This story was updated at 3:44 p.m. EDT on June 12.

A watershed district in eastern Ohio that covers counties overlying the oil-rich Utica Shale has decided to halt water sales from its reservoirs and lakes to the oil and gas industry pending further study.

Water usage has become a flash point in oil and gas development as operators use an average of 4 million gallons to drill a single well. More than 80 percent of this water in Ohio does not get returned to the watershed and is primarily disposed of in deep injection wells.

The significant draws without replenishment led several environmental groups recently to challenge the Muskingum Watershed Conservancy District's (MWCD) decision to sell water to the oil and gas industry. The watershed has so far undertaken a single sale to Gulfport Energy Co. for 11 million gallons and has been approached by 12 companies in total so far, said Darrin Lautenschleger, public affairs manager with the MWCD.

Responding to the concerns, the district said last week that it would halt all sales until the U.S. Geological Survey completes a study on three reservoirs out of 16 on the Muskingum watershed. The study would look comprehensively at the reservoirs and their recharge rates to see how much water is available on a daily to yearly basis and in drought conditions, said Lautenschleger.

"We want to fully understand the concerns of interested groups and the public, and ensure that each step in the process is transparent and open for public review," said John Hoopingarner, executive director of the MWCD, in a statement.

The USGS study, however, has not been funded yet and would take a year from the date of funding to complete, said Greg Koltun, hydrologist at the USGS in Ohio. That means water sales may not resume until sometime after June 2013.

The MWCD has jurisdiction in 18 counties, where numerous oil and gas companies have secured drilling permits from the Ohio Department of Natural Resources.

While the decision would stop companies from accessing the MWCD-operated surface waters, it would not stop them from securing rights to private water wells or to streams and lakes on private lands as they have done elsewhere.

This could cause more environmental harm than a scenario where companies use the MWCD's surface waters in a regulated manner, said Rich Milleson, economic development director for the Cadiz Community Improvement Corp.

"It makes it more difficult for the companies to secure water, so they are forced to look for alternate supplies of water," he said, "which can only lead to random withdrawals of our creeks and streams, drilling of wells into our aquifers -- which many people know, aquifers are our cleanest water; therefore, they should be used for domestic water, not water for the industry."

There is no danger currently of water shortage in the MWCD's reservoirs, because the gas industry in Ohio is in its infancy and will take another two or three years to really ramp up, said Milleson. By that time, the MWCD will have completed its study and may decide to withhold its supplies. But that is no reason to keep Cadiz from benefiting for a short time from the water demand when the industry is small, said Milleson.

"It is very easy to say now there is plenty of water available for the companies that are here now," he said.

Who can profit?

The MWCD has also leased tens of millions of dollars' worth of subsurface mineral rights to Chesapeake Energy Corp., Gulfport Energy Corp. and others. This has led some people to question why it is OK for the MWCD to profit from the industry while hindering the ability of smaller counties to do so by reselling water at higher rates.

At issue is the town of Cadiz, where the promise of a better water supply and the city's first wastewater infrastructure is at stake. The town -- the seat of Harrison County and home to some 3,300 people -- derives all of its water from the Muskingum reservoirs, pumping in some 400,000 gallons a day from nearby Tappan Lake.

In April, the city wrote to the watershed district, suggesting its water deliveries be increased as much as possible so that Cadiz can sell the excess water at a profit to oil and gas companies.

All proceeds would go toward establishing the region's first wastewater infrastructure; Cadiz, like many other rural areas in the United States, lacks such a facility. This would result in significant environmental benefits to the watershed by limiting nutrient and other pollution.

The plan has been put on hold as the MWCD studies its reservoirs.

The MWCD itself has entered into a $21.5 million mineral rights agreement with Chesapeake and a $15.6 million one with Gulfport. There is no reason Cadiz should not similarly benefit, said Milleson.

The MWCD's Lautenschleger said the issues are unrelated, and its leasing agreement for mineral rights sets the standard for environmental stewardship. While the typical lease is four or five pages long, the MWCD leases have a 30-page addendum for environmental protections, he said.

Environmental concerns

Environmental groups that lobbied the MWCD are also concerned that halting water sales may turn the companies toward private wells and aquifers, said Melanie Houston, director of water policy and environmental health at the Ohio Environmental Council.

But this does not mean the watershed district should sell water to the oil and gas industry without detailed study, she said.

"We are talking about millions of gallons here, and millions as this industry ramps up could become billions," she said. "We do have a concern, too, that these waters are for recreational use, for citizens. They are owned by the public, and what is the public benefit of a water sale to an industry that is not fully and adequately regulated, as we see it?"

The OEC has lobbied in the past for a moratorium on shale gas development in the state.

The other side of the environmental argument is that Cadiz would benefit from a wastewater infrastructure as the city tries to get ahead of development. Other states with significant oil booms, such as North Dakota, have come up against a shortage of infrastructure as populations in certain places have risen from a few hundred people to a few thousand as oil and gas workers move into the region. An official from North Dakota last week described the situation as dire, with county wastewater infrastructure stretched to its limits.

"This is a rural area; this is Appalachia. We have villages, townships and rural areas that either have failing wastewater treatment systems or have none at all," said Milleson of the Cadiz Community Improvement Corp.

"These villages, townships, we want to grow, too, but we need infrastructure to do it. The conservancy district has the water; they pay very little real estate taxes in these counties because it is government-owned land now, so in my mind, it is a giveback to the communities that are in the watershed," he said.