Water sales uncertain in southeast Wyoming

Laramie County – Producers in Laramie County are faced with a huge decision to make this year regarding their water rights: sell or grow?
As energy companies move in to extract oil from the Niobrara formation, industry is looking to buy water from agriculturalists to run their extraction operations.
Through a temporary use permit from the Wyoming State Engineers Office (SEO), producers with water rights can sell water to interested parties, which are, in this case, oil companies.
Drilling wells in the Niobrara formation is a water intensive process – drilling and hydraulic fracturing use almost five million gallons of water per well over the well’s lifetime – and some ag producers are willing to help provide some of that water.
Through the SEO, adjudicated water rights, which are awarded to producers who have shown beneficial use for a specific quantity of water, can be transferred to oil companies through a temporary water use agreement.
A temporary water use agreement transfers a specific quantity of water from agricultural use to industry. The quantity of water allowed for transfer is determined by five years of power use records provided in the application. Temporary transfer permits last two years.
Although water use transfer is possible through the SEO, some citizens of Laramie County express a number of concerns with temporary water transfer to the oil industry.
“A number of folks express concern about groundwater levels,” says Wyoming State Engineer Pat Tyrrell.
Tyrrell and Jeff Barnes, surface water administrator in the SEO, agree that selling water should have no effect on groundwater levels. When producers obtain the permit to sell their water, they also agree to take that land out of production, explains Tyrrell.
“We try to look at what their average water consumption is. We take that consumption and allow it to be sold,” says Barnes.
Taking agricultural land out of production has the potential to negatively affect the economy, driving prices of products like alfalfa up.
“The number of people selling water is less than 10 percent, and probably close to five percent, of irrigators,” comments Tyrrell.
Looking at the numbers, Barnes explains there are 20,000 acres of production in Laramie County that are dependent on groundwater. Of those, a maximum 4,000 to 5,000 acres are predicted to go out of production due to temporary change of use permits.
“I think we are down in the 3,000-acre range,” says Barnes, reaffirming that the temporary use permits are minimal.
“It shouldn’t affect the economy,” adds Tyrrell.
Barnes says, “I think the big benefit that ag producers are seeing right now is the fact that they can make some pretty good money by selling water rather than producing crops.”
“If they can produce five tons of alfalfa per acre and get $70 per ton, they make $350 growth on that land, and they have to pay for fuel and pumping costs. Now if you consider that consumptive use is an acre-foot of water off an acre of land, water can be sold in the neighborhood of 40 to 50 cents per barrel, and producers can make $3,500 selling the water.”
One producer in Laramie County who sells water states, “It’s been a big help to us. We’ve had to spend some money, though. But is financially advantageous.”
Right now, however, irrigators aren’t reaping the high profits anticipated from selling water.
“The big deal right now is that the oil play has not ramped up at the rate that they thought it would, so there is a lot more water available on the market than is asked for. A lot of these guys are selling water at 15 to 25 cents per barrel rather than 40 to 50 cents per barrel,” says Barnes.
Tyrrell also comments, “As long as the rivers are high, it’s possible to get water from there and it’s unlikely that many producers will need to or will be able to sell water.”
The Laramie County producer talks about the contracts offered by oil companies, saying, “The agreements are always open-ended to the companies. They have a top end to what they can buy, but they don’t have to buy any water. And you have to watch to make sure you aren’t entering into agreements with companies who just want to tie up the resource so others can’t buy it.”
This puts an additional strain on producers, with no guarantee that they will sell water at all.
Concerns with selling water for oil extend outside the immediate sphere of agriculture. County governments may feel an impact as well.
“One of the other things that is going on is that it takes about 50 truck loads to haul an acre-foot of water. County roads are seeing a lot of traffic with large semi trucks,” says Barnes.
The potential for producers to be able to sell their water is unknown at this point, and depends on how long the oil play lasts in the area.
“It could go for 20 years, or for three to four and fizzle. I don’t think you’ll see a great demand for a long time,” says Tyrrell.
Agriculturists could see huge benefits from selling water to oil companies. “It’s a great deal, if you can sell enough to make it work,” says the producer .
Saige Albert is assistant editor of the Wyoming Livestock Roundup and can be reached at saige@uwyo.edu.