Groundwater Districts' Regulation of Water Supply Wells - What Landowners Should Know


May 8, 2012

A lot has been written lately about the amount of groundwater being used for hydraulic fracturing in shale plays - particularly in the Eagle Ford Shale, and more recently in the Permian Basin. This raises the question whether -- and to what extent -- exploration companies' water wells used in fracing are subject to regulation by groundwater districts in Texas. It turns out that this is not an easy question to answer.

I am indebted to Mary K. Sahs (Carls, McDonald & Dalrymple, LLP), an Austin attorney who specializes in water law and who has written an excellent paper, Frac Water - Regulation of Quantity and Quality, and Reporting by Texas Groundater Conservation Districts, for the State Bar conference "The Changing Face of Water Rights" held on February 23 of this year in San Antonio, for a thorough explanation of this subject. I have borrowed liberally from her work.

Groundwater conservation districts are governed by the Texas Water Code, Chapter 36, and by any special provision in the law that authorized creation of each district. Section 36.117 (b) (2) of the Water Code provides that the following are exempt from regulation:  "drilling a water well used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well ... located on the same lease or field associated with the drilling rig." This has been referred to as the exemption for "rig supply wells." Rig supply wells are still subject to any water well spacing rules imposed by the water district, and the district may require the well to be registered and may require it to be properly equipped and completed.

The Texas Railroad Commission interprets the rig supply well exemption in the Water Code to apply to hydraulic fracturing operations. ("The RRC interprets the phrase "a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the commission" to mean a drilling rig or a workover rig and interprets "exploration operations" to include well completion and workover, including hydraulic fracturing operations.") But Mary Sahs quotes Ben Sebree, representing the Texas Oil and Gas Association, testifying at a House Natural Resources Committee hearing last year, as saying, with regard to water wells used in hydraulic fracturing: " ... our water wells are not exempt from the rules of the districts. We don't have to get a permit for them, and I know that sounds kind of odd, but they do have to comply with all the rules of the district, whether it's spacing, production, whatever, our ... water wells have to comply with those rules." Clearly, there is some ambiguity in the statutory language.

So how do groundwater districts regulate rig supply wells in practice? Mary Sahs went to considerable effort to review the rules of, and interview, several groundwater districts in areas where shale drilling is taking place. Their rules and practices vary considerably. Some districts impose spacing requirements. Some districts require registration and reporting of production. Only one district considered such wells to be fully subject to its regulations.

Districts also have jurisdiction to prevent "waste" of groundwater. Waste can occur where groundwater, stored in earthen pits, leaks into the soil or evaporates; or when the groundwater is transported through aluminum pipes with joints that leak. According to Mary, few districts are addressing this issue.

From Mary's survey:

The Evergreen Underground Water Conservation District (Frio, Wilson, Atascosa and Karnes Counties, in the heart of the Eagle Ford) believes it does not have authority to regulate spacing. Wells must be registered, but no drilling permit is required. If the well is turned over to the surface owner, the well must then comply with spacing rules to get a permit.

The Gonzales County Underground Water Conservation District (parts of Gonzales and Caldwell Counties) only has authority to regulate water wells producing from the Wilcox, Carrizo, Queen City and Sparta aquifers. Rig supply wells are generally not completed in those aquifers because of their depth. The District has asked operators to report production from their wells. The District encourages operators to use water that is too saline for human consumption, to avoid competition with human uses.

The Upper Trinity Groundwater Conservation District (Montague, Wise, Parker and Hood Counties, in the Barnett Shale) has special legislation allowing it to assess and collect production fees on all groundwater used for oil and gas drilling. Rig supply wells must be registered and production metered and reported, both the volume produced and the volume used at the well head. This allows the district to assess how much water is being lost between the water well and the point of use.

Panola Counter Groundwater Conservation District (Panola County) considers rig supply wells exempt, but asks that they be registered and their production reported. If a landowner sells water for fracing, his well becomes a non-exempt commerical well and must comply with all the district's rules. Mary reports, from her interview with the General Manager of the district, that "frac water wells create an approximate 1700 foot cone of influence as long as they are filling the frac ponds. Once that use ceases, the water levels recover within 2 months."

Pineywoods Groundwater Conservation District (Angelina and Nacogdoches Counties) asserts the right to regulate all aspects of rig supply wells. They must be registered and report production monthly, and are considered non-exempt industrial or commerical production wells that must obtain drilling and operating permits and pay a production fee.

Landowners should make themselves familiar with rules of their GCD's. They should call the district and ask what rules apply to rig supply wells. If the landowner wants to take over a rig supply well it should know what requirements the district will impose, and it should if possible require in its lease that the operator comply with all district rules so that the landowner will be able to use the well. If a landowner wants to use its own well to supply water for hydraulic fracturing it should know the district rules and should, if required, register the well and comply with all reporting requirements.

Groundwater Districts are so far taking a cautious approach to regulation of rig supply wells. In general, they are busy enough trying to establish their desired future conditions and their permitting and production requirements for non-exempt wells. But as they mature, and as drilling in shale plays continues and begins to affect the water levels in aquifers, districts may assert their authority to regulate how the oil and gas industry uses groundwater in their jurisdiction.