Are investor-owned utilities the next shale play?
When Aqua America and American Water announced in July a subsidiary swap involving their respective properties in Ohio and New York
Aqua made no bones about its ambitions for growth in the flowback and produced water treatment market.
Post-swap, Aqua’s three largest service territories are Ohio, Pennsylvania and Texas – three of the biggest shale states in the U.S. As analyst Michael Roomberg of Ladenburg Thalmann noted in a recent research note, Chesapeake Energy recently announced it had bought up mineral rights across 1.3 million acres in eastern Ohio, a land mass estimated to contain natural gas and natural gas liquids worth as much as $20 billion net of production costs.
September brought the news that Aqua had signed a joint venture agreement with Penn Virginia Resource Partners to build a 12-inch diameter steel pipeline to deliver fresh water to shale drillers in the Marcellus play in north-central Pennsylvania. The first 18 miles of the pipeline will be supplying fresh water to Range Resources in 1QFY2012.
While the volume of the pipeline (100,000 barrels per day at full capacity) may seem like small potatoes to larger utilities like American Water, surely the two-pronged approach of territory and distribution system acquisition is a sign of a company looking to distinguish itself among the competition. Ladenburg Thalmann estimates the pipeline could bring about $1.7 million in annual cash flow at an 80-percent utilization rate.
“It appears increasingly likely that Aqua’s efforts to provide freshwater to drillers may, in coming months and years, begin shifting from being ‘a nice idea, but not necessarily material’ to ‘a potentially important long-term growth driver,’” Roomberg wrote.
As Chesapeake’s recent activity shows, the frac’ing industry is on its way to the Buckeye State, and not just in the form of flowback and produced water being trucked over from Pennsylvania where it isn’t wanted. When substantial drilling operations are finally established in Ohio, Aqua will be in prime position to capitalize. The industry’s growth in Pennsylvania and Texas will only accelerate as the technology progresses, provided there are no new barriers in the regulatory environment due to political opposition.