What a ban on fracking really means for Ohio

Ohio’s abundant shale gas and oil resources are transforming the domestic energy scene, and the Ohio Chamber of Commerce will continue to work to ensure state regulations on oil and gas activity are sensible, fair and allow businesses to be good environmental stewards.

While Ohio is seen as a leader in the United States’ energy renaissance, anti-growth environmental groups and politicians remain persistent in launching attacks on hydraulic fracturing and the benefits it brings to all Ohioans.

Impacts in Ohio, U.S.

When the phrase “ban fracking” is thrown around, the true economic consequences of such a devastating policy decision are not discussed. To quantify just how destructive this anti-science position would be to both Ohio and the country, the U.S. Chamber of Commerce modeled the effects of a theoretic ban on fracking in the United States, beginning on Jan. 1, 2017 and running through 2022.

oh_clm_frackingbanAs a state particularly well situated to benefit from several shale plays, Ohio is in a position to fuel an economic resurgence powered by affordable and reliable domestic sources of energy, with many of these benefits already flowing to Ohio’s communities.
Ohio would be particularly devastated by efforts to reduce or stop oil and gas extraction activities.

The U.S. Chamber’s report found that by 2022, 400,000 fewer jobs would exist and Ohio households would see a $6 billion reduction in their household income from the start. By 2022, that loss in income would grow by 250 percent to $21 billion out of the pockets of Ohioans every year.

Nationwide, the United States would lose 3.9 million jobs in the first year alone, with this figure rising to 14.8 million jobs lost by 2022.

Natural gas prices would surely rise if hydraulic fracturing was no longer allowed, causing U.S. households to pay nearly double for their electricity. The average American household would find their living expenses increased by close to $4,000 per year by 2022.

Stick to the vision

Clearly the United States cannot afford to relinquish its hard earned spot as the world’s largest producer of oil and natural gas, but this is exactly what politicians and fringe environmental groups seek to do when they foolishly push to “keep it in the ground.”

Our nation has for years made a bipartisan policy commitment to discover and support domestic sources of energy. Now that the vision has become reality, policy makers must realize that by hampering the energy renaissance they are inflicting economic hardship on Americans.

Zach Frymier is the Director of Energy and Environmental Policy at Ohio Chamber of Commerce

Low oil prices and the real impact on shale oil production

The use of hydraulic fracturing to produce oil from shale is facing some recent changes and new challenges. The recent shale oil boom is slowing down, even reversing in some markets.

The prices for oil declined from approximately $100 per barrel in July 2014 to approximately $40 per barrel in March 2015 (and recovered to about $60 per barrel in June).

The lower prices, while good news for consumers, have caused producers to scale back new well development and to shut down some rigs already operating, leading to some lost energy-related jobs.

Production layoffs

In the last several months, oil production and services companies operating in areas such as North Dakota’s Bakken and Texas’ Eagle Ford plays have laid off more than 70,000 people.

More than 40,000 people were laid off in Texas alone, and worldwide job loss in the industry is projected to reach at least 100,000 people.

Major oil producers have taken significant balance sheet write-offs, and the number of drilling rigs is down more than 50 percent compared to last year’s peak rig count.

A silver lining

In spite of the recent turn of events, the indicators are better than most people think.

■ In terms of production, the Energy Information Administration anticipates steady growth in oil production through at least the end of the decade, even in the worst-case scenario.

■ U.S. oil production averaged 8.7 million barrels a day in 2014. Through February 2015, it is already at 9.2 million barrels per day. The forecast for calendar year 2015 is growth of approximately 1 million barrels per day.

■ The best production fields in the U.S. are still economical at $50 per barrel because oil producers are finding new ways to drive efficiency and productivity per well. At $60 per barrel, many producers can still realize a handsome profit. Areas such as the Marcellus shale play in Pennsylvania, Ohio and West Virginia will gradually see more activity because those fields are profitable at $50 to $55 per barrel.

■ The technology is much better. The rigs being used are more efficient and technology improvement is driving down break-even costs. Therefore, U.S. producers are likely to maintain high output levels even with fewer rigs. For example, as technology continues to get better and new techniques such as “refracking” are becoming popular, new job opportunities will be created and new efficiencies will be uncovered.

Refracking (going into an existing well, cleaning up, cleaning out and performing a new frack) can cost significantly less than drilling a new well, which will enable producers to drill for oil and prosper at much lower prices.

Job totals will slowly recover. If methods for keeping costs down and being more efficient continue to develop, oil and gas from shale will remain a vibrant part of our economy, even if the price per barrel continues to be well below recent norms.

Clark-Reliance is a global, multi-divisional manufacturing company with sales in more than 80 companies, serving the power generation petroleum, refining and chemical processing industries.

Matthew Figgie is also chairman of Figgie Capital and the Figgie Foundation. Rick Solon has more than 35 years of experience in manufacturing and operating companies. www.clarkreliance.com

To learn more about Clark-Reliance, like its Facebook page www.facebook.com/clarkreliance.

The far-reaching regulation of oil and gas well operations

Scott Doran, director, Kegler, Brown, Hill & Ritter Co., L.P.A.

Scott Doran, director, Kegler, Brown, Hill & Ritter Co., L.P.A.

Much of the discussion about oil and gas production in Ohio has focused on hydraulic fracturing used to facilitate production. But fracking, as it’s often called, is only part of the process that takes the oil and gas from the ground to consumers.
“The wells are just one part of the overall industry. You can drill a well and be prepared to produce gas and natural gas liquids, but these materials have no place to go until you have a pipeline and processing facilities,” says Scott Doran, director, Kegler, Brown, Hill & Ritter Co., L.P.A.
Smart Business spoke with Doran about the various stages in the production of oil and gas, and the permits and regulations that govern them.

What permits are required for oil and gas production operations?
In addition to the drilling permits, you generally need permits for the pipelines that will take the gas from the well pad to collection and processing points. The Ohio Department of Natural Resources (ODNR) manages drilling permits; The Ohio Environmental Protection Agency (EPA) has authority to issue air permits. The Ohio EPA, the U.S. Corps of Engineers and other agencies are involved in pipeline projects. Construction of the pipeline may necessitate impacts to streams or wetlands, and you have to consider historical preservation and endangered species issues.
You have to delineate every resource along the expected path of the pipeline, which means sending engineers or field personnel to identify streams, wetlands, historic properties and potential endangered species habitats. Of course, that also involves getting easements and permission from landowners. Those field people prepare voluminous reports, and you identify the best path for the pipeline that achieves project objectives while avoiding as many resources as possible.
If a project does impact streams or wetlands, you can apply for and obtain a permit authorizing the project, but you also have to mitigate those impacts by restoring the streams or wetlands at the site or somewhere else, or buying wetlands mitigation credits. It’s expensive, but there are a number of mitigation options to compensate for these unavoidable impacts.

Why are air permits needed?
Air emission of certain natural gas occurs during the drilling process, and the U.S. EPA and Ohio EPA have established strict permitting requirements regarding how to manage emissions during and after drilling. After drilling, there are emissions associated with the transfer and storage of materials.
It used to be that companies commonly flared off excess gas — they didn’t want to or were not able to manage the gas, so they would burn it. New permit requirements are being phased in that will require the capture of that gas.

What is required regarding wastewater collected from drilling operations?
In Ohio, a regulatory decision was made that the wastewater associated with oil and gas exploration and production is to be injected into permitted disposal wells. These disposal wells are generally off-site and operated by disposal companies that collect waste from tanks at the well pad. They’re injecting the waste 10,000 feet into the ground in porous rock, where it is designed to remain.
Drillers and wastewater treatment companies are working very hard to demonstrate effective mechanisms to treat and recycle that water, because millions of gallons are used for every well and fresh water is very valuable.

Do you expect regulations to change as the industry expands its operations here?
Regulations will undoubtedly continue to evolve, but the basic structure is in place. There is every indication that companies are continuing to make substantial infrastructure investments in Ohio, and there is a regulatory program that is overarching and impacts every step of the process.
This industry is going to have an environmental impact, but it can be done in a very responsible manner. Economically, it will be a good thing for the state. There will be some trials and tribulations along the way, but overall Ohio is doing a nice job to ensure a very substantial long-term benefit while protecting environmental resources in Ohio.

Scott Doran is a director at Kegler, Brown, Hill & Ritter Co., L.P.A. Reach him at (614) 462-5412 or [email protected]

For more information on Kegler, Brown, Hill & Ritter, please visit www.keglerbrown.com.

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How state law, courts are addressing the issue of fracking in Ohio

Michael Schottenstein, Associate, Kegler, Brown, Hill & Ritter

Michael Schottenstein, Associate, Kegler, Brown, Hill & Ritter

By some estimates, oil and gas wells will be pumping $30 billion into Ohio’s economy in 2015, creating 200,000 jobs. All that money and activity also promises to keep attorneys busy.

“Companies are still feeling things out. So far, there have been about 500 permits issued and there are only about 80 producing wells. But 101 permits were issued in March alone. There will be a lot more drilling this year,” says Michael Schottenstein, an associate with Kegler, Brown, Hill & Ritter.

As companies look to start drilling, property owners with leases signed when offers were lower want to renegotiate more favorable terms. And some communities continue to fight to keep hydraulic fracturing of shale rock formations, a process also known as fracking, from taking place within their borders.

Smart Business spoke with Schottenstein about current legislation and the outlook for oil and gas well production in Ohio.

What’s the status of potential fracking bans?

In a recent case in the 9th District Court of Appeals, State ex rel. Morrison v. Beck Energy, the court said Ohio Revised Code section 1509.02 gives the Ohio Department of Natural Resources, Division of Mineral Resources Management, exclusive authority over drilling permits, pre-empting local ordinances. Municipalities can regulate things like excavation and right-of-way usage and construction, but have no authority when it comes to drilling.

However, there are still municipalities discussing bans. The city of Munroe Falls has appealed to the Ohio Supreme Court and asked the court to weigh in on the issue, but the court has not said yet whether it will take the case. It’s unlikely municipalities will be able to impose outright bans.

What are some other legal developments?

The natural gas severance tax increase Gov. John Kasich proposed in his new budget is significant. Drilling companies and other industry players have been trying to stop it because they say it would discourage drilling. The industry may have won the fight for now, though. The budget plan the Ohio House Republicans recently put forward left the severance tax where it is. It’s still possible it could get passed if the Ohio Senate makes some changes, but it is unlikely.

Another development involves a line of cases dealing with lease terms and whether perpetual leases are void as being against public policy in Ohio. In Monroe County, a judge in the case of Hupp v. Beck Energy essentially said that public policy in Ohio so disfavors perpetual leases that any oil and gas lease that allows drilling companies the right to extend the lease indefinitely by paying delay rentals without an obligation to actually drill are void as against public policy.

There’s also a federal case from the Southern District of Ohio in which the decision says state law disfavors perpetual leases and will interpret them not to be perpetual when possible, but did not say they are actually void.

These are important cases because a lot of landowners are trying to find ways to get out of leases signed when companies were paying a lot less for them.

What are leases going for now?

Royalty percentages had historically been about 12.5 percent for the landowner, but we’re seeing some up to 20 percent. Reports out of eastern Ohio are that some companies are offering bonus payments of $5,000 to $10,000 an acre. Those who entered into a lease 20 years ago, got a small bonus payment and now get a royalty check for $10 a month, are trying to get a better deal.

Oil and gas leases typically provide for a period of one to five years during which companies can explore to see if there’s oil and gas on the property. Leases also usually have a clause that the lease continues as long as oil or gas is produced in paying quantities, which can be an issue if drilling was interrupted for some reason.

Are their other issues on the horizon?

One major concern is waste disposal. Fracking produces waste, called brine, and it can’t just be put it back into the water system. Because this liquid would pollute the water table, drilling and disposal has to be done right and companies must take necessary precautions. A company near Youngstown was recently indicted for dumping brine into the Mahoning River, but if companies don’t cut any corners, our water should be safe. Still, expect more litigation, legislation and regulations involving waste disposal in the future.

Michael Schottenstein is an associate at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5451 or [email protected]

Join us for Eggs & ESOPs on Thursday, May 23, for a morning seminar discussing the ins and outs of ESOPs. Visit www.keglerbrown.com for more information.

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Schlumberger sees results hurt by price pressures

NEW ORLEANS,  Mon Mar 26, 2012 – Schlumberger Ltd., the world’s largest oilfield services company, said profits would be hurt by downward pricing pressure for hydraulic fracturing services, which had now reached North American liquids basins as well.

Chief Executive Paal Kibsgaard said on top of that price squeeze, already widely seen in natural gas areas due to weak gas prices, the shift of pressure pumping equipment to liquids-rich basins was reducing utilization while also adding to costs.

“Together these factors will have an impact on our results both in North America, and overall, in this and in the coming quarters,” Kibsgaard said in a speech to kick off the Howard Weil Energy Conference in New Orleans on Monday.

The use of hydraulic fracturing, or fracking, around the many U.S. shale basins has boosted natural gas production while stemming a decades-long trend of falling U.S. oil production.

“There is some slackening of demand in the gas plays and there has been migration to liquids plays. So there’s more supply coming online and it is normal that pricing would come down,” said David Vaucher, an analyst with IHS-Cambridge Energy Research Associates in Houston.

But supplies in many regions remain scarce in general, from rigs to frack crews, water, sand and synthetic proppants used to keep cracks in shale rock open to get the hydrocarbons out.

Exxon CEO says more fracking rules hinder development

HOUSTON – Fri Mar 9, 2012: State and local regulations in shale oil- and natural gas-rich plays across the United States provides sufficient oversight while adding federal layers hinders development, Exxon Mobil Corp. Chief Executive Rex Tillerson said on Friday.

Tillerson, addressing an audience of energy executives at the annual CERAWeek conference in Houston, said layers, complex regulatory professes in oil and gas development “has become an obstacle to getting anything done.”

He said state and local governments with a close-up view of needed protections sufficiently oversee oil and gas activity while collaborating with producers.

“They provide us the roadmap with how to get something done,” Tillerson said. “Today the regulatory process is now so complicated and so involved with so many different agencies, it’s a roadmap on how to not get anything done.”

He cited President Barack Obama’s rejection of a federal permit to allow TransCanada to build its proposed $7 billion Keystone XL pipeline from Canada to Texas to transport Canadian oil to Gulf Coast refineries.

Environmental groups and some states had opposed the pipeline on integrity concerns and whether it would increase dependence on emissions-heavy Canadian oil production.

Tillerson called the rejection of the permit an “unfortunate decision” that was “a product of political calculations in Washington.”