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COLUMN-Don't mess with Texas water, frackers warned: Kemp

Source: Reuters - Wed, 1 May 2013 13:09 GMT
Author: Reuters
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(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON, May 1 (Reuters) - Eagle Ford in Texas is one of the fastest-growing shale oil and gas plays in the United States, but it is also in one of the driest parts of the country.

Following a severe drought in 2011, concerns are mounting that oil and gas extraction is competing with irrigation for scarce water supplies.

Environmental campaigners cite the pressure on fresh water supplies as one reason to ban or severely restrict the practice of hydraulic fracturing.

Drilling and fracturing rock formations to release oil and gas uses enormous quantities of water: 4 to 5 million gallons of water for every well in the Eagle Ford, according to most estimates, equivalent to about 15 acre-feet per well.

Most of the water used is fresh and drawn from aquifers that are also needed to support farming and local drinking supplies. Frackers prefer fresh water because it is less corrosive. Saline water or waste water are expensive to clean up and use.

But once fresh water has been injected into deep rock formations, it is effectively lost forever to other users.

BETTER MANAGEMENT NOT BANS

The real problem is not water supplies but their management.

The amounts of water employed in fracking are small relative to other uses, even in dry areas, and do not pose a serious threat to the availability of water.

The potential for problems arises instead from the unusual system of water rights still employed in Texas and its relatively weak controls on groundwater use in some parts of the state.

Fracking should not strain water supplies in most areas. In those areas where it could pose a problem, the best remedy is for water conservation districts and the Texas Railroad Commission to introduce appropriate controls.

Evergreen Underground Water Conservation District, which regulates 3,800 square miles in the Eagle Ford area, has already enforced usage restrictions on frackers since 2008. The conservation district extended existing rules, which limited water extraction to 2 acre-feet per year, to include fracking.

Other areas facing potential shortages should consider similar limits.

ARCHAIC WATER LAW

Under Texas law, the state owns the surface water in streams, rivers and lakes as well as water found below ground in subterranean streams. But the percolating groundwater in aquifers is owned privately in exactly the same way as oil and gas resources, a position that was reaffirmed by the Texas Supreme Court in 2012.

The main difference between oil/gas and water rights is that hydrocarbons belong to the owner of the mineral rights, while groundwater is part of the surface estate (even though it is also underground).

In the event that ownership of the mineral estate and the surface estate is severed, the surface owner keeps the water rights but may be compelled to let the owner of the mineral rights use enough of his groundwater as is "reasonably necessary" to extract the oil and gas.

Taelor Allen explains the complexities of Texas water law as it applies to fracking in an insightful article in the current issue of the St Mary's Law Journal ("The south Texas drought and the future of groundwater use for hydraulic fracturing in the Eagle Ford shale" Jan 2013).

Unlike most states, which have modernised their water laws, Texas still employs the ancient English common law rule of capture. Very roughly, the capture rule says that what you pump to the surface you own and get to keep, even if it is drawn from a common aquifer that extends partly under a neighbour's land.

The problem with the rule of capture is that it can encourage a race to extract as much water or oil as possible from a common pool as quickly as possible, with inadequate regard to the interests of others and overuse or inefficient use of the resource.

In other states, production of water and oil and gas is "unitised" and shared proportionally on a "fair share" basis among rights owners.

The capture rule is why photographs of old oil fields show a forest of adjacent wells and why most states and countries now require or promote unitisation and field development plans, either through statute law or via the well permitting process.

Texas is the only major oil producing state without some form of compulsory unitisation for oil and gas at the moment.

CONSERVATION CONTROLS

A bill currently before the Texas Legislature (HB 100) would in certain circumstances provide mandatory unitisation of oil and gas if a 70 percent majority of local mineral rights owners approve but is still pending in committee and faces stiff opposition.

Compulsory unitisation has been fiercely resisted by proponents of private property rights.

The same objections have been levied at any attempt to tamper with the rule of capture for water. Water is valuable. Some landowners have been able to sell water to fracking firms, for up to 80 cents per barrel, a practice known as "water wildcatting", Allen explains.

The state does have controls in some areas, however. Rather than regulating extraction, Texas controls the uses to which water may be applied through water conservation districts.

Oil and gas drilling has normally been exempted from local conservation controls. The Texas Railroad Commission, rather than local conservation districts, regulates water use in oil and gas extraction.

Fracking has traditionally been seem as coming within the exemption for oil and gas drilling. But now some conservation districts, such as Evergreen, are distinguishing fracking from drilling and regulating it as a separate activity.

Distinguishing fracking is significant because fracturing uses up to 30 times as much water than simply boring a well, according to Allen (http://www.stmaryslawjournal.org/pdfs/Allen_Step12.pdf).

HOW MUCH OF A THREAT?

The economic incentive to use groundwater for fracking is enormous. If oil prices remain around $80-90 per barrel, the gross revenue from a single well could be $24 million-32 million or more, according to Darrell Brownlow, a member of the Evergreen Underground Water Conservation District board between 2000 and 2010.

At current prices, the returns on using groundwater for oil extraction easily outstrip those for agriculture. If the groundwater owner can also claim a 25 percent royalty on output from oil and gas wells, using groundwater to frack wells could yield $500,000 per acre-foot, more than 2,000 times the yield from using the same amount of water to grow corn, according to Brownlow.

In a 2010 article published in "Fountainhead", the journal of the Texas Ground Water Association, Brownlow argued there was more than enough water to go around in most parts of the Eagle Ford ("Eagle Ford shale play and the Carrizo aquifer" Q4 2010).

In the northern part of the Eagle Ford, which is rich in oil and hydrocarbon liquids and is currently attracting the most interest from frackers, the water is drawn mostly from the Carrizo aquifer.

Brownlow estimated that if 20,000 wells are drilled and fracked using 15 acre-feet per well, then 300,000 acre-feet will be used over the lifetime of the Eagle Ford play. In comparison, 275,000 acre-feet are being withdrawn from the Carrizo aquifer every year for uses unrelated to oil and gas.

If current withdrawals continue, the aquifer will fall 30 to 35 feet by 2060, according to the Texas Water Development Board. But little of this will be due to fracking. "An additional 300,000 acre-feet of for hydraulic fracturing would represent slightly more than a single year of the current 275,000 acre-feet pumping demand," Brownlow wrote.

The real problem is south and east, areas of the play that are more gas-rich and therefore less attractive to fracking firms at the moment and where water comes from the Gulf Coast aquifer, which holds less water that is harder to extract.

The solution is not to ban fracking but to enforce better controls on water use.

If using fresh groundwater becomes more difficult and expensive, fracking firms will have a stronger incentive to purify saline or waste water or explore new technology that aims to use diesel fuel and hydrocarbon gels instead of water. (editing by Jane Baird)

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