WyoFile Feature: WATER FOR OIL

WATER FOR OIL: Wyoming farmers earn cash diverting irrigation water to oil rigs

by Dustin Bleizeffer on November 30, 2010

Reproduced by permission from WyoFile. Click here for the original publication.

BURNS – Kenneth King climbed into his Ford pickup and slowly drove through a muddy alfalfa field as his dog Molly easily kept pace. He pointed to a spot in the field to the right and said, “What I’m hoping to do here is – see I’ve got this low spot here?”

King hit the brakes and pointed in another direction. “And that’s my irrigation well? And I’m hoping to just pump water that will run into the pond and let trucks come in and suck it out.”

Ranching and farming in the far southeast of Wyoming is an unassuming affair, completely dependent on the sparse amount of rainfall in the region and whatever volume of water an electric pump can coax from the shallow aquifers below.

Three “Groundwater Control Areas” have been in place here for many years, established by the state due to rapidly declining groundwater levels. Irrigators reflexively object when anyone proposes drilling a new water well in the region because most everyone agrees that freshwater aquifers here are over–appropriated.

Yet instead of using the family’s adjudicated water right to irrigate his fields nine miles north of Burns next year, King plans to sell a good portion of the water to oil companies.

“Last summer I didn’t irrigate. So I’m willing to quit irrigating again for this next year or two and sell as much water as I can,” said King.

SHIFTING RESOURCES

Electric utility rates are on the rise, narrowing the profit margin for crop irrigation. King figures he can make a heck of a lot more money by selling water for 35 cents per barrel – at least for a few years while the oil industry drills exploratory wells into the Niobrara oil formation, which many people expect to be the source of major new oil production in Wyoming. Thirty-five cents per barrel is 10-times what King might earn off his water when he uses it for irrigation.

King said it would be nice to earn some extra money to pay off debt and buy a new truck. And King isn’t the only one hoping to cut back on crop irrigation to make money in the oil industry.

Dozens of irrigators in southeast Wyoming are vying to sell their water to oil drillers. In recent months, the Wyoming State Engineer’s Office has approved 40 “temporary water use agreements,” which are required to divert irrigation water to another use. More than a dozen applications still await approval.

“I heard one guy in Goshen County is making $1,600 a week selling his water,” King said.

But others in the region worry about what might happen if Niobrara oil drillers are successful. The industry and dozens of irrigators may become dependent on the business arrangement for five or 10 years of drilling, shifting a declining water resource away from agriculture to an industrial use.

“It would help our nation if we didn’t have to buy all that oil from other nations. … But I’m very concerned about our food supply,” said Laramie County commissioner Diane Humphrey.

Demands on land and water continually increase. As a landowner, Humphrey said she understands the need to earn a living off those basic resources. Even if it’s unconventional.

“Farmers in this country are dedicated to producing enough food for the world. But a lot of times we find other ways to use (land and water),” Humphrey said.

EXPLORATORY OIL RUSH

Last year EOG Resources Inc. drilled a new well into the Niobrara formation using horizontal drilling and multiple–zone hydraulic fracturing techniques. That well, just across the border in Colorado was a gusher, flowing 50,000 barrels of oil during the first 90 days.

The success of the Colorado well, known as the “Jake” well, meant that the industry’s highly–refined horizontal drilling and completion technologies are likely to unlock oil in other areas of the vast Niobrara formation, oil that had earlier been considered impossible to produce economically. The “chalk” formation underlies the Denver–Julesburg Basin – or DJ Basin – spanning much of southeast Wyoming and large areas of Nebraska and Colorado.

Now there’s a rush on exploratory drilling from Greeley, Colo., to north of Wheatland. Drilling is most concentrated in Laramie County. Of the 223 horizontal well applications approved in southeast Wyoming in recent months, 96 are in Laramie County, according to the Wyoming Oil and Gas Conservation Commission.

The Niobrara formation is nearly two miles below the surface in southeast Wyoming. Once the vertical portion of a well reaches the formation, drillers angle the bit and drill horizontally for another 1–1.5 miles through the formation.

WATER FOR OIL

It takes a good deal of water to drill a Niobrara oil well. Water is required to make the drilling fluid, or mud, that controls downhole pressure, and it is used to flush cuttings to the surface.

But the biggest consumptive use of water in the process is hydraulic fracturing, or “fracking.” In this process a mixture of water, sand and some chemicals is pumped into the wellbore under high pressure to crack open the oil–bearing shale or chalk and stimulate the flow of hydrocarbons. Each horizontal Niobrara oil well may consist of 15–20 – possibly more – separate “frack” zones.

Much of the information about these horizontal Niobrara wells is held confidential for the first six months or so, as allowed under rules by the Wyoming Oil and Gas Conservation Commission. So nobody is sure yet just how much water it takes to drill and hydraulically fracture a Niobrara oil well. But if it compares to shale gas wells in the Marcellus play in Pennsylvania, it could take about 500,000 gallons of water to drill and 4.5 million gallons to hydraulically fracture each well, according to Chesapeake Energy, a company with large interests in both the Marcellus and Niobrara plays.

BARRELS AND DOLLARS

Five million gallons of water would fill 119,047 barrels. It equals about 11.5 acre–feet of water. If an irrigator were to sell that much water next year at 35 cents per barrel, he’d get $41,666 dollars.

John Barnes, surface water administrator for the Wyoming State Engineer, offered this back–of–the–envelope calculation. If a farmer can raise 5 tons of alfalfa per acre and get $70 per ton, then he’d gross $350 for an acre–foot of water, minus a lot of overhead costs and physical labor.

If the farmer can sell water to oil drillers at 42 cents per barrel, he can make $3,250 for that same acre-foot of water.

“These guys are astute businessmen,” said Barnes. “(Agriculture) is a marginal operation. So if (farmers) can do this for a couple of years, that may allow them to pay down their debt, or this may be the money they need to retire on.”

Barnes said he and his staff have heard, unofficially, that the average Niobrara oil well could require 4 million gallons of water total for drilling and fracking. But even if it is closer to the 5 million gallons required for a Marcellus well, how much water is that? Chesapeake Energy compares it to the amount of water New York City consumes in seven minutes, and how much water a 1,000 megawatt coal-fired power plant consumes in 12 hours.

Five million gallons is about half the volume of water the city of Gillette consumes on an average day.

ZERO–SUM

For decades, farmers and communities in the Great Plains region have drawn heavily from the shallow Ogallala – or High Plains – aquifer. In most areas, demand for water from the Ogallala outpaces the natural repletion rate, which means the water table drops. Some hydrologists estimate that continually increasing demand for Ogallala water could dry up the aquifer in two or three decades.

Most all irrigation operations in Laramie County that tap into groundwater tap into the Ogallala aquifer. But there are other shallow groundwater formations in greater southeast Wyoming with even more serious water depletion rates. In recent years, the Wyoming State Engineer’s Office has measured alarming drops in groundwater throughout the southeast corner of the state.

One monitoring well southeast of Carpenter has recorded a 37 foot drop in the water table over the past 35 years. Another monitoring well in Laramie County has measured an annual drop of 9 inches since 1978. Some irrigators complain they can’t even pump their appropriated volume of water. Their pumps are sucking air long before irrigation season is over.

The Wyoming State Engineer’s Office insists that taking water normally used for irrigation and diverting it to oil drillers must be a zero-sum game. If a landowner’s annual appropriation is 20 acre feet and he sells 15 acre feet to oil drillers, he only has 5 acre feet left for irrigation that year.

Diverting irrigation water to sell to drillers requires a “temporary water use agreement” from the State Engineer’ Office. Barnes said that the 40 temporary water use agreements approved in recent months total 4,600 acre feet of appropriated water.

Barnes has another back-of-envelope calculation based on early estimations of the Niobrara oil play. He said if the industry moves into full–field development of 12,000 wells, at 4 million gallons of water per well the industry would require 15,000 to 20,000 acre feet of water over the life of the drilling phase, which could last 5-10 years or more.

He said there’s more than enough appropriated water in southeast Wyoming to meet that need.

Still, the use of that much water and the potential drawdown concerns irrigators – even those willing to suspend their irrigation operations for a couple of years. King and several others formally objected when another rancher in the Burns area applied for a permit to drill a new water well.

“If you have an adjudicated water right you can irrigate with it, or if you want to give up irrigation you can sell it,” said King.

But a new water well? “That would be a new straw in the aquifer,” said King.

Despite the state’s insistence that the diversion of irrigation water for oil drilling is a zero–sum game, some ranchers and farmers worry it won’t work out that way.

Laramie County rancher Trevor Witt said he believes that if the drilling industry is buying, an irrigator may actually sell more than he would have pulled from the aquifer during a normal or wet year.

It’s a concern shared by Wyoming State Engineer Pat Tyrrell. In a November 1 policy memorandum to his groundwater and surface water administrators, Tyrrell said the office has received temporary water use agreement applications that “purport to make use of a water right for a well that has scant or no recent historic use under its permit.”

Tyrrell notified staff that temporary water use agreements – particularly in the groundwater control areas – will only be considered for water used in irrigation activity that has been documented for the past five years. To do that, staff members ask to review utility bills and metering information.

Approval of an agreement also requires that each irrigation well be equipped with a flow meter to report water production, and equipped with back–flow prevention devices.

The diversion of water from irrigation to drilling is also a concern for ranchers like Witt who don’t have adjudicated water rights. When his neighbors go from irrigation to dryland farming that means their farms will likely yield only one cutting annually compared to two or three cuttings. And that means the local supply of hay may decrease.

Witt said he usually buys supplemental hay from nearby ranches as he needs it. But if that’s not available, he may have to drive to Fort Collins, Colo., to buy large loads of hay at auction.

“That hits your bottom line,” said Witt.

This is the first of a two-part report examining the oil and gas industry’s use of water resources in Wyoming. On December 7, WyoFile reports on emerging solutions for natural gas producers who also produce a lot water, and must either dispose of it or find beneficial uses for the resource.

Reproduced by permission from WyoFile. Click here for the original publication.