to become one of the world's largest oilfields, according to recent estimates.

But as producers extract more and more resources from the region, which stretches across Texas and New Mexico, an unusual problem is bubbling up: a surplus of water.

"In the Permian Basin, you make a lot of water," Chip Johnson, the CEO of independent oil and gas driller Carrizo Oil & Gas, told CNBC on Tuesday. "Typically, you'll make five barrels of water for every barrel of oil."

When companies like the $2.2 billion Carrizo extract oil from the Permian, salt water comes out with it, creating issues around handling the extra fluids, Johnson said.

"It's probably the most water-rich or water-problem oil basin," Johnson told "Mad Money" host Jim Cramer. "You have 15 million barrels a day of salt water right now that has to be dealt with, usually re-injected back into briny reservoirs that are deeper than anything else."

But Carrizo, which recently whittled down all of its operations to just the state of Texas, is working on alternative solutions to the water problem.

Part of the extraction process in the Permian involves hydraulic fracturing, or barreling the oil-and-gas-rich rocks with water, sand or chemicals to unleash the raw fuels.

"You try to recycle the water. We're experimenting with that now," Johnson told Cramer. "That would also reduce the need for fresh water for fracking, so that would be another plus."

And the CEO wasn't too worried about China's stated plans to place tariffs on U.S. crude oil as part of the broader trade dispute between the countries, which pressured crude prices Tuesday.

"I don't think that really matters. I think we'll sell the oil that we export to Europe if we don't sell it to China and they'll buy it from somebody else, too," he said. "So that'll create some inefficiencies and maybe that's 50 cents or $1 a barrel, but it's not- China's still going to need oil."

Watch Chip Johnson's full interview here:

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