Hydraulic fracturing can bring money and jobs to cities and towns built upon the right land. However, cities need to have the resources, infrastructure, and utilities to support the oil and gas companies that arrive to drill.
The Village of Barnesville, Ohio now faces a lawsuit because it did not have enough water for its residents and the two oil and gas companies planning wells nearby. Normally the village of 4,100 has enough water, but a dry fall last year reduced the water reserves in the Slope Creek Reservoir that Barnesville residents rely on.
In August 2012, the Village of Barnesville signed a Water Use Agreement granting Gulfport Energy Corporation the unrestricted right to draw water from the Slope Creek Reservoir except as “necessary for the health and safety of area residents and businesses.” This agreement allowed the oil and gas company to buy 180 million gallons of water last year at a cost of 1 cent per gallon.
Things seemed to be going well in Barnesville, and the very next month, Antero Resources Appalachian Corporation signed a mineral lease with the Village in anticipation of drilling its own wells. The Village and Antero Resources signed a Water Use Agreement in May 2013. This agreement allowed Antero Resources to draw up to 2 million gallons per day from the Slope Creek Reservoir at a cost of $3.75 per thousand gallons, except as “necessary for the health and safety of area residents and businesses, or for the purposes of maintaining recreational use of the Reservoir.”
Problems arose when a lower than normal rainfall last year left the reservoir 3 feet lower than average in the fall, and Village officials stopped Gulfport Energy from drawing water because of the low reservoir levels (Antero Resources had not yet begun drawing water). On March 5, Gulfport Energy sued the Village for priority access to water from the Slope Creek Reservoir over any third party, claiming that they will lose millions of dollars if they are unable to develop their mineral rights.
Greenfield Advisors’ Director of Economic Research, Dr. Clifford Lipscomb, weighed in on the story, saying, “This situation shows some of the mispricing of water. Water is one resource that has many different entities demanding it but, in this case, too many entities are demanding water. In other words, supply does not equal demand. In theory, the additional demand for water caused by fracking companies’ need for water should increase the demand for water, which, holding all else constant, will increase the price of water. Without seeing these water purchase agreements, water may be underpriced, which lessens the cost of fracking operations and provides a disincentive to fracking companies to lessen their water usage.”
Oil and gas companies do not have to use local water, but trucking it in from other locations can push expenses much higher. Fracking requires an average of 4.1 million gallons of water for a single gas well, and water use for fracking has dramatically increased since 2000. Companies have bought hundreds of millions of gallons of water from Ohio reservoirs to use in fracking.
Towns like Barnesville have to weigh the needs of their residents against the potential profits that can come from signing mineral leases and other agreements with oil and gas companies. And they should price resources such as water carefully to regulate demand.
If you’re interested in water rights, watch this space—we’ll be writing more on the topic soon.