Posted 3/22/16 (Tue)
By Cecile Wehrman
A plan to fund a huge regional water system with income derived from the sale of water to industrial users seemed like a great idea at the time.
With thousands of oil wells in need of huge amounts of water for fracture stimulation aimed at making the wells produce more oil, it seemed like a no-brainer.
And with 99 percent of all drilled wells successful, the sure-fire formula of oil companies continuing to need water to frack wells was hard to argue against.
“The concept of the entire system was that the industrial water sales would pay for this system,” said Jaret Wirtz, executive director of the Western Area Water Supply Authority (WAWSA).
Back when the 2011 legislature agreed to the funding plan, even state prognosticators saw a good case for substantial oil exploration for the next two decades.
But just as few oil industry proponents could foresee such a precipitous drop in oil prices -- WAWSA saw little chance of an 80 percent drop in industrial water sales.
Likewise, few of the cities signing agreements with WAWSA five years ago ever anticipated their own finances might be impacted by the loss of WAWSA’s industrial water sales.
Loss of payments
Back in 2009, towns like Tioga, Ray and Crosby were doing a big business in industrial water sales. In fact, Tioga sold so much water, they were in trouble with the state at one point for over-drawing their state permit.
When WAWSA was formed by entities including R&T Water, Burke-Divide-Williams Water, Williams Rural Water, the City of Williston and McKenzie County Rural Water, the deal required all of the towns within those territories to agree to give to WAWSA the income from industrial water sales.
In exchange, cities would receive a payment based on the amount of water they sold in 2010 -- and WAWSA would build out a transmission system to deliver good water.
For Tioga, in 2010, industrial sales amounted to about $79,000 a month. Even in Crosby -- on the fringe of the Bakken hotspot -- the payment totalled $21,000 a month.
“The first four years, no problem,” said Wirtz, and WAWSA had no trouble making the payment.
However, the original agreement warned cities those payments could be in jeopardy if industrial water sales became insufficient to service WAWSA’s debt.
Now they have.
“There’s a different climate, so there’s a change that has to be made,” said Wirtz, especially when the state is guaranteeing the WAWSA debt.
For some towns, news that the payments will go away was taken in stride. Crosby’s $21,000 a month is nothing to sneeze at -- $252,000 a year. But as Mayor Bert Anderson noted, Crosby hasn’t sold much industrial water for a long time.
“We had a ton of money off that -- $21,000 a month for nothing.”
According to Richard Liesener, a member of the Ray City Commission as well as a member of the boards of both R&T Water and WAWSA, Ray’s payment was quite small because they had very little in industrial sales in 2010. Consequently, loss of the payment will be easier to bear, though a new agreement has yet to be approved.
However, in Tioga, the loss of $1 million budgeted in the general fund will hurt.
“We have to take a deep breath and redo our budget,” said Tioga Mayor Drake McClelland.
Prior to the city’s March 7 meeting, the possible loss of the payments were only rumor. And as the only commissioner familiar with the original agreement, McClelland wonders now how much anyone understood the original contract.
“Did we read it fully and understand it fully? I don’t know,” he said.
At the time it was signed, McClelland said commissioners were more focused on the benefit of having steady funds that could be used in the budget, rather than fluctuating sales income. And, they needed the water to serve residential growth.
“It looked good at the time,” he said.
Now facing the reality of the suspension of the payments, Tioga commissioners held a special meeting with R&T board members Tuesday last week (Related story Page 1).
Anderson, who also represents District 2 in the North Dakota House, is another member of the WAWSA board.
He noted that the ramp up of the system has been incredibly fast given all of the challenges of growth, and more recently, of declining revenue.
“Under the circumstances, I think we have done a very good job,” he said, even if at times, it may seem things are evolving “a little too fast.”
No matter who gets the money for industrial water sales, said McClelland, “Would we be selling water now? No.”
Wirtz doesn’t believe it will stay that way forever, though.
When the price comes back, there will be a backlog of wells waiting for completion -- currently at 945 -- and thousands more that can be drilled.
“You won’t see it back to the way it was,” said Liesener, but the oil resource isn’t going anywhere.
Likewise, a secondary industry has sprung up around servicing the state’s 13,000 producing wells, which means population is unlikely to fall to pre-boom levels.