Bloomberg News

Pickens Water-to-Riches Dream Fizzles as Texas Cities Buy Rights

July 14, 2011

July 14 (Bloomberg) -- Amarillo, Lubbock and nine other West Texas cities coping with the worst drought in more than 50 years solved some of their water problems by waiting out Boone Pickens, the billionaire Dallas oilman.

The Canadian River Municipal Water Authority, supplying the 11 cities with a combined population of about 500,000, will issue bonds to buy Pickens’s water rights on 211,000 acres, General Manager Kent Satterwhite said. Most of the rights are in Roberts County, which has more groundwater than any Texas county, according to Amarillo Utilities Director Emmett Autrey.

Pickens, 83, started buying water rights northeast of Lubbock and Amarillo more than 10 years ago. By 2002, the investor was predicting that he could start selling water in three years to the Dallas-Fort Worth area, Satterwhite said. Pickens sought to build a $3 billion pipeline to the fourth- largest U.S. metropolitan area by population, 350 miles (560 kilometers) away, yet couldn’t make a deal.

“I wasn’t getting any serious negotiations with Dallas- Fort Worth,” Pickens said July 12 in an interview in New York. “I thought, if we’re going to sell it and they want it locally, we’ll sell it to them.”

The Canadian River authority, based northeast of Amarillo in Sanford, will sell bonds in the next 60 days to pay for its $103 million water purchase. Pickens sold the rights held by Mesa Water Inc. for about $500 an acre, about half his initial asking price, said Marsha Reed, Lubbock’s chief operating officer and one of the deal negotiators.

“We didn’t pay more than we wanted to,” Reed said.

Profit Margin

Pickens paid $300 to $350 an acre for the water rights and spent additional money on engineers and lawyers, Amarillo’s Autrey said by telephone July 8.

“It wasn’t a highly profitable deal for Mesa,” Satterwhite said.

Pickens declined to comment on the details of the transaction, or on what he paid for the rights.

“We made some money out of it,” he said.

Mesa Water will close after the sale, said Bobby Stillwell, a principal at Pickens’s BP Capital LLC in Dallas. He declined to provide details.

“Boone’s timing was always a little bit off,” said Satterwhite, who met several times with Pickens over 18 months to negotiate the water sale. Piping water to Dallas “never made sense, but if anybody could have done it, it would have been Boone, because he has so much political influence,” he said.

Bond Sale Planned

The sale benefits both sides and reflects Pickens’s concern that the panhandle region’s water supply is dwindling, said Jay Rosser, a spokesman for BP Capital. Pickens owns a 70,000-acre ranch in Roberts County that he started assembling in 1971, Stillwell said.

The county, with about one person for each of its 924 square miles (1,487 square kilometers), sits atop part of the Ogallala Aquifer, an underground river that flows across 174,000 square miles from South Dakota into Wyoming, Nebraska, Colorado, Kansas, Oklahoma and New Mexico, as well as Texas.

Local surface-water sources have been depleted by drought. The Mesa purchase will give cities in the panhandle region, dotted with cattle ranches and cotton farms, including Lubbock, home to Texas Tech University, a dependable water source for at least 50 years, Satterwhite said.

“This gives Amarillo and Lubbock the opportunity to thrive in an area where we don’t get much rain,” Reed said.

Boosting Rates

To pay for the Mesa purchase, water bills in authority cities including Amarillo will rise 8 percent to 12 percent next year, Satterwhite said. Lubbock alone boosted its base rate 30 percent to $24 a month this fiscal year to help finance a $250 million, 60-mile pipeline project slated for completion next year, Reed said. Another increase of 10 percent or more in the city is likely because of the Pickens transaction, she said.

Separately, the authority bought water rights on 266,000 acres in Roberts County from 160 owners over the past decade, driven by concern that its main water source, Lake Meredith, on the Canadian River in neighboring Hutchinson County, was drying up because of a lack of rain, Satterwhite said. Amarillo is building an $85 million well and pipeline 20 years ahead of schedule because of the lake’s decline, Autrey said.

The lake’s level has fallen as rainfall in Roberts County, at about 1.25 inches (3.2 centimeters) this year, is on a pace to be down about 75 percent from a typical year’s 10 inches, Cook said. Lake Meredith has an average depth of about 34 feet, the lowest level since it was created in 1967, Satterwhite said.

‘Exceptional’ Drought

“People around here say it hasn’t been this bad since 1956,” said Judge Vernon Cook of Roberts County. “I remember those days because the wind erosion was so bad they’d have to shut down school in the middle of the day.”

The panhandle is in an “exceptional” dry period, according to the U.S. Drought Monitor at the University of Nebraska in Lincoln. Amarillo has had about 1.6 inches of rain this year, according to data compiled by Bloomberg.

Because he didn’t sell his land, Pickens will still reap the benefits of ranching, hunting and whatever minerals lie underground, said Ken Rainwater, director of Texas Tech’s Water Resources Institute.

“Pickens was trying to sell water to big cities that could pay more, but the distances were too long and other supplies were available, so those customers never showed up,” he said.

--With assistance from Jim Polson in New York. Editors: Ted Bunker, Jerry Hart.

To contact the reporter on this story: David Mildenberg in Austin, Texas, at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus