At a dusty Texas oilfield, Apache Corp has eliminated its reliance on what arguably could be the biggest long-term constraint for fracking wells in the arid western United States: scarce freshwater.

For only one well, millions of gallons of water are used for hydraulic fracturing, or fracking, the process that has helped reduce US reliance on foreign oil over the past five years by cracking rock deep underground to release oil and gas.

In Irion County, where Apache is drilling dozens of Wolfcamp shale wells in the Permian Basin, the company is meeting its water needs for hydraulic fracturing by using brackish water from the Santa Rosa aquifer and recycling water from wells and fracking using chemicals.

The company's approach could have broader significance for areas prone to drought. Apache, which has the most rigs running in the Permian, the oil-rich region that spans 59 Texas counties, says the model can cut costs and truck traffic rattling small towns stretched by the country's drilling boom.

"We're not using freshwater out here," Lucian Wray, production manager for Apache's South Permian region, said of the company's Barnhart operating area, which is run out of a former hunting lodge. "We are recycling 100 percent of our produced water. We don't dispose of any of it."

"Produced water" is a byproduct of oil and natural gas drilling. "Flowback" water is the fluid pushed out of a well during fracking. Apache is recycling both types, which are typically trucked away and put into underground disposal wells.

Apache's ultimate goal is to develop a recycling system for use in its other oilfields.

Fracking has revived the Permian after years of flat output and could be used there for decades to come - so long as its water problem is solved.

Industry estimates say the Permian, which helped put the United States on the path to becoming the world's largest crude producer, has recoverable reserves that exceed all oil and gas produced there over the last 90 years, according to the Texas Railroad Commission.

Excluding outlays for its homegrown recycling system, Apache says it costs 29 cents a barrel to treat flowback water. That is a fraction of the $2.50 per barrel it costs to dispose of water using a third party.

The IHS CERA consultancy said this month water costs can eat up 10 percent of a well's capital budget.

"In these plays, every dollar counts," said John Christmann, who runs the Permian for Apache and will become chief operating officer for North America in January.

Other oil and gas companies in the Permian and elsewhere have started to use brackish water and recycle produced water, but the practices are not widely used and the types and accessibility of aquifers vary by region.

Apache may be the only one to have eliminated the use of freshwater from one of its Permian fields.

Texas lawmakers considered two bills this year that would require oil and gas companies to recycle oilfield wastewater, though neither became law.

Much of west Texas is still very dry after a severe drought in 2011 and some water systems remain under stress, according to state regulators.

Demand for water is rising as the state's population grows.

During the drought, Grand Prairie, a town in north Texas, banned using municipal water in fracking. The Texas Water Development Board projects that 46 million people will live in the state in 2060, an increase of some 80 percent.

Texas is not alone. The US Environmental Protection Agency warned in 2009, before the widespread use of hydraulic fracturing, that water systems in the western United States were strained.

A typical frack job can use 5 million gallons of water - about the amount used to water a golf course for 25 days. A frack job lasts several days and readies a well for production.

FRACKING, NOT SWIMMING

Apache started its in-house water experiment on its Barnhart properties about a year ago. It has drilled more than 50 horizontal wells there and expects have drilled about 70 by the end of the year.

It treats water produced from wells with chemicals that take out unwanted minerals such as iron, as well as bacteria. The produced water is stored aboveground in giant bins that are lined with a thick waterproof plastic to prevent leaks.

"Out here, it's kind of like a lab," said Wray, who said the company is also experimenting with ultraviolet light to remove unwanted bacteria from recycled water.

Scooter Foreman, Apache's head of water development, stands at the edge of a 24-million-gallon pool - complete with a "No Swimming" sign - dug into the earth.

The pool is filled with water pulled from the Santa Rosa aquifer, water-bearing sandstone that runs 600 feet to 800 feet below ground in parts of the Permian Basin. The brackish water is located below freshwater aquifers.

Nearby sit a line of massive, specially made grain bins containing produced water that is treated with chlorine dioxide to remove iron and bacteria. Treated water is later piped to a nearby site, where it is used to frack a well.

Foreman, who has some help for his project from Apache headquarters in Houston, is still tinkering with his water recycling process. He has experimented with different materials to line his grain-bin storage tanks and different sizes and locations of storage pools to limit evaporation.

Vendors, hawking their latest technology to recycle water, frequently stop by for demonstrations.

"We are ahead of everyone," said Foreman. - Reuters