Ohio governor John Kasich revised his proposed drilling tax after it has been rejected by the Ohio legislature. The new proposal would increase the proposed tax of 4% to 4.5% and direct 25% of the revenue generated by the tax to 33 Appalachian counties. The remainder would go toward funding state income tax decreases. The new proposal is likely to face continued resistence from industry groups.
Speakers at a recent conference in Columbus, Ohio expect the Utica and Marcellus shale fields to become the most prolific source of natural-gas liquids in the world. While there is plenty of oil and gas in the ground, producers are restrained by the current infrastructure in eastern Ohio and western Pennsylvania. The construction of multiple cracker facilities for processing natural-gas liquids, and pipelines to transport gas and oil, is needed in order for the region to reach its full potential. Industry spokesmen say that there is potential for the play to produce 500,000 barrels per day of natural-gas liquids by 2018.
Residents in the Muskingham Watershed Conservancy District are likely to see reduced property assessments as a result of recent shale leasing and water sales. The Muskingham Watershed Conservancy District stretches across eighteen Ohio counties and roughly 500,000 property owners pay a $12 annual assessment. The District has entered into significant lease agreements and water sales agreements in recent months resulting in signing bonuses of over $77 million. Officials from the district are meeting tomorrow about the possibility of reducing the annual assessment.
Yesterday, the Sixth Circuit Court of Appeals ruled on a case of first impression involving Ohio’s four-year statute of limitations on lawsuits arising from miscalculation of royalty payments in oil and gas leases. It had been successfully argued in the U.S. District Court that any miscalculation occurring after an initial miscalculated payment was part of a “continuing violation” and that the limitations period ran from the date of the initial miscalculation. On appeal, the Sixth Circuit reversed the U.S. District Court and ruled that Ohio law dictates that the royalty payment provision in the oil and gas lease at issue be treated as a divisible contractual obligation. Because the contractual obligations were determined to be divisible, each alleged miscalculation triggers a new four-year limitations period. Thus, any alleged miscalculated payment which occurred during the four years prior to the lawsuit could be included in a claim for breach of the oil and gas lease.
The Ohio Department of Natural Resources will unveil the long-awaited 2012 Utica shale production numbers on May 16, 2013 at 2 p.m. The event is being held in Columbus and will be live-streamed at www2.ohiodnr.gov.
Crosstex Energy has announced that it is constructing a third natural gas compressor station in Ohio. Crosstex previously announced in March that it would make a $50 million investment to build two compressor stations in Noble and Monroe counties. Now, Crosstex is spending another $25 million for a third facility in Youngstown area. The facility will be supported by a long-term fee based contract with Antero Resources.
Voters rejectedan anti-fracking referendum proposed by Frackfree Mahoning Valley by an unofficial count of 57-43. The proposal was denominated as the “Community Bill of Rights” and would have banned hydraulic fracturing inside of Youngstown city limits. Even if passed, a prohibition would not have any effect because drilling is regulated by the state and not cities. However, the vote demonstrates that there is public support for developing natural resources from the Utica Shale formation.
DTE Energy, Spectra Energy Corp. and Enbridge Inc. are jointly developing the proposed Nexus Gas Transmission Project, a proposed 250-mile natural gas pipeline which would connect production in eastern Ohio to the existing pipeline grid in southeastern Michigan. The proposed pipeline would serve distribution companies, industrial energy consumers and natural gas-fired power generators in the Ohio, Michigan and Ontario areas. Construction would follow existing utility corridors and 50-foot wide easements already acquired by the partners. Pending market demand and the necessary permitting and approval process, the project is expected to be operating as early as November 2016. For more information, click here.
Chesapeake Energy Corp. remains poised to take advantage of the Utica shale once the infrastructure is in place for gas transportation and processing. Chesapeake currently has 66 wells in production in Ohio, with 183 more awaiting either pipelines or completions. By year end, the company hopes to be producing 330 million cubic feet of gas per day. There are currently 14 Chesapeake rigs operating in Ohio.
Ohio House Democrats introduced a bill on Wednesday that would make it illegal to dispose of oilfield waste, also known as brine, in any of Ohio’s 179 active Class II injection wells. Under current state law, brine must be either reused at another well site or disposed of underground. Should the bill pass, the use of brine on roads, used as a pre-treatment for ice in the winter and to suppress dust on dirt roads in the summer, would also be prohibited. However, given the track record of other similar and unsuccessful attempts at legislation, the possibility of such a ban passing the Republican-controlled legislature is remote.
NiSource Midstream Services expects that the first oil and gas well servicing its Hickory Bend gas gathering and processing facility will be in production in the next few weeks. NiSource is also accellerating the construction of their gathering system’s cryogenic plant in southern Mahoning County. The area being developed will allow for multiple plants to be sited so that future expansion can be accomplished with very little impact. According to its COO, NiSource’s initial investment of $300 million could grow to $1 billion in the next few years.
Three transactions involving Pennsylvania’s Marcellus Shale have reportedly totaled $882 million in the first quarter of 2013, the second-most for any formation in the country. Ohio’s Utica Shale formation was the subject of two deals worth $283 million, making it the third-most popular. PwC tracked energy deals worth more than $50 million and included acquisitions, investments or partnerships allowing companies to split the costs associated with oil and gas development. The first quarter results represent a significant drop for Marcellus Shale transactions from the first quarter of 2012, where three transactions were reportedly worth about $3 billion.
The Ohio Department of Natural Resources (ODNR) recently issued two new unitization or “forced pooling” orders for the Utica Shale in Trumbull County, Ohio. The units included land already leased by other operators who were deemed “uncommitted working interest owners.” The orders provided for a 300% penalty to BP, the unitization applicant, should the uncommitted working interest owners fail to pay their share of charges, credit and expenses for the wells drilled therein, and also provided for a 15% royalty and $2,000 per acre payment to any unleased mineral owners within the unitized acreage.
The Muskingum Watershed Conservancy District approved the sale of water from Seneca Lake and Clendening Reservoir for use in Utica shale oil and gas wells. Antero resources will have the right to draw up to 184 million gallons of water from Seneca Lake in Guernsey and Noble Counties. Gulfport Energy Corporation received rights to draw up to 25 million gallons from Clendening Reservoir in Harrison County. Both deals limit the amount of water that can be drawn in case lake levels become low.
The House Natural Resources Committee recently heard testimony from representatives of Ohio, Texas and Utah on the necessity of federal regulation of hydraulic fracturing. Richard Simmons, Chief of the Ohio Department of Natural Resources, testified that Ohio is capable of regulating oil and gas production within its boundaries, and has been doing so effectively. He cited two recent examples of the department’s rapid response to illegal dumping and to earthquakes related to brine injection wells. Simmons believes that state regulation is more effective, efficient and economical than federal regulation. Representatives of various interest groups also testified in favor of strict federal regulation.