Anadarko Forges Deal on Use of City Wastewater in Fracking

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By Tripp Baltz

Oct. 26 — Anadarko Petroleum Corp., has renegotiated the final annual payment it owes the city of Aurora, Colo., as part of a five-year, $9.5 million contract allowing it to use the city’s “used” water to frack oil and natural gas wells.

Facing tepid revenues due to low energy commodity prices, Anadarko reached an agreement with Aurora Water, the city’s supplier of water, sewer and stormwater services, to spread payments for the $2,025,915 it owes throughout 2016, 2017 and 2018 instead of in full this year per the original contract.

The Houston-based producer, one of the most active drillers in Colorado’s productive Denver-Julesburg Basin, reported $2.2 million in losses last year in the slumping natural gas and oil market, Robin Olsen, spokeswoman for the company in Denver, told Bloomberg BNA Oct. 25.

Company to Buy Water

Anadarko entered into an agreement with Aurora in 2012 to purchase water pumped into the South Platte River after being treated at the city’s Robert W. Hite Treatment Facility.

The agreement allowed Anadarko to purchase the water for five years at a rate of 1,500 acre-feet a year, Lisa Darling, South Platte program manager for Aurora Water, told Bloomberg BNA Oct. 25. The company uses the water for hydraulic fracturing and other drilling activities.

Fracking involves the high-pressure injection of large amounts of water, sand and chemicals into tight shale formations deep underground to stimulate the production of natural gas and oil trapped there.

The city council’s water policy committee tentatively approved the renegotiated agreement Oct. 13, Darling said. The full council will consider it in late November or early December, she added.

“Anadarko has recently undergone significant economic set-backs, due to the steeply declining price of oil. As a result, drill rigs have been laid down and oil production in Weld County has virtually ceased,” city documents said.

The company will buy water at the rate of 500 acre-feet a year under the new arrangement. Included with the deal was a contract incentive providing Aurora with 150 shares of Anadarko’s rights to the Lupton Meadows Ditch Co., a value of about $1.4 million in water rights. Aurora will obtain ownership of the ditch, Darling said.

‘Good for Both Parties.’

“Our partnership with the City of Aurora is very similar to the work we’ve done with our service providers to improve efficiencies, and our cost structure during a challenging commodity price environment,” Olsen said in a statement.

“The agreement we’ve reached works well for both parties, as it provides Aurora with additional value that can be used at the city’s discretion, including stabilizing residential water bills, and it enables us to have the flexibility around volume, location and timing of delivery that best aligns with our operational needs,” she said.

Agreements between cities and oil and gas producers operating in the DJ Basin such as Anadarko and Noble Energy use water that could be used for other beneficial purposes such as farms, recreation, fish and other aquatic wildlife, Rob Harris, senior staff attorney with Western Resource Advocates, an environmental group in Boulder, told Bloomberg BNA Oct. 26.

‘Deep Pockets.’

“Oil and gas has very deep pockets,” he said, adding that he has seen estimates that Anadarko paid four times the market rate for the used water it agreed to purchase from Aurora. “There are bigger issues for the public to consider, like whether or not fracking is the best use of water in a dry region and in a dry time. Downstream junior water-rights holders, such as a farmer in Brighton or Weld counties, may not get what they need to water their crops.”

Olsen said aggregate use of water by the oil and gas industry represents a minuscule amount—about 0.1 percent—of total water use in Colorado. “They like to pick on our industry, but it’s such a small number when you put it into the context of other water users, such as agriculture and mining.”

Harris said the 0.1 percent figure might be correct, but such a number is “not useful.” It’s the equivalent of annual use by Lakewood, one of Denver’s larger suburbs, he said. “It implies it’s a de minimis amount, which is not correct.”

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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