1. Water in the Desert Engineering, Legal, and Logistical Study to Implement the Conversion of Oil & Gas Produced Water to Useable Water in Lea & Eddy Counties, New Mexico

2. Project Sponsor Water Reclamation Committee JPA Lea/Carlsbad Soil & Water Conservation DistrictsWater Reclamation Committee JPA Lea/Carlsbad Soil & Water Conservation Districts Funding provided by grant under the Department of Energy Office of Worker and Community Transition 3161 ProgramFunding provided by grant under the Department of Energy Office of Worker and Community Transition 3161 Program

3. Project Team Natural Resources Consulting Engineers, Inc. (NRCE)Natural Resources Consulting Engineers, Inc. (NRCE) Northwest Economic Associates (NEA)Northwest Economic Associates (NEA) WestWater Research, LLCWestWater Research, LLC Luebben Johnson & Young LLPLuebben Johnson & Young LLP Participating Agencies - Sandia & LANLParticipating Agencies - Sandia & LANL

4. Purpose Evaluate the technical, economic, legal, logistical feasibility of reclaiming oil and gas produced water within Eddy and Lea Counties, New Mexico.Evaluate the technical, economic, legal, logistical feasibility of reclaiming oil and gas produced water within Eddy and Lea Counties, New Mexico.

5. Methods 1.Follow approach of New Mexico ISC Regional Water Planning Handbook. Emphasis on Public ParticipationEmphasis on Public Participation Development and Comparison of AlternativesDevelopment and Comparison of Alternatives Allow study to be consistent with previous planning efforts for the Study AreaAllow study to be consistent with previous planning efforts for the Study Area 2.Build on Existing Studies to Extent Possible 3.Emphasis on Economic, Institutional, Legal and Logistical Issues

6. Description of the Alternatives Alternative 0 – No Change in Current Activities (Irrigated Land Retirement)Alternative 0 – No Change in Current Activities (Irrigated Land Retirement) Alternative 1 – Reclamation of Oil and Gas Produced WatersAlternative 1 – Reclamation of Oil and Gas Produced Waters

7. Evaluation Criteria CostsCosts CapitalCapital Operation and MaintenanceOperation and Maintenance 40-year planning period40-year planning period Secondary economic costsSecondary economic costs FeasibilityFeasibility LegalLegal PoliticalPolitical SocialSocial

8. Evaluate Water Demands in Eddy and Lea Counties Review and Quantify Existing Water DemandsReview and Quantify Existing Water Demands –Identify and Inventory Major Demand Sectors AgricultureAgriculture MunicipalMunicipal Industrial/CommercialIndustrial/Commercial EnvironmentalEnvironmental –Identify Demand Characteristics and Needs for Major Sectors Reliability and AvailabilityReliability and Availability QualityQuality PricingPricing –Quantify Source Reliance for Major Sectors GroundwaterGroundwater Surface Water Source (Live Flow & Storage)Surface Water Source (Live Flow & Storage)

9. Regional Economic Analysis Economic MeasuresEconomic Measures –Direct Impacts (primary output) –Indirect Impacts (supporting industries) –Revenue –Employment –Land Values –Taxes –Other Input-Output Model and Sector ForecastsInput-Output Model and Sector Forecasts

10. Regional Economic Analysis Regional Economic Importance and Value of WaterRegional Economic Importance and Value of Water –Description of Water Use and Linkages to the Regional Economy –Analysis and Focus on Recent Dry-Year Impacts –Value of Water by Individual Demand Sectors AgricultureAgriculture MunicipalMunicipal IndustrialIndustrial EnvironmentalEnvironmental

11. Regional Economic Analysis Market Pricing AnalysisMarket Pricing Analysis –Municipal Water Pricing Structure –Industrial –Irrigation Water Cost District ChargesDistrict Charges Energy/Pumping CostsEnergy/Pumping Costs –Water Right Leases & Sales –Price Dispersion –Historic and Future Price Trends

12. Evaluate Water Supply Alternatives Cost of Produced WaterCost of Produced Water Cost of Alternative WaterCost of Alternative Water Ease of Implementation (Feasibility)Ease of Implementation (Feasibility) Economic MeasuresEconomic Measures –Comparison of Economic Activity by Sector –Planning Horizon and Growth Path –Qualitative Analysis (e.g. Environmental Objectives) –Eddy and Lea Counties and State of New Mexico

13. Evaluate Water Supply Alternatives Allocation of Project CostsAllocation of Project Costs –Level of Benefits to Produced Water Users “Ability to Pay” Analysis“Ability to Pay” Analysis –Cost Comparison of Alternatives Produced Water DisposalProduced Water Disposal Cost Avoidance by Oil & Gas IndustryCost Avoidance by Oil & Gas Industry Market Pricing AnalysisMarket Pricing Analysis –Costs Recoverable by Direct Charges –Incentives for Private Investment –Level of Public Funding Types and Sources of Public FundingTypes and Sources of Public Funding

14. Legal Analysis: Goals Legal certaintyLegal certainty Economic efficiencyEconomic efficiency Political viabilityPolitical viability

15. Legal Analysis: Objectives Describe existing legal frameworkDescribe existing legal framework Identify problems & potential solutionsIdentify problems & potential solutions Assess feasibility of solutionsAssess feasibility of solutions

16. Legal Analysis: Tasks Summary of Relevant LawsSummary of Relevant Laws Rights & Liabilities of Water ProducersRights & Liabilities of Water Producers Rights & Liabilities of Cleaned Water Owners/OperatorsRights & Liabilities of Cleaned Water Owners/Operators Public & Private Sector IssuesPublic & Private Sector Issues Final RecommendationsFinal Recommendations

17. Summary of Relevant Laws Water laws/regulationsWater laws/regulations Oil & gas laws/regulationsOil & gas laws/regulations Environmental laws/regulationsEnvironmental laws/regulations Contract lawContract law

18. Rights & Liabilities Water ProducersWater Producers –Establish clear ownership rights –Establish clear limits of liability Cleaned Water Owners/OperatorsCleaned Water Owners/Operators –Establish clear transfer of rights –Establish clear limits of liability

19. Public & Private Sector Issues Describe potential public sector rolesDescribe potential public sector roles Identify legal benefits & risksIdentify legal benefits & risks Assess alternative public/private structuresAssess alternative public/private structures

20. Final Recommendations Proposed statutory changes?Proposed statutory changes? Proposed regulatory changes?Proposed regulatory changes? Proposed contractual changes?Proposed contractual changes?