Energy Firm Makes Costly Fracking Bet—on Water

For Antero's Planned Ohio River Pipeline, Payoff Hinges on Rainfall Patterns

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.

Thirsty Process

Hydraulic fracturing is a water-intensive business.
Sources: Susquehanna River Basin Commission via Environmental Protection Agency; West Virginia Department of Environmental Protection

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 rainfall.

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 drilling.

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 water.

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 Coalition.

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 dollars.

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 Virginia.

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 water.

"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 water.

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

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.