1

Update on Water Issues in Wyoming

IPAMS Summer 2007 MeetingVail, Colorado

Brian Jeffries

Executive Director

Wyoming Pipeline Authority

2

What is the Wyoming Pipeline Authority?

• Board of Directors appointed by Governor

• Mission (i) to promote the infrastructure necessary to produce oil and gas assets of the state and (ii) to promote access to high value markets

• If it can move in a pipeline, its within our charter

• Bonding capability to $3 Billion

• Not a regulatory, enforcement, rate making or policy setting body

3

Issue - Authority over water quantity

• Topic of proposed bill in ’06-’07 legislature – DEQ to regulate quantity of water in association with permit (SB 55)

• Topic of proposed regulation developed by Environmental Quality Council (EQC)

• Opinion of State Attorney General – the State Engineer has authority – Governor vetoed regulations proposed by EQC

• Petitioners appealing to State District Court

4

Quantity response

• State Engineer’s Office considering regulations

• Requirement that channel have sufficient capacity to receive projected quantity

• Limitations on discharges to channel capacity

• Presented possible statute language at May 30th Coal Bed Methane Task Force Meeting

5

Issue - Water/Gas Ratio

• According to Wyoming Geological Survey, 18% of wells two years or older have a W/G ratio above 10.

• Roughly 10% have a ratio above 20

• What ratio over what period of time should be allowable for a given well?

6

Water Gas Ratio Response

• State Engineer considering limitations on permits

• Presented possible statute language at May 30th Coal Bed Methane Task Force Meeting

• Review of W/G ratio after initial period of time (2 years?)

• W/G ratio required below threshold to automatically retain permit?

7

Issue – Watershed based permitting process

• Alternative to company by company permitting

• Would yield “generic” permit with conditions applicable to all operators

• Twelve step process

• Willow Creek and Pumpkin Creek initial candidates

• Industry and environmental groups appealed result

8

Proposed Water Pipeline

• WPA seeking support for a 1 Million Barrel per day pipeline from central location in Powder River Basin

• Steel or HDPE pipeline - 42”

• Two potential destinations – Madison Formation in Teapot Dome Field, North Platte near Casper.

9

How much water?

CBM Water Production (MBbl/d)Historical thru 2006 forecast thereafter

0

200

400

600

800

1000

1200

140019

98

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

MM

Bb

ls p

er

ye

ar

Water Placed in Pipeline Other Water

Source: WOGCC and Coal Bed Methane Task Force

10

What does 1 MM BBls per day or 47,000 acre-ft/yr or 64 cubic feet per second look like?

11

Water conversions

• 1 MM barrels/day = 42 MM gallons/day

• 42 MM gallons/day = 5,615 mcf/day

• 5,615 mcf/day = 64 cfs

12

Teapot Dome Field

Casper

13

Water Pipeline – steps taken

• Initial high level engineering review

• Two rates developed, one for Teapot Dome one for North Platte

• Gross assumptions for rate design – 100% debt, ten year debt retirement, project full on day one and full for ten years.

14

Water Pipeline – commercial steps taken

• Non – binding expressions on interest sought around two rates

• Four responses so far, two responded with quantity, one reflects need for different alignment, one is not interested

• Awaiting additional responses

• Answers depend on determination of drilling plans etc.

15

What is the appeal of the pipeline?

• Producers - Economic and regulatory certainty

• State – no trans-basin diversion issue (Teapot Dome), no state line water quality issue, no surface discharge issue, added opportunities for conservation and utilization

16

• Rocky Mountain Oil Field Testing Center – revenue, EOR applications

• Other parties – Municipal use, augment stream flows, power plant use, IGCC, Coal to liquids plants, ag use. (credit to cost of service to producers from income)

• “Storage” in Madison provides for extended application of water beyond dictates of water production timeline

What is the appeal of the pipeline?

17

Questions define next steps

• Is there enough producer interest based on next best alternatives?

• Can this be a water development project?

• Can we have access to the $500K appropriated by the legislature?

• Every day delayed is a day of water lost to amortize the costs.

18

Water Pipeline – points to consider

• When can the pipeline be in service?

• How reliable is the rate estimate?

• Does this exclude other solutions?

• Does the State support of the idea?

• Answers to follow

19

Brian JeffriesExecutive Director

Wyoming Pipeline AuthorityJune 22, 2007

IPAMS – Vail, CO

b57.jeffries@comcast.net(303) 619.3906