North Dakota water officials see results from crackdown on illegal water sales

BISMARCK, N.D. --Members of the Lignite Volunteer Fire Department saw opportunity in the soaring commercial demand for water in North Dakota's Oil Patch.

Oil crews use huge volumes of water to drill wells to pry Bakken oil from deep underground, and industrial water depot tanks have sprouted throughout western North Dakota to serve the petroleum sector.

The Lignite Volunteer Fire Department decided to open the spigot of its water well to drilling crews and cheered when the money came pouring into its coffers, ringing up a total of more than $650,000 in a few years.

Then the State Water Commission sounded the alarm. Investigators determined the fire department lacked a permit to sell water--and assessed a penalty of $658,871.

The fine, equal to the profits of the water sold, is an example of the state's crackdown on water violations. Last year, penalties exceeded $1.6 million, offset by suspensions totaling $450,758, all imposed through agreements with those who were cited.

The stepped-up enforcement of water violations, which has coincided with the boom, started in 2012 when the State Water Commission decided to impose fines that would claw back violators' profits.

If permit holders overpump, their future pumping allowance is restricted by agreement until levels fall back in line with the rate allowed, so the aquifer isn't drawn down more than authorized.

"We did kind of a swarm of them early on in 2012 and 2013," said Jon Patch, the water commission's director of water appropriations. "They've kind of tapered off, and it's business as usual."

So far this year, penalties for water violations are down sharply from last year; two cases totaling $25,118.

"I think the word has gotten out about the need for a permit," Patch said. "We take violations seriously. If we find out about it, it's a pretty serious matter."

Violations fall into two categories: lack of a permit or pumping beyond the limit allowed by permit.

Most violations for a lack of permit involve farmers or other landowners who have a permit for their own use, and mistakenly believe they have a right to sell the water, Patch said. That view is ignorant of North Dakota law, he said, which holds that all waters within its borders are owned by the state.

In the case of the Lignite Volunteer Fire Department, volunteers were mistaken that the permit for the well, acquired from a railroad, allowed commercial water sales, said Jory Ehlke, chief of the volunteer firefighters.

Firefighters used the money to buy new equipment, including replacement of a truck made in 1959.

"We updated trucks that were 60 years old," Ehlke said. "We needed equipment."

Under its agreement with the state, the Lignite Volunteer Fire Department must repay the penalty over time, from sales allowed under a conditional water permit, with minimum annual payments of $36,000.

"It's kind of a sore subject with us," said Ehlke, who wasn't chief at the time of the violations. "It was just a mistake."

Meters now are required for the estimated 250 water depots that sell water for the oil and gas industry, with readings automatically sent via a computer network to the State Water Commission.

Demand for water in the Oil Patch has subsided as oil prices have fallen. Water use grew sharply from 2010 to 2014, when water depot sales peaked at 29,883 acre feet, according to state figures. An acre-foot of water--the volume that would cover an acre a foot deep--equals 325,851 gallons.

By comparison, the city of Fargo treats an average of 8 million to 10 million gallons of water a day and 15 million to 16 million in summer. Water for oil and gas drilling amounts to about 10 percent of all industrial water use in the state, Patch said.

So far this year, water demand in the Oil Patch appears to be dropping back to 2013 levels, when 19,734 acre-feet were sold, plunging by a third from last year's peak.

"There's no question there's decline," said Mike Hove, the water commission's manager of water use data collection. "It's gone from completely insane to just nuts."

With the drop in oil prices, Patch said, the rig count is down and drillers are using water more conservatively.

Crews that use a process called hydraulic fracturing, commonly called "fracking," to force oil from underground rock formations now use an average of 7 to 11 acre-feet, down from "super fracks" using 25 to 30 acre-feet, Hove said.

Industrial water typically sells for between $3,500 and $7,000 an acre-foot, Patch said. At those prices, total commercial water sales in the Oil Patch last year ranged from $104.6 million to $209.2 million.

By imposing penalties that confiscate profits from illegal Oil Patch water sales, Patch said, officials hope to remove the incentive for violations.

The Lignite Volunteer Fire Department, meanwhile, is left with a smoldering financial penalty that will take time to extinguish.