Ohio legislation enacted earlier this year imposes new requirements on facilities that store, recycle, treat, process or dispose of brine or other waste substances associated with the exploration, development and operations of oil and gas wells. Under the new requirements, the Chief of the Division of Oil and Gas Resources Management must adopt rules establishing the procedures and requirements for applications to obtain permits for the installation and operation of these waste facilities. The Division has established a two-step process for waste facility operators to comply with the new requirements:
- Beginning on January 1, 2014, operators of these facilities must apply for a temporary authorization, known as a Chief’s Order, to install new facilities or continue to operate existing facilities.
- After the Chief promulgates the new rules, all facilities operating under a Chief’s Order and new facilities will be required to obtain a permit in conformance with the new rules.
The Division of Oil and Gas Resource Management intends to propose the new rules in early 2014. Guidelines for applying for Chief’s Orders for interim authority to install or operate facilities have been posted on ODNR’s website and are available here.
Kinder Morgan Energy Partners, L.P. (KMP) announced that its subsidiary, Kinder Morgan Cochin LLC, signed a letter of intent with NOVA Chemicals Corporation to develop a new $300 million products pipeline for the Utica Shale, coined Kinder Morgan Utica To Ontario Pipeline Access (UTOPIA).
The 210-mile pipeline is expected to be operational by mid-2017, with an initial capacity of 50,000 barrels per day. The pipeline will enable KMP to move product from multiple facilities in Harrison County, Ohio to Kinder Morgan’s Cochin Pipeline near Riga, Michigan, and ultimately, to Windsor, Ontario, Canada.
The State of Ohio issued nearly than double the amount of Utica shale drilling permits than first expected for 2013. The Ohio Department of Natural Resources initially predicted that it would issue 525 permits for 2013. According to ODNR’s most recent report, the State has issued 1015 permits. An industry spokesman says that the higher than expected increase reflects the interest in exploring the Utica shale’s oil and gas reserves. The permits were issued to 30 different companies operating in Eastern Ohio.
A bill to increase the severance tax on oil and gas drilling has been proposed in the Ohio House of Representatives. House Bill 375 would increase the severance tax for horizontal shale wells to 1% for the first five years of production, and to 2% after five years, if production remains at a high level. The bill also creates an offset against horizontal severance taxes from the commercial activities tax (CAT) and the personal income tax (PIT).
Revenue from the bill is estimated to be as much as $1.7 billion over 10 years. The revenue would fund regulations, programs to cap orphan wells and income tax cuts. The tax would not apply to operators of conventional shallow wells.
The Ohio Department of Natural Resources released its annual oil and gas summary for 2012. The summary provides a comprehensive review of oil and gas permitting, drilling and production activity across the entire state of Ohio. The report can be accessed here.
An Ohio trial court issued a key ruling on Ohio’s Dormant Mineral Act (“DMA”). The Carroll County Court of Common Pleas in Dahlgren v. Brown Farm Properties, LLC departed from a series of trial court decisions adopting the legal theories of surface owners concerning “automatic vesting” under the 1989 version of the DMA. In a 20-page opinion, the court analyzed both the 1989 version of the DMA and the 2006 version and concluded that the 2006 version applied to a mineral interest that was originally created in 1949. The surface owners argued that the 1989 version of the DMA should apply to the case and that the mineral interest was abandoned after a 20 year period. The court rejected their arguments and instead applied the 2006 version of the DMA as advocated by the holders of the severed mineral interest. The court set forth multiple reasons why the theory of automatic vesting does not comport with the purpose of the DMA and Ohio’s Marketable Title Act, which are to simplify and facilitate land title transactions. The court provided additional grounds in support of its ruling and also determined that the 2006 version of DMA provides a specific statutory procedure to follow in order to deem a severed mineral interest “abandoned” under the law. Thus, the record chain of title will clearly demonstrate the existence or abandonment of the severed mineral interest as opposed to the automatic vesting theory, which would provide no notice.
The DMA was originally enacted in 1989 and later amended in 2006. The 1989 version of the DMA provides that where a severed mineral interest has not been the subject of a title transaction (e.g. there has been no leasing activity) for a period of 20 years, the mineral interest may “merge” with the surface estate and the owners of the surface become the owners of the minerals. However, the 1989 version does not expressly define the procedures to be followed in order for the surface owners to claim ownership. The 2006 version of the DMA amended the 1989 DMA to provide specific procedures that a surface owner must follow to obtain ownership in the mineral estate. The 2006 DMA also provides the owner of the severed mineral estate a means by which he can preserve his interest by filing an affidavit of preservation. Among the unsettled issues of law is whether the 1989 version or 2006 version applies to pending lawsuits.
The Dahlgren decision is significant because it interrupts a trend of trial court decisions in which courts were adopting the automatic vesting theory of the surface owners. An additional recent appellate court decision applied the 2006 version of the DMA although the issue of which version of the DMA applied was not at issue in the case. See Dodd v. Croskey, 7th Dist. Harrison No. 12 HA 6, 2013-Ohio-4257. These two decisions could indicate a reversal of the current trend favoring application of the 1989 version of DMA and the automatic vesting theory.
The Akron Beacon Journal reports that Gulfport Energy Corp. of Oklahoma and Chesapeake Energy Corp. are producing increasing amounts of natural gas from Utica wells in Ohio and anticipate continued growth in 2014. Gulfport’s operations are led by its Irons 1-H well located in Belmont County; this well is producing over 30.3 million cubic feet of natural gas per day (making it the No. 2 best-producing well in Ohio). Chesapeake’s wells are averaging 164 million cubic feet of natural gas equivalent per day, making it the leading player in Ohio’s Utica Shale. Both companies intend to continue drilling in Ohio. Chesapeake’s Chief Executive Officer, Doug Lawler, stated that he “anticipate[s] our growth [in 2014] will be led by an increase in oil production from the Eagle Ford shale and an increase in natural gas and natural gas liquids from the Utica and Marcellus shales, which will benefit from new gas processing and pipeline takeaway capacity.” Gulfport officials have stated that the energy company anticipates spending up to $250 million on additional drilling leases in eastern Ohio in 2014.
Several counties in the southern end of Ohio’s Utica Shale play, including Guernsey, Noble, Harrison and Belmont counties are showing big gains in the number of drilling permits filed by oil and gas companies. More specifically, drilling permit activity gathered from the Ohio Department of Natural Resources for October of 2013, showed totals anywhere from four to six times higher than in July of 2012. All four counties are south of Carroll County, which remains the leader for permits and drilling.
America Energy – Utica, headed by Aurbrey McClendon, recently completed a purchase of 24,000 acres in Guernsey County, Ohio. According to paperwork filed in the Guernsey County Recorder’s Office, America Energy – Utica aquired the lease holdigs from SWEPI, LP (a Shell company). McClendon’s company was recently in the news after raising $1.7 billion to invest in the Utica shale play.
State officials are considering new rules to regulate storage of wastewater used to stimulate wells for the production of oil and gas. The new rules would potentially create new options for shale well producers to store millions of gallons of water in lagoons so that it can be cleaned and re-used in the drilling process. A spokesman for the Ohio Department of Natural Resources says that the state is drafting safety standards for the construction of the lagoons and their length of use.
Two Ohio groups recently issued a press release regarding a lawsuit which has been filed against the Muskingum Watershed Conservancy District over its oil and gas leasing practices and its sale of water for hydraulic fracturing. The MWCD, tasked with reducing flooding, conservation and providing recreational opportunities, as earned over $78 million through its leases and water sales which the organization can use to further its conservation efforts. The lawsuit was filed in Franklin County Common Pleas Court by local property owners.
Aubrey McClendon, former CEO of Chesapeake Energy, is planning to close on $1.8 billion in equity and debt financing to fund American Energy Utica, his new exploration and production company, as reported by CNBC. American Energy Utica will buy and develop land in Ohio’s southern Utica Shale area. The company expects to close on the purchase of 80,000 acres in three separate transactions and hopes to have 12 rigs operating within the next two to three years.
Ohio officials notified companies that a federal chemical disclosure law trumps a 2001 state law requiring that information regarding chemicals used in the hydraulic fracturing process only be filed with the Ohio Department of Natural Resources, a law intended to centralize information. Now, beginning September 21, 2013, to comply with federal law, a list of toxic chemicals used by Ohio shale drillers must be made available locally to governments. The new reporting parameters follow an April letter from the U.S. Environmental Protection Agency, which made clear that Ohio’s chemical reporting laws do not supersede federal right-to-know requirements.
The Bowling Green City Council unanimously passed an ordinance banning “fracking” and the disposal of waste fluids within the city limits. In an apparent move to side-step the authority of the Ohio Department of Natural Resources, which maintains authority to issue drilling permits throughout the state, Bowling Green’s ordinance is part of the city’s criminal code instead of its zoning code. It is unknown whether Bowling Green’s new ordinance will face a legal challenge because it is well outside of the established Utica shale play.
In one example of how development of the Utica and Marcellus shale formations are contributing to the Ohio economy, one expanding business has recently been awarded approval to use microbes to rehabilitate soil contaminated by petroleum products. Long used to reclaim soil from gas stations and other industrial sites, Ohio Soil Recycling of Columbus, Ohio is now using microbes to reclaim drill cuttings from well sites, preserving material that would otherwise be taken to a landfill. The process uses naturally occurring bacteria to break down the petroleum products in as quickly as 24 hours. Ohio Soil Recycling has only recently received approval for the process, but is reporting great interest from oil and gas producers in Ohio.