What does T. Boone Pickens know, anyway? He knows oil, that's for sure. And there's no doubt that the legendary businessman knows how to make money. He built Mesa Petroleum into a powerhouse, and has now built Mesa Water into what the company claims is the largest private holder of permitted groundwater rights in the United States.
Does Pickens know what he's doing with this water venture? Given his past successes, it seems a likely bet that he does, so investors interested in the water sector can benefit from keeping an eye on how it works out.
Pickens said in May that he expects oil to reach $150 a barrel this year, and he told Playboy magazine in January 2007 (Pamela Anderson is on the cover) that he doesn't see water as "the next oil" because water is renewable and oil isn't. "Our project has a life of 200 or 300 years. It will be a $2 billion to $2.5 billion project," he told the magazine. "It's a project that will happen, but I'm not in any big rush. As with natural gas, the longer you wait without selling it, the more valuable it becomes."
Playing in Texas, Pickens has thirsty cities on one side of the dirt and water on the other. Although Texas' rivers, lakes, and streams belong to the state, underground water is up for grabs. Pickens aims to capture water that he calls "surplus" and "stranded."
But this wouldn't be a free-for-all of water rustling and high-price auctions. The state regulates how much water can be drawn from the ground, and the water can be sold only for municipal use within Texas. Inserting a private venture into what is most often seen as a public duty to provide citizens with water brings government regulations into play in a big way.
Pickens has yet to sign up customers, but his website estimates Mesa Water could meet the needs of 1.5 million Texans by tapping into the Ogallala aquifer. At the same time, the more than 100 landowners in the northeastern Texas Panhandle who formed Mesa Water will be able to make money from a valuable resource that they own.
Developing the well fields and building the pipeline to transport the water -- perhaps to San Antonio or Dallas-Fort Worth -- is estimated to cost $1.5 billion. In April The Dallas Morning News linked the water project with Mesa Power's order for wind turbines from General Electric (NYSE: GE ) . The same right of way could be used to transport the wind-generated electricity and the water. Investors interested in the water sector should watch how Pickens proceeds. Success would not be anything new to him.