Whether oil and gas drilling poses a legitimate risk for exposure to radiation has been a hot topic of recent debate. Though we occasionally hear anecdotal evidence reported in the newspapers about radioactive drilling waste being rejected by landfills, there seems to be scant evidence that radiation is a common or serious oil and gas industry problem in Ohio. Nonetheless, the Ohio Legislature and Gov. Kasich recently passed new law that all horizontal well operators should understand.

On June 30, 2013, Gov. Kasich signed H.B. 59, the budget bill, into law. The bill created a new section of the Ohio Revised Code — R.C. 1509.074 — which imposes requirements for testing, transporting and disposing “material that results from the construction, operation or plugging of a horizontal well” that might contain unusual levels of radioactivity.

The new law generally requires operators to sample and test such material for Radium-226 and Radium-228, and to dispose of radioactive material “in accordance with all applicable laws.” However, the new law has several important exceptions. An operator of an oil and gas well is not required to perform sampling and testing if:

• The material is from an oil and gas well that is not a horizontal well. The Ohio Revised Code defines a horizontal well as an oil and gas well that is horizontal, stimulated and drilled into the Utica, Point Pleasant or Marcellus formations;
• The material includes only drill cuttings, which are defined as soil, rock fragments and pulverized material removed from a borehole and that may include a de minimis amount of fluid that results from a drilling process;
• The material is reused in the well from which it originated or another horizontal well at a different location;
• The operator disposes of the material in a properly permitted injection well;
• The operator uses the material in association with a permitted enhanced recovery; or
• The material is transported out of the state for lawful disposal (provided that the operator retains its records of out-of-state disposal).

If the operator does not meet one of these exceptions, the operator must sample and test the material to determine its concentration of radium-226 and radium-228. Further, the material must not be transported from the drilling site until the testing is complete unless ODNR issues a permit for it to be temporarily stored in an adjacent area or unless it is transported to a permitted injection well.

If the testing reveals that the material is technologically enhanced naturally occurring radioactive material (TENORM) the material must be transported and disposed of in accordance with all applicable laws. The new law defines TENORM as naturally occurring radioactive material with radionuclide concentrations that are increased by or as a result of past or present human activity. Also, by definition, TENORM does not include drill cuttings, natural background radiation (newly defined as radiation in the amount of 2 picocuries per gram), byproduct material¹ or source material.² The test results must be saved for a minimum of three years.

Even if testing for TENORM is not required or testing has shown that the material is not TENORM, the budget bill might still create additional transport and disposal requirements for a horizontal well operator. If the material that results from the construction, operation or plugging of a horizontal well has come in contact with a refined oil-based substance, the owner must:

• Dispose of the material at an appropriate solid waste facility;
• Beneficially use the material in accordance with RC § 3734.125; or
• Keep the material at the location of the well and recycle or reuse it with approval of the Chief of the Division of Oil & Gas Resources Management.

If the samples demonstrate that the materials are not TENORM (or radiation testing wasn’t required in the first place) and the materials haven’t come into contact with refined oil-based substance, the material can be used at the original location or at any other production operation for access roads, reclamation, well pad construction, etc.

Taxes

Despite Gov. Kasich’s efforts to increase severance taxes for the oil and gas industry, his severance tax proposals did not survive the final budget bill passed by the legislature. But this issue is far from settled. After the proposed severance tax was removed from the current budget bill, Lt. Gov. Mary Taylor stated that the administration “will continue to work on this with the oil and gas companies” and that the proposed tax rate “is still a lower severance tax rate than the other states around us, and we could use those funds partly toward driving down the state’s income tax.”³ We expect the Kasich administration to continue to push for higher taxes on the Ohio oil and gas industry in the future but for at least this fiscal year, the severance tax will remain unchanged.

Likewise, Gov. Kasich’s proposed $25,000 horizontal well impact fee for each permitted horizontal well was not part of the final bill signed into law. But like the severance tax, we do not believe this matter is settled. We will continue to monitor any new tax proposals that affect the oil and gas industry in Ohio.

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¹ Byproduct material means “either of the following: (1) Any radioactive material, except special nuclear material, yielded in or made radioactive by exposure to radiation incident to the process of producing or utilizing special nuclear material; (2) The tailings or wastes produced by the extraction or concentration of uranium or thorium from any ore processed primarily for its source material content.” R.C. § 3748.01(A).

² Source material means “uranium, thorium, or any combination thereof in any physical or chemical form, or any ores that contain by weight at least one-twentieth of one percent or uranium, thorium, or any combination thereof” and does not include special nuclear material. Id 3748.01(Q).

³ Gadd, Brian, Ohio Lt. Gov.: State budget is jobs-friendly, but Obamacare effect is a concern, (July 4, 2013), accessed July 8, 2013.