As reported by the Akron Beacon Journal Online on April 4, 2014, the Ohio Environmental Protection Agency issued revised general permits for the installation and operation of air contaminant sources at oil and gas horizontal well sites to address methane gas released from valves, connectors and other equipment. Under the new permits, operators are required to scan all the equipment at a well site on a quarterly basis for any leaks of hydrocarbons. The purpose of the new permits is to quickly identify and correct potential gas leaks at well sites and to prevent unnecessary emissions. Colorado and Wyoming have recently adopted similar air emissions requirements.
TransCanada Corporation’s ANR Pipeline system has secured nearly 2.0 billion cubic feet per day of natural gas transportation commitments for the movement of oil and gas produced from the Utica and Marcellus formations through its Southeast Main Line. These contracts involve transporting natural gas to points both north and south within ANR’s system, as well as increasing their flow capability to the Gulf Coast. ANR is one of the few existing pipeline systems with access to both the Upper Midwest and the Gulf Coast, and they are exploring further opportunities to transport gas produced from the Utica Shale to these areas.
Utica East Ohio Midstream (“UEO”) recently purchased two buildings in downtown Salineville, Ohio. The company owns natural gas processing plants in nearby Kensington and Leesville. UEO plans to use the buildings for administrative offices for its oil and gas operations in the area. A company spokesman says that the purchase of the buildings solidifies UEO’s presence in the community. They estimate that 40 people will be working in the buildings.
Gateway Royalty, LLC, a royalty acquisition company based in Carrollton, Ohio, has raised $58.5 million to pay Utica shale play landowners for rights to their future royalty payments. Gateway’s goal is to invest in a broad range of oil and gas royalties across the eastern Ohio counties, which constitute the core of the new Utica shale play. It is a business model with a risk for both sides. The lump-sum payment could easily be bested by solid production. Conversely, it’s difficult to tell exactly how much oil or gas will come from a specific well, so it’s possible that the company could lose out.
Gateway, originally based in Texas, is willing to take the risk. The company moved to Carrollton in May 2012, investing $35 million on 20,000 acres. Those initial investments focused on the northern part of the play in Columbiana County. The new investments will move more toward the south but will continue Gateway’s policy of acquiring a diversified portfolio of oil and gas royalty interests without incurring any debt.
The Supreme Court of Ohio has agreed to hear a question certified from the United States District Court for the Southern District of Ohio, regarding the Ohio Dormant Minerals Act (the “ODMA”), in Chesapeake Exploration, L.L.C. v. Kenneth Buell. The two questions certified to the Supreme Court of Ohio are:
• Is a recorded lease of a severed subsurface mineral estate a title transaction under the ODMA? and,
• Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the twenty-year forfeiture clock under ODMA at the time of the reversion?
The district court did not certify the question of whether the 1989 version or 2006 version of the ODMA applied to the parties’ dispute. This question is currently the subject of appeals to the Fifth and Seventh District Courts of Appeal and may also be addressed by the Ohio Supreme Court in Dodd v. Croskey.
As reported by Pittsburgh’s NPR News Station, 90.5 WESA, three advocacy groups, Leaders of Policy Matters Ohio, the Pennsylvania Budget and Policy Center, and the West Virginia Center on Budget & Policy, sent a letter to the governors of Ohio, Pennsylvania and West Virginia requesting a common severance tax for oil and gas production in all three states. These advocacy groups suggest that the purpose of a common severance tax would be to provide consistency in the industry allowing each state to similarly benefit from the economic opportunities created by oil and gas production. The letter asserts that a common policy would provide long-term predictability and take taxing out of the competitive equation between the states. The letter recommends that West Virginia’s severance tax should be set as a minimum rate, as it is in the middle range of taxes in gas-producing states.
The Ohio Supreme Court has accepted jurisdiction of a discretionary appeal in Dodd v. Croskey, which involves Ohio’s Dormant Mineral Act (“DMA”). Under the DMA there are several “savings events” which may occur in the previous twenty years that will prevent the abandonment and vesting of a severed mineral interest in the owner of the surface. One of the savings events involves the holder of the severed mineral interest filing a “claim to preserve” the mineral interest after receiving notice of the surface owner’s intent to declare it abandoned.
The Seventh District Court of Appeals previously held that the claim to preserve did not have to occur during the twenty-year period prior to the surface owner providing notice to the holder of the mineral interest. Instead, the present act of filing the claim to preserve after receiving notice was sufficient. The Ohio Supreme Court is poised to decide whether the present act of filing a claim to preserve satisfies the DMA or whether it must have been filed during the previous twenty-year period.
The Ohio Department of Health has issued guidelines for sampling and analysis of Technologically Enhanced Naturally Occurring Radioactive Material (TENORM) commonly found in drilling wastes. The guidelines were issued in conjunction with Ohio House Bill 59, which required the Director of Health to adopt rules establishing requirements governing TENORM.
The Ohio Department of Natural Resources, on February 21, 2014, published several draft rules concerning horizontal well site construction and an update to the industry standards referenced in its rules on oil and gas well drilling, permitting and safety. The public comment period for the draft rules ends on March 10, 2014. A subsequent thirty-day comment period will be announced after the draft rules are formally proposed. The draft rules and an electronic form for the submission of comments can be accessed here.
The Ohio House Ways and Means Committee updated House Bill 375, which proposes changes to the severance tax on natural resources. Among the updates are an increase in the proposed severance tax to 2.25% from 2% for horizontal wells, a reduction in the period of time for the initial 1% tax rate from 5 years to 2 years, and an allocation of 10% of tax revenues to Eastern Ohio counties where drilling activity is concentrated. Under the proposal, operators of traditional vertical wells would not pay any severance tax for the first three years. Thereafter, the tax increases to .25% of gross receipts before falling to .1% after 20 years. A vote on updated House Bill 375 has not yet been scheduled.
Consol Energy has announced that it expects to spend $1.5 billion this year to further its natural gas exploration and production activities. The company also announced that it has selected the former vice president of the Appalachia South Business Unit for Chesapeake Energy, Timothy Dugan, to serve as CEO of its exploration and production unit. Part of the investment will go to drill 32 wells in Harrison, Belmont, Guernsey and Noble Counties, Ohio.
Two Ohio trial courts issued new decisions on Ohio’s Dormant Mineral Act (“DMA”) addressing an unsettled issue of law concerning whether the 1989 or 2006 version of the DMA should apply to current disputes over the ownership of severed mineral rights. Both trial court decisions held that the 2006 version of the DMA applies to current disputes, which indicates a further reversal of the trend favoring claims made by surface owners that severed mineral interests “automatically vest” under the 1989 DMA. This blog previously reported on Dahlgren v. Brown Farm Properties, which was one of the first trial court decisions to apply the 2006 DMA and provided a short background of the two versions of the law. The blog post is available here.
In M&H Partnership v. Hines, Plaintiffs proceeded under a theory that the 1989 DMA applied “automatically” to extinguish the rights of the owners of a severed mineral estate. After considering the application of both the 1989 and 2006 versions of the DMA, the trial court found that the 2006 DMA applied. The court cited the Seventh District Court of Appeals’ decision in Dodd v. Croskey and noted the 2006 DMA’s procedures comport with the Ohio Marketable Title Act’s purpose of simplifying and facilitating title transactions. Further, the surface owner’s theory of “automatic vesting” under the 1989 DMA was contrary to the purpose of the Ohio Marketable Title Act because it would not allow people to rely on the record chain of title for a property. Applying the 2006 DMA, the trial court found that the surface owners had not complied with its procedural requirements and that the mineral owners had properly preserved their interest in the mineral estate.
The second recent trial court decision applying the 2006 DMA was issued by the Monroe County Court of Common Pleas. In Gentile v. Ackerman, the trial determined that the 2006 DMA applies to current lawsuits based on the precedent of Dodd v. Croskey. The trial court held it was expressly required to follow the Seventh District Court of Appeals’ decision in Dodd and that the procedures of the 2006 DMA must be followed to achieve abandonment and vesting of a severed mineral estate in a surface owner.
A third, 160-foot demethanizer tower was completed January 11th at the Utica East Ohio Kensington Plant in Columbiana County, Ohio. The plant serves as a collection and compression point for harvested natural gas from the Utica Shale. The tower, which will likely be commissioned within the next three months, separates the natural gas liquids from the shale gas. As production from the Utica shale formation increases an additional tower may be installed to keep up with demand.
The director of the Ohio Environmental Protection Agency, Scott Nally, abruptly resigned yesterday after three years on the job. Nally departed his position on short notice and did not give a specific reason for his resignation. Craig Butler, a senior director of energy and environmental policy in Ohio governor John Kasich’s office, will replace Nally on an interim basis.
The Ohio Department of Natural Resources released its first quarterly production update thanks to a new law that requires production to be reported on a quarterly versus annual basis. The report showed that Ohio’s 245 horizontal wells produced a total of 1,332,477 barrels of oil and 33,606,075 thousand cubic feet of natural gas during the third quarter of 2013 (July to September). Industry analysts say that the results are positive and indicate that the 245 wells could produce as much as $1 billion in revenue per year . Ohio’s largest producing oil well is operated by Gulfport in Harrison County and produced 41,617 barrels of oil during 70 days of production in the third quarter. The largest producing gas well is also operated by Gulfport, but in Belmont County. That well produced 1,249,739 thousand cubic feet of natural gas during 89 days of production.