December 21, 2014

Worst Drought in More Than a Century Strikes Texas Oil Boom

Joe Carrol, Bloomberg News

The worst Texas drought since record-keeping began 116 years ago may crimp an oil and natural- gas drilling boom as government officials ration water supplies crucial to energy exploration.

In the hardest-hit areas, water-management districts are warning residents and businesses to curtail usage from rivers, lakes and aquifers. The shortage is forcing oil companies to go farther afield to buy water from farmers, irrigation districts and municipalities, said Erasmo Yarrito Jr., the state’s overseer of water supplies from the Rio Grande River.

Concern over water usage is especially acute in southern Texas’s Eagle Ford Shale area because drilling there is more water-intensive than other regions, said Robert Mace, a deputy executive administrator of the Texas Water Development Board.

“It’s pretty dry down here and a lot of oil companies are looking for water,” Mace said.

The water crisis in Texas, the biggest oil- and gas- producing state in the U.S., highlights a continuing debate in North America and Europeover the impact on water supplies of a production technique called hydraulic fracturing. Environmental groups are concerned the so-called fracking method may pose a contamination threat, while farmers in arid regions like south Texas face growing competition for scarce water.

Fracking-Led Boom

In fracking, drillers shoot high-pressure jets of sand- and chemical-infused water into the ground to crack rock and release trapped deposits of crude oil and gas. The technique has spurred a new onshore drilling boom from British Columbia to Poland as prospectors revisit geologic formations previously passed over, said Robert Ineson, senior director of global gas at IHS Inc. (IHS)’s Cambridge Energy Research Associates.

Along the Rio Grande River, where border towns such as Laredo supply workers and equipment for the drilling boom, most areas have received less than 2 inches (5 centimeters) of rain since Oct. 1, the National Weather Service said.

To compensate, Exxon Mobil Corp. (XOM) is recycling fracking fluids to reduce the amount of water needed for future drilling. Anadarko Petroleum Corp. (APC) is replacing dirt roads leading to its wells with limestone to preserve water that otherwise would be used to keep down the dust.

Farmers, landowners, environmental activists and state oil industry regulators gathered on June 10 at the University of Texas Health Center in Laredo to discuss the potential impact of fracking on water, air and public health, one of several such meetings that have been held across the state this year.

13 Million Gallons

The Eagle Ford’s peculiar geology means it takes three to four times as much water to fracture as the Barnett Shale near Fort Worth, said Mace, of the state water board. Fracking a single Eagle Ford well requires as much as 13 million gallons of water, enough to supply the cooking, washing and drinking needs of 240 adults for an entire year, he said.

“This is not the drilling your grandparents knew in west Texas,” said Sharon Wilson, an organizer for Earthworks’ Oil and Gas Accountability Project, which lobbies for tougher government regulation of oil drillers. “It’s a heavy industrial activity with massive amounts of water and chemicals.”

About 94 percent of Texas was in a state of severe, extreme or exceptional drought as of June 7, according to the U.S. Drought Monitor compiled by the U.S. Agriculture Department and the National Drought Mitigation Center. The October-through-May period was the state’s driest since record-keeping began in 1895, said Texas State Climatologist John Nielsen-Gammon.

Waiting For Rain

Municipal water departments, farmers, ranchers and oil drillers near Laredo are relying on water from two reservoirs and underground aquifers filled by last summer’s tropical storm season, said Yarrito, whose job title is Rio Grande Watermaster.

Unless storms bring more rain soon, “we’ll be in trouble,” said Sonny Hinojosa, general manager of Hidalgo Irrigation District No. 2 in San Juan, Texas. The drought has decimated crops, with about 79 percent of the state’s winter wheat, 72 percent of its oats and 36 percent of its corn classified as poor or very poor as of June 6, according to the Agriculture Department inWashington.

The Edwards Aquifer Authority, which oversees underground water supplies around San Antonio and along the northern edge of the Eagle Ford Shale, on June 2 declared a Stage 2 emergency requiring a 30 percent cut in water usage. Other water districts have imposed similar restrictions.

No Relief Coming

There’s no relief in sight, according to today’s forecast from the National Weather Service. Temperatures across southern Texas will reach 108 degrees Fahrenheit (42 degrees Celsius) June 15 through June 19 and precipitation will remain below- normal through June 27.

Water consumption by Eagle Ford Shale drillers is forecast to explode during the next 25 years, Mace said. A study to be released later this summer by the Texas Water Development Board and the University of Texas’s Bureau of Economic Geology estimates fracking-water demand in the area will jump 10-fold by 2020, and double again by 2030, he said.

Since Petrohawk Energy Corp. (HK) drilled the first discovery in the Eagle Ford Shale in 2008, oil explorers have sought to gain footholds in the 20,000 square-mile (51,800 square-kilometer) formation. Exxon spent $34.9 billion last year to buy XTO Energy Inc. to capture fracking expertise and U.S. assets including Eagle Ford leases. Marathon Oil Corp. (MRO) agreed on June 1 to pay KKR & Co.-backed Hilcorp Resources Holding LP $3.5 billion for assets in the area.

Buying Water

Anadarko and Houston-based Swift Energy Co. (SFY) are among the companies buying water for fracking from Hidalgo Irrigation District No. 2, which also supplies water to 400,000 acres of sugar cane, cotton, peppers and cantaloupe, Hinojosa said. If rain doesn’t arrive in the next four months to replenish the reservoirs, Hinojosa said he’ll have to reconsider whether to continue selling to the oil companies.

Anadarko, based in The Woodlands, Texas, near Houston, said it’s also buying water from theWintergarden Groundwater Conservation District, which regulates the aquifer beneath three counties in the heart of the Eagle Ford Shale. The company has 10 rigs operating in the Eagle Ford and plans to drill 200 wells this year, R. Douglas Lawler, vice president of operations, said at a UBS Securities LLC energy conference on May 25.

Water Monitors

Anadarko’s Eagle Ford wells were producing the equivalent of 40,000 barrels of crude a day last month, Lawler said. The company is installing meters to monitor and help manage water usage on its wells, Brian Cain, an Anadarko spokesman, said.

Bruce Frasier, a farmer and rancher in Carrizo Springs, Texas, about 40 miles northeast of the Rio Grande, has lost more than half his cotton crop this year and reduced his cattle herd to 300 from 1,000 because it’s too dry for grass to grow.

Frasier, whose family has been farming and ranching in south Texas for 98 years, has refused to sell water to oil companies that are offering 40 cents to 70 cents a barrel, equivalent to 42 gallons. In 2008 before the first Eagle Ford well was drilled, there was no market for a farmer’s water in the area.

“I’ve got to have that water for my farming operation,” said Frasier, whose Dixondale Farms is the largest cantaloupe grower in Texas.

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