Chris, I think they put the water in here, and the oil comes out over there. The reason for the water is to keep up the pressure. Only once the water migrates over to where the oil is coming out do you start to have a problem. HO could answer more authoritatively.
It used to be that they ran clusters of injection and production wells together, now they add the water around the outside of the field in a much more controlled manner, so that the oil over the field is gradually pushed to the center and higher segment of the reservoir.  This gives a more even pressure distribution.  One of the problems however, is that there are a lot of fractures in that area, and it may be more difficult to stop water passage up some of them.  This is where the valves come in, since they would allow isolation of the zones were premature water penetration occurs.