Tuesday, August 13, 2013

Antero Resources To Pipe Water To Fracking Wells

Antero Resources Inc., plans to spend more than half a billion dollars on an 80 mile pipeline that will carry water from the Ohio River to fracking sites in West Virginia and Ohio.  Fracking, an oil-field technique driving the nation's current energy boom, involves injecting vast quantities of water into the earth, along with other materials, to break up rock formations and unlock trapped oil and gas.

Antero Resources wants to tap the Ohio River, above.
Hydraulic fracturing is a water-intensive business.
  • Average amount of water used to hydraulically fractureasingle Marcellus Shale well: 4.2 million-5 million gallons
  • 4.2 million gallons is enough water for a town of 42,000 people for one day
  • Number of Marcellus Shale wells drilled in 2005-July 2013: 8,700*
  • Percentage of freshwater used: 90%
  • Percentage of water recovered from fracks and reused: 10%
Note: *Includes wells drilled and fracked through May 2013 in both Pennsylvania and West Virginia, but doesn't include every well. Some data are still being processed. Sources: Susquehanna River Basin Commission via Environmental Protection Agency; West Virginia Department of Environmental Protection
Colorado-based Antero, which has announced plans to go public, had oil and gas revenues of about $265 million last year, according to filings with the Securities and Exchange Commission.  The company says it is the most active driller in the Marcellus Shale, a gas-rich rock formation that stretches across Pennsylvania and into New York, Ohio and West Virginia. It is also pushing into Ohio's Utica Shale as well. The company uses a total of about six million gallons of water to frack each of its wells.

The proposed pipeline would slash the company's water costs by two-thirds, or about $600,000 per well. The trucks that now deliver most of that water are a "very, very large expense.

Tapping the Ohio would give the pipeline access to the region's most dependable source of water. Many of the rivers and streams that Antero now uses run low in the summer, prompting state officials to stop gas-industry withdrawals. A drought in Ohio last year curtailed water to fracking operations.

Ohio River & watershed

In a permit filed with the Army Corps of Engineers, which regulates water withdrawals from the Ohio River, Antero plans to build an intake pipe capable of sucking up 3,360 gallons of river water a minute—or about 4.8 million gallons a day.  Pumps would send the water through a 20-inch steel pipe eastward where it would be collected in several large pools before it was piped to drilling pads. The Army Corps has approved part of Antero's plan, and a decision on the remainder is pending.

A growing number of pipelines are supplying water to fracking wells—though few of them have been anywhere near as expensive. Antero filed for an initial public offering in June.

In 2011, Range Resources Corp.  built a 20-mile pipeline in the West Virginia panhandle to move water from the Ohio River.  In 2012, Aqua America Inc. built a 54-mile pipeline in northern Pennsylvania that serves several different energy companies.
The pipeline cost about $100 million.  It is estimated that the industry has spent nearly $1 billion altogether on water pipelines.  Exxon Mobil Corp.  has built three relatively short water pipelines in Pennsylvania and West Virginia.

Based on the company's projected savings of $600,000 per well, Antero would need to frack 875 wells to break even; according to its filings, it plans to frack 135 wells in the Marcellus this year.

While the pipeline's construction costs are high, the project could pay off if there was a drought that sent other companies scrambling for water.  Access to reliable, affordable water can make or break the profitability of companies doing shale in a remote, water-scarce region.

Antero is an energy company backed by New York private-equity firms. The pipeline might not remain with the publicly traded Antero for long. According to its SEC filings, the company's top management and its private-equity backers, which include Warburg Pincus LLC, Yorktown Partners LLC and Trilantic Capital Partners, will be able to force the company to split off its gas and water pipelines into a separate company, called Antero Midstream. Antero would enter into a 20-year agreement with the new Antero Midstream to purchase water.

Shareholders of the newly public Antero would own the split-off company, but the private-equity backers and Antero management would retain management control and ultimately receive 50% of the cash distributions generated by the pipeline company.  (WSJ, 8/13/2013)

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