Water producer sues over limits on drilling into Ogallala Aquifer
A Loco Hills water producer is suing the New Mexico State Land Office for alleged government “overreach” stemming from a policy change aimed at reducing the amount of water taken for oil and gas activities from a vast underground aquifer.
The suit, which seeks an injunction to the policy, was filed Oct. 12 in Fifth Judicial District Court in Lea County.
The complaint cites a May directive issued by State Land Commissioner Aubrey Dunn that said the Land Office would, starting the following June, require companies pay an additional royalty fee and submit a hydrological review, when applying to drill water from the Ogallala Aquifer on State Trust land for extraction operations.
Easements will still be permitted, but applications now require the additional hydrologic information — and added fee — to be reviewed by the commissioner on a case-by-case basis.
If the lawsuit is successful, the court will block the Land Office from collecting the added water royalties, and force the office to refund any royalties already paid under the new policy.
The suit claims the Land Office only owns surface rights, and has no authority over the water held underground.
If the case is unsuccessful, and the injunction not granted, the plaintiff said he could be out of business.
The State Land Office had not been served notice of the lawsuit as of Wednesday.
Ray Westall said he already invested $15 million constructing a 30-mile pipeline to transport Ogallala water from about 23 wells located eight miles north of Maljamar, into Loco Hills for distribution.
He said the new 20 percent fee levied on his gross income would cost Westall's businesses about $1.4 million when renewing the easement.
"We can't pay that much," he said. "We can't continue to put in infrastructure. It's going to put us out of business."
Westall owns the two water production companies seeking the injunction: Loco Hills Water Solutions LLC, and Steve Carter Inc.
Steve Carter Inc. was a trucking company Westall purchased in 1980, which also owned three water wells. Westall sold the trucking rights to Basic Energy, and kept the water rights.
Then in 2007, Westall started Loco Hills Water Solutions by buying water rights from Devon Energy, and drilling the additional 20 wells.
The wells were permitted by the New Mexico State Engineer, read a news release from Local Hills Water Solutions, to produce 2,492 acre feet of water per year to be sold to oil and gas companies.
Many of the wells were active since the 1960s, the release read, and the leases typically renewed every five years. The most recent was renewed in April.
Westall said the companies pump a combined total of up to 20,000 barrels of water per day, and already pay about $1,000 in water royalties to the state per well per year.
With the increased rate and added requirement, Westall said he is not confident his businesses could survive, should the injunction be lost.
“If we sign this contract, we’ll be out of business,” he said. “I’m not signing it. How do you pay it? You can’t. We hope to keep producing our water, and selling our water without being extorted by the State Land Office."
With oil and gas activities growing in southeast New Mexico, Westall worried he won’t be able to keep up with the demands of the added regulations, and could be forced to close his business in about three years.
“We’ll have to drill some more (wells),” he said. “But if we can’t get the easement onto state land, we won’t be able to.”
Moving the wells away from the Ogallala is not possible, Westall said, because his companies have already made significant infrastructure investments in the area.
“He’s trying to make it uneconomical to make money, period,” Westall said of Dunn. "For the money we have invested, there’s not any way we can move the wells.”
State Land Office Spokesperson Kristin Haas said the $1.4 million unpaid by Westall's companies amounts to stealing from New Mexican children, as those dollars were earmarked by the state for public education.
“The sole beneficiary of these unpaid water royalties are public schools,” Hass said. “So in essence they are stealing from New Mexico’s school children to line their own pockets.”
But Westall said the state does not own the water, and has no right to charge the additional royalty fee.
"I'm not stealing anything. They don't own the water," he said. "We do pay a lot of taxes, and a lot of royalties, but the State Land Office is trying to make us pay a bill for something they don't own."
Records show the Land Office currently has more than 100 well-site easements issued, some dating back to the 1980s, allowing holders to drill water wells on State Trust lands from the Ogallala for oil and gas activities.
Dunn cited the depletion of the Ogallala, also known as the High Plains Aquifer, an underground aquifer that spans about eight states from Texas to Wyoming and stores about 3 billion acre feet of water, according to the United States Geological Survey.
“We are in crisis mode,” Dunn said in a June statement. “The rapid rate of depletion of the Ogallala aquifer and lack of alternative sources of freshwater is not only threatening drinking water within the Great Plains, but it is also devaluing State Trust lands and negatively impacting Trust beneficiaries.”
The conflict in Loco Hills isn't the first challenge to Dunn's new policy.
The City of Eunice, a town of about 3,000 people 70 miles east of Loco Hills in Lea County, relies on water sales from wells on State Trust land, said Mayor Matt White.
White expressed concerns with Dunn's attempts to curb Ogallala water usage, and the city and Land Office negotiated a five-year gradual phase-in of the policy.
The agreement was reached in June and announced at the EnergyPlex Conference held in Hobbs.
At the conference, Dunn said he was trying to do “what’s right” for the Ogallala Aquifer, amid concerns that its supply was depleting.
He touted the deal with Eunice before the crowd at the conference, urging others to negotiate if problems with the policy arise, but cautioned those who could opt to take the Land Office to court.
“I got with the City of Eunice today and we worked out a five-year phase-out," Dunn said when addressing the EnergyPlex Audience. "If somebody’s got an issue and wants to come and work with us, we’re happy to.
"If you want to fight with us, we’ll fight with you. We can go either way.”
And anyone who does choose to fight the policy, Hass said, is opposing the essential conservation of the state's freshwater supply, and ignoring the industry's recent shift to other sources of water.
"What is most perplexing is that anyone would attack Commissioner Dunn’s efforts to protect one of the country’s largest and most important sources of drinking water," Haas said. "The oil and gas industry in general is abandoning the use of freshwater for industrial uses."
Robert McEntyre, spokesman for the New Mexico Oil and Gas Association said major oil and gas producers in New Mexico are hoping to move toward about 90 percent non-freshwater use.
He said water conservation is especially important in the desert region of the American Southwest, and oil and gas companies are utilizing new technology and developing alternative water sources in hopes of saving freshwater supplies.
"The industry would prefer not to use freshwater if possible," McEntyre said. "There are a lot of companies that are really innovating in their water approaches, but there are just some activities that require the use of freshwater."
Freshwater is necessary during drilling if the activities take place near a freshwater aquifer, he said, to avoid contamination.
But McEntyre said the industry uses less than 1 percent of the state's water supply.
"It's an area where the industry has taken significant steps," he said of water conservation. "It's a shared priority across the industry, especially in New Mexico. I don't think you'll find anyone who this isn't a priority for."
Dunn also suggested drilling operations move from the Ogallala to the nearby Capitan Reef Aquifer, which extends further south into a sparsely-populated area of West Texas and southeast New Mexico.
“Non-freshwater sources are available that can be used in oil and gas production,” Dunn said.
The Capitan contains non-potable water, high in minerals and saline, which Dunn argued is better for use in the oil and gas industry.
And it's been used for extraction activities for decades.
Larry French, director of groundwater at the Texas Water Development Board said the Capitan's water was historically used for oil and gas production.
The water content and location of the aquifer make Capitan ideal for oil and gas companies, he said.
"The Capitan Reef has historically been used for oil and gas production," French said. "That's been probably its biggest use. Most of the time you're going to find salty water, which is fine for that use."
Texas oil companies already pump their water from the Capitan, French said, due to the location — far from densely populated areas — and because the water is not usable for consumption or agriculture due to high mineral levels.
"A lot of these companies are looking for a source that is convenient," he said. "In Texas, many companies are looking for non-drinking water supplies. In many cases, they want to be seen as good neighbors by responsibly using water resources."
Technology also exists to recycle produced water with the New Mexico Oil Conservation Division permitting of 34 such facilities in the state, Haas said.
Produced water is water used during extraction activities that is contaminated with chemicals and minerals during operations.
James Seefried, CEO of Dallas-based WEN Corp. said his company cleans up to 15 million barrels of water per year.
The company, which started in 2009, serves clients in Texas, New Mexico, Oklahoma, California and as far east as Pennsylvania, he said.
Wen Corp. uses a chemical process to gradually pull minerals and elements from the water after it is used in extraction.
He said some oil companies were hesitant to use this alternative process, but lately many have begun to embrace the chemistry and economics of water recycling.
"Even today it's very difficult to get oil companies to switch," Seefried said. "All over the world, we see water as being a very key issue. With so much pollution around the world, clean water is becoming more and more scarce."
Seefried said his company uses fuel-cell technology to distill the water and make it fit for reusing in oil and gas, consumption or recharging into lakes and streams — depending on a customer's needs.
One of the biggest obstacles, he said, is educating companies on what those needs actually are.
"People say they want freshwater, but they don't really know what that means," he said. "They don't really understand what they need for fracking. We are very much for oil and gas, but we're for doing it responsibly."
Alternatives to freshwater drilling are imperative to sustain water around the globe, Seefried said.
"It's taken us eight years to convince people this what they need to do," he said. "They're starting to realize they have to change. They can't keep doing this."
Sam Fernald, director of the New Mexico Water Resources Research Institute said the state's oil companies will likely continue working toward a future without freshwater.
He pointed to higher costs associated with purchasing and transporting freshwater, along with increased competition for a depleting supply.
"Our recent research in Southeast New Mexico was focused on opportunities for reusing produced water, both in and out of the oil and gas industry, because of the diminishing supply of fresh groundwater," Fernald said.
"While there are still challenges associated with reusing produced water, there are companies within the industry pursuing use of treated produced water rather than water from the High Plains aquifer."
Adrian Hedden can be reached at 575-628-5516, email@example.com or @AdrianHedden on Twitter.
Curtis Wynne of the Hobbs News-Sun contributed to this article.