Water Wranglers Gush With New Oilfield Work to Help Fend Off EPA

Gary Evans founded his company, GreenHunter Energy Inc. (GRH), to tap into the growing need for renewable energy. Last year, he saw a bigger opportunity in the oil and natural-gas business: water.

As local and federal regulators raise questions about potential pollution from drilling operations, U.S. oil and gas producers are turning to companies like GreenHunter to improve their handling of the millions of gallons of fluids involved in an average well.

An investigation by the U.S. Environmental Protection Agency found evidence of chemicals used in hydraulic fracturing, or fracking, in a drinking-water aquifer in Wyoming, the agency reported last week.

Water-service companies help manage the chemical-tainted water that’s a byproduct of drilling and production, cleaning and recycling it for re-use, and hauling it away for disposal.

“Some of these people couldn’t even spell the word petroleum -- they developed water treatment for some other application,” said Steve Jacobs, chief operating officer at Houston-based Decision Strategies, an oilfield consultant. “Now they’re realizing, ‘Gosh, there’s a huge market out there called the oil and gas industry and that’s a great opportunity.’”

Landowner groups in states including Pennsylvania and New York say they are concerned that contaminated water can leak from wells that have been fracked, a method of cracking rock with high-pressure injections of water, chemicals and sand to release oil and gas.

Water Disposal

Environmental groups such as the National Resources Defense Council also are concerned about proper disposal of the wastewater pumped to the surface with oil and gas -- about 1 million gallons over the life of a well, according to an EPA estimate.

The EPA’s finding of possible aquifer contamination from Wyoming fracking operations are “not definitive,” according to Doug Hock, a spokesman for Canada’s Encana Corp. (ECA), the owner of the wells suspected of causing the problem.

The report bolstered calls for tighter regulation of air and water quality in oil and gas production in the U.S.

“There must be absolutely no more delay in closing the loopholes that leave our drinking water sources vulnerable to toxic chemicals,” said Jessica Ennis, a policy associate in Washington with Earthjustice, an environmental group based in San Francisco.

More Regulations Coming

Stricter rules would probably mean more business for water recycling companies such as Roanoke, Texas-based Fountain Quail Water Management LLC, said Chief Operating Officer Brent Halldorson.

“As these regulations get stronger and stronger, you will see recycling get more attractive,” he said in an interview.

The EPA is expected to report initial findings next year from its study of how fracking might affect groundwater, with a final report due in 2014. The agency also is considering adopting new rules that will govern how companies dispose of wastewater from oil and gas wells.

An advisory panel to the U.S. Energy Department said Nov. 10 the industry and government need to do more to protect water and air from pollution related to gas production.

Managing water in the oilfield is a roughly $50 billion-a-year business in the U.S., according to estimates made by Heckmann Corp. (HEK) a water-services company based in Coraopolis, Pennsylvania.

Concerns about water management have grown as operators drill more wells to chase profits from crude prices that have climbed 134 percent in the past three years. The number of active rigs drilling onshore in the U.S. has more than doubled to 1,931 since the middle of 2009.

Rising Water Consumption

Total water consumption among energy companies is expected to almost quadruple to as much as 15 billion gallons a day by 2035 from 4.3 billion in 1995, said Mike Hightower, a researcher at Sandia National Laboratories who was on the team hired by the Energy Department for a 2006 study on the relationship between energy and water. That’s enough to supply more than 130,000 average households for a year, according to Texas Water Development Board calculations.

States are tightening regulations, too. Pennsylvania adopted rules in 2010 requiring oil and gas operators to clean water to near-drinkable quality before depositing it in creeks and rivers. Producers in the state handled 20 million gallons of wastewater this year, and that may grow to 60 million gallons annually as the number of wells increases, said Radisav Vidic, a professor of engineering at the University of Pittsburgh.

New Use Limits

In parched Texas, some local jurisdictions this year approved restrictions on the amount of water used by producers and other commercial interests after a record drought focused attention on the volumes consumed by fracking. An average 6.3 million gallons of water are used to frack each well, according to an Oct. 21 note to investors from Global Hunter Securities.

“Municipalities are less and less likely to draw down their freshwater resources for the fracking activity,” said George Kast, CEO of Denver-based Produced Water Solutions Inc.

Increased demand for water treatment and handling also means rising prices for those services, according to a Nov. 18 note to investors by Robert W. Baird & Co. Producers may be able to fend off costs and delays associated with stricter regulation by adopting new technology to reduce water usage and minimize risks of pollution, said Christine Tezak, an analyst with Baird.

Regulation a ‘Friend’

“We believe regulation is our friend,” Richard Heckmann, chief executive officer for Heckmann, told investors at a Nov. 16 conference in New York. His four-year-old company has climbed 17 percent since Oct. 3, when it announced a buyer for parts of its Chinese bottled-water unit and plans to divest the rest in order to focus solely on water management for the energy industry.

The company has increased staffing in its U.S. business to 1,050 workers today from fewer than 30 a year earlier, according to a Nov. 9 statement.

With the proliferation of water-service startups, the industry will begin to consolidate as companies take advantage of the leap in demand for their expertise, Stephen Trauber, global head of energy investment banking at Citigroup, said in a telephone interview. Trauber expects to see a surge in mergers, acquisitions and initial public offerings over the next 18 months.

Consolidation Ahead

Larger oilfield-service companies may be buyers as they build their own water specialties, Trauber said. Halliburton Co. (HAL), the world’s largest pressure pumper, is aiming for a 25 percent cut in its use of fresh water by 2015, said Clay Terry, strategic business manager for the company’s newly formed Water Solutions group.

General Electric Co. (GE) and Ecosphere Technologies Inc. (ESPH) also are each using mobile water-recycling units designed to be hauled from well to well in the oilfield. Ecosphere boosted its third-quarter revenue almost fourfold to $8.2 million compared with a year earlier.

“We’re finding that disposal and hauling is really the tip of the iceberg,” said Jonathan Hoopes, chief operating officer at GreenHunter. “There really is more business than we can all satisfy.”

To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net; Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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