How Much Water, at What Price?
The question at hand is, "Can Aqueous Solutions provide sufficient amounts of water to become profitable?" Water is scarce in South Texas. Is Freestone's JV able or permitted (by state regulations) to withdraw and sell ample amounts of water? That's a crucial question. If the JV can supply just enough water for a few wells, no one is going to get rich. So, how much water can be legally withdrawn from the single source well of the JV?
The JV has in hand a Water Rights Agreement that allows Aqueous Solutions to produce up to 1,500 acre-feet (the equivalent of 11,637,535 barrels) of fresh water per year from its existing well.
What does that amount to? How many Eagle Ford wells might that amount of water supply?
I will use an often-stated water requirement of 4.0 million gallons/well to bring the typical or average Eagle Ford well into production.
Aqueous Solutions has rights to 11.6 million bbls of groundwater each year. A barrel is 42 gallons; so Aqueous Solutions can sell 11,637,535 x 42 each year. In gallons, that's 488,776,470 gallons. If each well uses 4 million gallons, Aqueous Solutions will be able to supply enough water for 122 new wells each year. With a full 365 days of annual operation, that would be a new well supplied about every 2.99 days. About 4 million gallons will be going out the gate every three days.
Of course, the cogent question will concern the company's pricing for a barrel of their water. Inasmuch as there is virtually no surface or stream water available over the Eagle Ford, and the fact that these millions of gallons of water are absolutely essential for fracking, (that's where "hydraulic" in hydraulic fracturing comes in), the company will be able to charge a premium.
How much might that be? I don't know. But I doubt that it will start at $0.10 a barrel. Perhaps $0.50? Maybe even a buck? Do your own advanced eighth-grade arithmetic. Wrestle with a calculator or spreadsheet and multiply out the range of numbers you think plausible. As I mentioned in my previous posting, the numbers my spreadsheet comes up with are very rewarding.
Of course, someone will want to believe that the company's well will go dry, or simply can't supply the authorized annual quantities. You are welcome to that uninformed perspective. I've done my diligent investigation of the local geology and know that the giant aquifer beneath the well will be able to supply the authorized volumes reliably for many years.
–Falconer66a
