WATER SCHEMES ACROSS THE SHALE PLAYS: ACQUISITION, RECYCLING, AND DISPOSAL OF WATER FOR FRACTURING IN TEXAS

• Jurisdiction: United States

Development Issues in Major Shale Plays
(May 2014)
CHAPTER 6B
WATER SCHEMES ACROSS THE SHALE PLAYS: ACQUISITION, RECYCLING, AND DISPOSAL OF WATER FOR FRACTURING IN TEXAS
Russell Johnson
Partner
Carl R. Galant
Partner
Morgan Johnson
Associate
McGinnis Lochridge & Kilgore LLP
Austin, Texas

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RUSSELL S. JOHNSON is a Partner at McGinnis Lochridge & Kilgore LLP in Austin, Texas. Russ has a multifaceted water law practice, with an emphasis on matters involving land use, water rights, and the Endangered Species Act (ESA). His clients are generally landowners, industries, mineral owners, and developers seeking to acquire, safeguard, develop, or convey water resources. Russ advocates on their behalf before the courts, the Texas Legislature, and administrative agencies. Navigating the rules and regulations imposed on landowners by governmental agencies can be a major challenge. Because Russ holds a B.A. in biology and chemistry, in addition to his law degree, he fully understands the technical and scientific complexities his clients face and can help them work more effectively towards achieving their goals. Over the years, Russ has participated extensively in legislation related to groundwater management. Prior to joining the firm, he represented a large municipal water system in a variety of matters, including legislative efforts to create the Edwards Aquifer Authority, modernize Texas water law with Senate Bill 1 (1997) and Senate Bill 2 (2001), and subsequent legislation related to groundwater management. He continues these efforts at each legislative session. He is a Board Member of the Center for Water Law and Policy at Texas Tech University School of Law, as well as an adjunct professor at Texas State University teaching water policy. Russ's comprehensive water law experience centers around preserving and protecting property rights and ownership. Russ has defended landowners' property rights in matters before groundwater districts and in court, including the Supreme Court of Texas. In addition, Russ has represented clients in numerous transactions involving water, and defended clients' water use and rights against regulatory impact. He also advises and represents clients on the use and disposal of water in oil and gas hydraulic fracturing ("fracking") operations. His general water law experience has included participating in the development of state legislation for the management of the Edwards Aquifer and representing a large municipal water system in the development of SB-1 and SB-2, the Legislature's efforts to update the Texas water law; representing a municipal client in protecting its right to franchise commercial operations on state surface water; representing a municipal client in litigation under the Endangered Species Act which threatened access to its principal water supply; and representing the Guitar family in Guitar Holding Co. v. Hudspeth County Underground Water District, seeking to protect the family's groundwater rights challenging a groundwater district's rules, which was decided by the Texas Supreme Court in favor of the family in 2008.

TABLE OF CONTENTS

I. INTRODUCTION

II. REGULATORY FRAMEWORK

III. WATER ACQUISITION

IV. GROUNDWATER IN TEXAS

1. Groundwater Conservation Districts

2. Groundwater Conservation Districts' Permitting Authority

3. Exemptions from Permitting

4. Exempt Wells Used for Oil/Gas Exploration (General)

5. Does 36.117(b)(2) Apply to Hydraulic Fracturing?

6. Additional Qualifications to the Exemption

V. SURFACE WATER

1. Surface Water in Texas

a) Capturing Diffused Surface Water is an Option for Operators

b) What is a Watercourse?

2. Exemptions Under Chapter 11 are not Helpful

3. Surface Water Permits

a) Temporary Permits

b) Seasonal Permits

c) Permits to Convert Exempt Dam or reservoir

VI. RECYCLING

1. Texas Railroad Commission Recycling Rules

2. Innovations in the Recycling of Oil and Gas Waste

VII. DISPOSAL OF OIL AND GAS WASTE

VIII. ALTERNATIVES TO WATER

IX. NEW COMMISSION RULES ON CASING AND CEMENTING REQUIREMENTS for Hydraulic fracturing of wells

X. CONCLUSION--STRATEGIC WATER PLANNING IS NECESSARY

1. Consider the Oil and Gas Lease

2. Respond to Local Circumstances

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ACQUISITION OF WATER FOR FRACING--A TEXAS PERSPECTIVE

I. INTRODUCTION

Production of oil and gas from shale requires lots of water, particularly if using hydraulic fracturing (or fracing) in a deep, horizontal well. Fracing a horizontal well is estimated to require on average between two to four million gallons of water.¹ With respect to Texas shale plays, the Barnett, Haynesville, and Eagle Ford plays are estimated to require 2.7, 3.7, and 4.8 million gallons per well (mg/w), respectively.² The variance in water use per well is fairly drastic among wells and basins, ranging from 1 to 〉13 mg/w, with higher water use occurring more often in the Eagle Ford shale.³

In terms of totals, water use for fracing wells amounted to approximately 35,800 acre-feet (AF) in Texas in 2008.⁴ A study commissioned by the Texas Water Development Board ("TWDB") predicts that overall water use for fracing in Texas will increase from the current 37,000 AF per year to a peak of 120,000 AF by 2020-2030. To put this in context, approximately 17 million AF of water is legally and physically available in Texas today.⁵

While water volumes needed to drill and stimulate shale gas wells are large, they generally represent a small percentage of total water resource use in shale gas basins (ranging between 0.1% to 0.8% by basin).⁶ For instance, one commentator has stated that, in the Carrizo Aquifer of the Eagle Ford shale region, current (non oil- and gas- related) withdrawals amount to roughly 275,000 AF per year, while the total amount of water production from the Eagle Ford play may only be as much as 300,000 AF over the life of the play.⁷ Notably, however, the TWDB Frac Study predicts a larger amount of water use for the Eagle Ford play in the coming years, with peak use around 32,000 AF in 2031.⁸

Despite the comparatively low estimated amount of water use overall, the major issue facing operators in Texas is a growing population and a dwindling water supply, not to mention frequent droughts. TWDB predicts total water demand will be approximately 22 million AF per year by 2060, but water supply

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will be only 15.3 million AF per year.⁹ Given the diversity of water resources in Texas, operators must consider local water needs and cumulative impacts to local resources from production. Localized impacts could be dramatic. Producing 4 million gallons of water in a short time from a groundwater well could lower the water table in the area of that well; repeated production of these amounts in localized areas could produce more lasting impacts.

Ultimately, before drilling in a shale play, an operator must consider where it will get water, how it will manage that water, and how and where it will dispose of the produced water and flowback. This paper addresses issues related to acquisition and use of water for operations, recycling or reuse of flowback and produced water, alternatives to the use of fresh water, and disposal in Texas.

II. REGULATORY FRAMEWORK

It should be noted that Texas has two separate state regulatory agencies with jurisdictions that directly regulate activities of operators engaged in oil and gas drilling and exploration, including hydraulic fracturing. Oil and gas activities are exclusively within the jurisdiction of the Texas Railroad Commission ("RRC"), a three member board elected state wide. The RRC is responsible for all permitting of drilling, exploration, production, post production, recycling and waste disposal. With the exception of air permits, noise, nuisance and traffic if it is related to oil and gas, it is within the jurisdiction of the RRC. This includes the jurisdiction to regulate oil and gas exploration and production operations to protect the state's water resources.¹⁰

The Texas Commission on Environmental Quality ("TCEQ") is the state agency with regulatory responsibility for virtually all environmental issues involving air quality, water quality and surface water use and waste disposal. This jurisdiction specifically includes permitting and regulating diversions and use of the state's surface waters and all matters related to regulating activities which could affect water quality, except for activities directly related to oil and gas activities. To the extent that an oil and gas operator seeks to use state surface water for its activities, this activity would be subject to the TCEQ's jurisdiction. Similarly, TCEQ regulates all waste disposal in Texas, with the exception of oil and gas waste.

Groundwater in Texas is owned by the landowner under the common law absolute ownership rule (or as it is called - the rule of capture) but this property right is subject to regulation by local groundwater conservation districts, many of which have political boundaries (county lines) as opposed to boundaries based on aquifer areas. Each of these districts can have independent rules and different

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permitting requirements and limits so long as they are within the authority of groundwater conservation districts as established in Texas Water Code Chapter 36. These groundwater districts have also been given some authority to undertake to protect the quality of fresh groundwater supplies in the state.

III. WATER ACQUISITION

Operators in Texas have three major sources of water to evaluate: groundwater, surface water, and diffused water. They may also consider potable municipal supply, treated municipal wastewater or recycled water from operation as a means of meeting some portion of their water demands in areas where municipal or utility supply may be available. The type of water available varies by location. In a 2007 study, the TWDB concluded that sixty percent (60%) of the water supply for...