Energy Firm Makes Costly Fracking Bet—on Water
For Antero's Planned Ohio River Pipeline, Payoff Hinges on
Wall Street Journal
14 August 2013
By Russell Gold
Antero Resources Inc., an energy company backed by New York
private-equity firms, plans to spend more than half a billion
dollars on a pipeline. But the 80 miles of pipe won't transport
oil or gas: They will carry water from the Ohio River to fracking
sites in West Virginia and Ohio.
The project is a costly wager that the hydraulic-fracturing
industry's thirst for reliable sources of water will grow over the
next few years. 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.
Hydraulic fracturing is a water-intensive business.
Sources: Susquehanna River Basin Commission via
Environmental Protection Agency; West Virginia Department of
- Average amount of water used to hydraulically fracture a
single 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
- 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.
Antero's big bet on water, which worries some environmental
groups, could pay off handsomely for the company's executives and
private-equity backers, who have positioned themselves to get the
biggest financial benefit from the pipeline. But some experts say
the investment's long-term success could hinge on the region's
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, Chance Richie, a water
consultant to Antero, said at an industry conference in March. The
trucks that now deliver most of that water are a "very, very large
expense," he said.
They also contribute to congested roadways in some rural areas.
"We are not used to all this traffic—it is like New York City out
there," said Ralph Sandora, a commissioner in rural Doddridge
County, W.Va., where Antero has leased more than 100,000 acres for
Mr. Richie referred questions about the project to Antero. Company
officials declined to comment.
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.
In a permit filed with the Army Corps of Engineers, which
regulates water withdrawals from the Ohio River, Antero said it
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.
Mr. Richie, the consultant, said at the March conference that the
company was talking to other companies about using the piped-in
Some environmental groups are concerned by the scope of the
project. "There is a whole lot of water in the Ohio River, but not
if we start withdrawing millions of gallons of water a day," says
Janet Keating, executive director of the Ohio Valley Environmental
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. RRC -0.54% built a 20-mile pipeline
in the West Virginia panhandle to move water from the Ohio River.
A company spokesman declined to discuss the cost, but said it was
"not even remotely close" to Antero's projected half-billion
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, said Executive Vice
President Karl Kyriss, who added that the company is evaluating
two more pipelines. He estimated that the industry has spent
nearly $1 billion altogether on water pipelines.
An Exxon Mobil Corp. XOM -0.28% spokesman said Exxon has built
three relatively short water pipelines in Pennsylvania and West
It isn't clear how quickly Antero's pipeline project might pay for
itself. 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.
Amy Myers Jaffe, executive director of energy and sustainability
at the University of California Davis, says that while the
pipeline's construction costs are high, the project could pay off
if there was a drought that sent other companies scrambling for
"Access to reliable, affordable water can make or break the
profitability of companies doing shale in a remote, water-scarce
region," she said.
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
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.
The three private-equity firms either declined to comment or
didn't respond to requests for comment.
Write to Russell Gold at email@example.com
A version of this article appeared August 14, 2013, on page B1 in
the U.S. edition of The Wall Street Journal, with the headline:
Energy Firm's Fracking Bet: A Costly Pipeline—for Water.