Pickens Jumps Into Water Market

Ex-Raider Eyes High Quality H2O Deal

Don't look now, but T. Boone Pickens is in the news again.

Before, that often meant bad news in some quarters. Pickens, an AAPG member since 1954, was branded a corporate raider by newspapers, magazines, networks and opposing managements back in the 1980s when his firm, Mesa Petroleum, made hostile takeover bids for companies he felt were undervalued and mismanaged.

It's not a stretch to suggest that Pickens, as much as any person connected to the oil industry, is largely responsible for the look and structure of today's corporate America -- and of the world.

But today Pickens is dealing with something other than undervalued companies.

Or oil, for that matter.

Today, Boone Pickens is dealing with water.

Ironically, Pickens Mesa Vista Ranch on the high plains of the Texas Panhandle is in danger of being raided -- raided of the water that lies beneath the rugged land.

And Pickens knows all too well that in today's Texas, water is as potentially valuable as oil.

Rules of Capture

In 1997 the Canadian River Municipal Water Authority announced it had purchased 43,000 acres of water rights in the area just south of Pickens' ranch in Roberts County, Texas, and planned to develop the water field. Then, the city of Amarillo bought 71,000 acres of water adjacent to Pickens' ranch, with plans to develop the resource in 25 years.

"These developments got my attention," Pickens recently told the EXPLORER. "The CRMWA and Amarillo basically put other landowners on notice they were going to start draining us. I felt we had no choice but to start selling our surplus water or lose it to drainage.

"Under the rule of capture we would have no recourse to prevent CRMWA and Amarillo from draining the reservoir under our land."

In Texas all surface water is considered public, but groundwater is privately owned. Under the rule of capture a landowner can pump water without regard for his neighbors.

The region of the Texas Panhandle that encompasses Roberts, Lipscomb, Hemphill and Ochiltree counties is one of the last remaining untapped portions of the Ogallala Aquifer, the largest aquifer in the United States. In other regions -- from just south of Lubbock all the way to the South Dakota border -- the aquifer has been tapped for over 50 years, primarily for irrigation.

This four-county section of the Texas Panhandle, however, is too rough to farm, and the aquifer has remained untouched. Of the total 2.22 million acres in the four counties, only about 100,000 acres have been irrigated.

Please log in to read the full article

Don't look now, but T. Boone Pickens is in the news again.

Before, that often meant bad news in some quarters. Pickens, an AAPG member since 1954, was branded a corporate raider by newspapers, magazines, networks and opposing managements back in the 1980s when his firm, Mesa Petroleum, made hostile takeover bids for companies he felt were undervalued and mismanaged.

It's not a stretch to suggest that Pickens, as much as any person connected to the oil industry, is largely responsible for the look and structure of today's corporate America -- and of the world.

But today Pickens is dealing with something other than undervalued companies.

Or oil, for that matter.

Today, Boone Pickens is dealing with water.

Ironically, Pickens Mesa Vista Ranch on the high plains of the Texas Panhandle is in danger of being raided -- raided of the water that lies beneath the rugged land.

And Pickens knows all too well that in today's Texas, water is as potentially valuable as oil.

Rules of Capture

In 1997 the Canadian River Municipal Water Authority announced it had purchased 43,000 acres of water rights in the area just south of Pickens' ranch in Roberts County, Texas, and planned to develop the water field. Then, the city of Amarillo bought 71,000 acres of water adjacent to Pickens' ranch, with plans to develop the resource in 25 years.

"These developments got my attention," Pickens recently told the EXPLORER. "The CRMWA and Amarillo basically put other landowners on notice they were going to start draining us. I felt we had no choice but to start selling our surplus water or lose it to drainage.

"Under the rule of capture we would have no recourse to prevent CRMWA and Amarillo from draining the reservoir under our land."

In Texas all surface water is considered public, but groundwater is privately owned. Under the rule of capture a landowner can pump water without regard for his neighbors.

The region of the Texas Panhandle that encompasses Roberts, Lipscomb, Hemphill and Ochiltree counties is one of the last remaining untapped portions of the Ogallala Aquifer, the largest aquifer in the United States. In other regions -- from just south of Lubbock all the way to the South Dakota border -- the aquifer has been tapped for over 50 years, primarily for irrigation.

This four-county section of the Texas Panhandle, however, is too rough to farm, and the aquifer has remained untouched. Of the total 2.22 million acres in the four counties, only about 100,000 acres have been irrigated.

Initially, Pickens approached CRMWA, which provides water to 11 communities in the Texas Panhandle and south plains, and the city of Amarillo, and offered his water rights for sale as well. They declined, however, so Pickens then went to his neighbors to ask if they would join in his efforts to market and sell the water rights under their land.

He formed Mesa Water Inc., and currently has about 150,000 acres with 3.3 million acre-feet of usable groundwater under lease -- twice as much water as CRMWA and Amarillo.

In addition to banning together with neighboring ranchers, Pickens has purchased an agency agreement covering 65,000 acres of land from Quixx, a subsidiary of Southwestern Public Service Company -- the same firm that sold 43,000 acres of water rights to CRMWA.

Under the agreement Pickens' group will market water from the Quixx land.

Establishing Guidelines

Although several months ago it looked as though Mesa Water would run into some problems with the area's governing Panhandle Groundwater Conservation District (permit applications were tabled earlier this year), Pickens' group and the district reached an agreement in early April that allows Mesa Water the same deal as CRMWA.

According to reports, the permits issued to CRMWA and Amarillo allowed those operators to pump one-acre foot of water annually per acre owned.

At the time of Pickens' application, a study based on a hydrologist's report was used regarding regional conditions and ramifications of the proposed activity. A subsequent study, however, indicated that the increased projected pumping would deplete the aquifer faster than the water district's original study indicated.

Pickens then insisted that all parties be treated equitably, and after weeks of negotiations the two sides reached an agreement. Now the permits allow one acre-foot of water for each acre owned -- with provisions that pumping rates can be adjusted if depletion proves to be at a higher rate than initially estimated.

Under the water district rules, half the water that was stored in the aquifer in 1998 must still be available in the aquifer in the year 2050.

Pickens has indicated he is in full agreement with those guidelines, and that his project will not endanger the aquifer.

He said his proposal represents only a fraction of the amount of water already pumped by farmers for irrigation in the Panhandle.

Is It Competitive?

Pickens isn't the only Panhandle resident trying to cash in on the untapped water. An Amarillo attorney has reportedly compiled water rights on a 190,000-acre block in Roberts County and plans to sell the water.

"Today I have the volume I need for this project to make sense," Pickens said. "I'm currently not leasing additional land until we determine if we can economically sell water to one of the larger cities of Texas.

"I already have $2 million invested in this deal in land costs, engineering studies, legal costs and lobbying efforts," he added. "Now we need to make a sale for the water."

Pickens said several cities are looking at the situation, but no municipalities have actually made an offer.

Pickens has commissioned a study, now under way, to compare his project's water costs to about 10 other water sources around the state.

"We have to find out if this project is competitive," Pickens said. "If it's not, then we can forget it."

However, he did say he thinks there is a better than 50 percent chance that he will be successful in selling the water -- the odds of a wildcatter's dreams.

"This is a sizable supply of water for some city," he said. "We have 200,000 acre feet of water per year to sell, and while it won't meet all the needs of a major city, it can service about one million people. The water meets all drinking water standards, and treatment costs for the water are very low.

"Studies looking at the water situation in Texas for the next 50 years shows that everything west of I-35, which is about two-thirds of the state, will have some water supply problems to varying degrees," he continued. "Water is becoming a huge issue in this state.

"The legislature is mandated to develop a 50-year water plan for the state by January, so important decisions are going to be made in the next year -- and we need to be in a position to profit from those decisions."

Finding the Markets

Texas' population is about 20.8 million, second only to California, and studies indicate that it could double in 50 years. El Paso is already looking for new water sources. The Rio Grande, a primary source of water for the city, is so dry after several years of drought that earlier this spring the river failed to reach the Gulf of Mexico for the first time in 50 years.

Pickens said he was told El Paso is studying a desalination project to provide water at about $1,400 per acre-foot.

Mesa Water currently is focusing on Dallas-Fort Worth, San Antonio and El Paso as potential buyers. Engineering studies conducted by the company indicate that water can be piped from Roberts County to the Dallas-Fort Worth area in a 108-inch, 385-mile long pipeline for less than $800 an acre-foot.

After selling water to smaller communities along the way, about 150,000 acre-feet would reach the metropolitan area.

Delivering the water to San Antonio would run about $1,170 an acre-foot through a 614-mile line, and to El Paso -- the least likely alternative -- the costs would be about $1,773 an acre-foot.

Pickens recognizes it will be up to Mesa Water to build the pipeline to market the water.

"Nobody's going to buy my water up here and lay a pipeline from Roberts County," he said. "I'm going to have to get a price on the other end and a contract, and I'm going to have to arrange for the financing and build a pipeline."

Pickens points out that CRMWA has a 325-mile pipeline that takes water away from Lake Meredith just north of Amarillo down to Lubbock and Lamesa, Texas. That pipeline is 96 inches in diameter -- not much different than the proposed line to Dallas-Fort Worth -- and it was built 30 years ago.

"Whatever the outcome of this project in the short-term, reliable water sources will continue to be a growing issue for expanding cities, and eventually surplus water from these Panhandle counties will become a valuable commodity," he said.

"I think that over a long period of time water will be continually bought, in Roberts and continuing east to Lipscomb, Hemphill and north to Ochiltree counties, and brought into the infrastructure that goes south."

Minimal Long-Term Effects

Of course, there are concerns in the area about the long-term effects of the proposed groundwater projects.

According to state statistics, the Ogallala aquifer beneath the entire Texas Panhandle is stressed and with dry conditions and the current consumption rate the aquifer could be depleted in 70 years. That's a more dire prediction than the Panhandle Groundwater Conservation District's estimates, which indicate that these projects would reduce the water in the aquifer beneath Roberts, Hemphill, Lipscomb and Ochiltree counties by 50 percent over the next 100 years.

At a recent meeting of area ranchers Pickens told the group, "When you hear people say Boone Pickens is going to turn Roberts County into a Dust Bowl, well, that's wrong. We're never going to be without water."

The EXPLORER told Pickens that "in the overall scheme of things we aren't impacting the reservoir dramatically."

The Ogallala aquifer, he said, "has been mined for years," adding that the upper 21 counties of the Texas Panhandle extracted 1.8 million-acre feet of water in the year 2000 -- and 90 percent of that was for irrigation.

"We're going to take out 200,000 acre-feet of water, or about 10 percent of the total," Pickens said. "These four counties that have been relatively untouched in the past represent a 100-year supply of water with 20 million-acre feet. The regulations dictate that you can only draw down to 50 percent of the saturated thickness of the reservoir, and that leaves plenty of water for ever after for all generations.

"All we're doing is selling our surplus water to realize additional value from our land."

Pickens said landowners in the four county region could realize additional revenue of about a billion dollars over the 100-year life of the surplus water supply.

"This is a very important issue to ranchers in these four counties," he said. "If we don't sell our water, it's going to be drained out from under us. That's a sizeable asset to just give away. Land in these northeast Panhandle counties is only worth about $250 per acre. Irrigated land just 50 miles west is worth $600 to $800 per acre.

"Selling the surplus water is our only chance to upgrade the value of our land. It's imperative that we do it."

udczuyqzxyucrexczbcvrqsywywd

You may also be interested in ...