In many ways, the Utica Shale play caught Ohio off guard. The state became a main focus of the oil and gas industry almost overnight. Ohio responded by updating its oil and gas laws, including major overhauls resulting from Senate bills 165 in 2010 and 315 in 2012. But in some cases, operators and regulatory agencies are still applying old law that was written with conventional drilling methods in mind. In this post, part 3 of our series on compelled participation (see Part 1 and Part 2), we look at unitization — one of these old laws being put to new use.

What Is Unitization?

Unitization is the creation or designation of a contiguous area of land, called a “unit,” for the efficient development of the oil and gas resources underlying that land. Units can be formed by order of the Ohio Department of Natural Resources (ODNR), on application from an operator. Units also can be formed voluntarily by consent of interest owners, usually owners of the leasehold. Inevitably, the land sought to be unitized — really the geologic formation below the surface — is subject to a patchwork of different ownership interests. The operator attempts to negotiate lease rights with all such land or mineral rights owners, but it is often the case that the operator cannot reach an agreement with all of them. When an operator has the consent of all but a small portion of the land for a unit, Ohio law allows the operator to apply for ODNR to compel the non-consenting interest owners to join the unit.
Continue Reading Unitization in Ohio: Compelled Participation in the New Context of the Utica Shale

The Ohio Department of Natural Resources (ODNR) recently issued two more unitization orders pursuant to R.C. 1509.28. These two orders bring the total number to four since the beginning of the Utica Shale play.

As we discussed after the last order was released, this statute is becoming a valuable tool for operators as they cobble together the rights to drill horizontal production wells. In the early stages of the Utica shale play, each new unitization order is noteworthy for operators who are trying to plan drilling units and to help companies evaluate their lease holdings.

The process of unitization is conceptually related to mandatory pooling (R.C. § 1509.27), and is part of our ongoing blog series on Ohio’s compelled participation laws. (Read part 1 and part 2.). A unitization order allows oil and gas operators to join, or unitize, recalcitrant mineral owners to create large tracts of land — often comprising hundreds of acres — necessary to profitably and efficiently produce hydrocarbons from shale formations while protecting each owner’s correlative rights.
Continue Reading ODNR Issues Two More Unitization Orders for Horizontal Utica Shale Wells

eBook: Regulatory and Environmental MattersThrough the past year, we’ve written numerous articles covering regulatory and environmental issues that affect the Ohio oil and gas industry. We compiled those articles into an eBook so businesses involved in the industry have a go-to resource on topics such as drilling permit appeals, prevailing wage law, RUMAs, waste management, emissions standards and more.

As discussed in an earlier post about the management of oil field wastes, most exploration and production waste is not regulated as a hazardous waste. Instead, it is regulated as a solid waste. Even so, as discussed in a recent article by Stephen Ellis:

“One of the biggest problems in the oil and gas industry today is water management. Solving the technical and economic challenges around managing the millions of gallons of water used to properly fracture tight oil and gas wells has been called the holy grail of the industry by Southwestern Energy CEO Steve Mueller. He estimates that water transportation (primarily trucking) costs around $1.5 million (25%) of the $6 million that an average Marcellus well costs.”

See: Stephen Ellis, “Oilfield Water Management: The Oil And Gas Industry’s Holy Grail,” Seeking Alpha, March 31, 2013.

Water Used in Operations

Water is used in the drilling of the well. It is also used in the stimulation — i.e., fracking — of the well. According to the Ohio Department of Natural Resources (ODNR), most of the water used in fracturing remains thousands of feet underground in the formation. However, about 15-20 percent returns to the surface through a steel-cased well bore and is temporarily stored in steel tanks or lined pits. The wastewater that returns to the surface after hydraulic fracturing is called flowback. Later, as the well is producing hydrocarbons, it also produces water named, appropriately enough, “produced water.”
Continue Reading Exploring the Disposal of Fracking Waste Water — UIC Class II Wells in Ohio

The disposal of wastes associated with oil and gas production continues to draw the attention of regulators and concerned citizens. In a series of articles we will examine the waste issue from the characterization of these wastes (discussed below) and their ultimate disposal in underground injection wells.

A Brief History of Waste Management and RCRA

By the 1960s it was becoming clear that the country had a waste management problem. The only modern environmental law on the books at the time was the Clean Air Act. So the Solid Waste Disposal Act of 1965 was enacted as an amendment to the air law. This initial foray into comprehensive waste regulation proved inadequate in many respects.  The treatment, storage and disposal of waste — even defining what a waste is — is complicated, especially when recycling is considered.

The modern regulation of solid and hazardous waste can be traced to 1976 with the enactment of the Resource Conservation and Recovery Act (RCRA). Generally, when looking at the world through the lens of RCRA, all material is either a product or a solid waste. A subcategory of solid waste is hazardous waste that is regulated under Subtitle C of RCRA.
Continue Reading Management of Oil Field Wastes

The chief of the Division of Oil and Gas Resources Management (DOGRM) recently issued a new unitization order pursuant to R.C. §1509.28. This is only the second such order since the beginning of Ohio’s shale drilling boom. The unitization statute has become an increasingly important legal tool for oil and gas operators. We are seeing a new body of law take shape in Ohio, and last week’s order doubled its volume.

The process of unitization is conceptually related to mandatory pooling (R.C. § 1509.27), and is part of our ongoing blog series on Ohio’s compelled participation laws. (Read part 1 and part 2.) A unitization order allows oil and gas operators to join, or unitize, recalcitrant mineral owners to create the large tracts of land — often comprising hundreds of acres — that are necessary to profitably and efficiently produce hydrocarbons from shale formations while protecting each owner’s correlative rights.
Continue Reading ODNR Issues Second Unitization Order for Horizontal Utica Shale Wells

This is the second in a multi-part series on the practice of compelled participation – forcing unwilling mineral rights owners to participate in oil and gas production from their property. Part I discussed the history and constitutionality of this practice in the U.S.

Every day, crowds of title researchers and landmen pack county offices in Eastern Ohio looking for the owners of unleased property. They are discovering a quilt of landowners with varying degrees of interest in leasing their land for oil and gas drilling. But even after attempting to negotiate with landowners, oil and gas companies often cannot lease enough land to comply with Ohio’s minimum spacing laws. As a result of those laws, uncooperative landowners threaten to interfere with landowners who have leased and want to have oil produced from their land.

Fortunately, under the right circumstances, an operator or the consenting landowners may be able to invoke Ohio’s mandatory pooling laws, the most common form of compelled participation. Mandatory pooling laws force hold-out landowners to submit their mineral rights to oil and gas operations when their recalcitrance prevents an operator from meeting state spacing requirements. Read more about these and other industry terms in a previous post.
Continue Reading A Tool of Last Resort: Mandatory Pooling in Ohio

The Ohio 130th General Assembly is considering two new bills, House Bills 59 and 72. Each bill proposes changes to Ohio’s oil and gas law. Following is a summary of the proposed changes relevant to Ohio’s oil and gas law in each bill.

House Bill 59

On Feb. 12, 2013, Rep. Amstutz (R-Dist 1) introduced House Bill 59, Gov. Kasich’s budget bill. The full Bill Analysis from the Ohio Legislative Service Commission is also available online. The following proposals affect Ohio oil and gas law:

1. New Taxes
The oil and gas tax changes proposed by the Kasich administration have been the most publicized part of H.B. 59. The bill would lower income taxes for all tax brackets by a total of 20% over the next three years, funded by increased oil and gas severance taxes. H.B. 59 also proposes to calculate property taxes from the true value of gas reserves based on the British thermal unit (Btu) content of the gas extracted and the true value of condensate reserves. Other tax provisions in H.B. 59 are differentiated based on whether production is from a horizontal or nonhorizontal well.

A.  Nonhorizontal Wells: H.B. 59 would change ORC §5749.02 to adjust the rate of severance tax on gas from the current 2.5 cents per MCF to the lesser of 3 cents per MCF or 1% of spot market value. It would also raise the tax rate on severance of oil from 10 cents per barrel to 20 cents per barrel. It would exempt nonhorizontal wells for paying severance tax on gas if they produce less than 10 MCF per day in a quarter. 

B.  Horizontal Wells: H.B. 59 would change ORC §5749.02 to levy a severance tax at a rate of 1.5% of the spot market value of oil and condensate produced by horizontal wells for the first five quarters of a well’s production, with the rate jumping to 4% beginning in the fifth quarter. Gas measuring no more than 1,050 Btu would incur a severance tax of 1% of the spot market value of gas. For gas measuring more than 1,050 Btu, the severance tax would be variable, calculated according to the Btu of the gas and the spot price of gas and natural gas liquids (NGLs), with a base rate of 1.5% for the first five quarters and a base rate for gas of 1% and for NGLs of 4% after the first five quarters of production.
Continue Reading House Bills 59 and 72 Propose Changes to Ohio Oil and Gas Law

Ohio law authorizes the Ohio Environmental Protection Agency (Ohio EPA) to “develop a model general permit for any category of air contaminant sources, or specific portions of any category of air contaminant sources,” subject to certain specified conditions. Ohio law also permits certain categories of air pollution sources to avoid the Permit-To-Install and Operate (“PTIO”)

As we discussed in an earlier post about regulatory structures, the question of who is authorized to regulate oil and gas operations in Ohio pits local governments against the state government. The state won the first round earlier this week — and it may have landed a knock-out punch.

In State ex rel. Morrison v. Beck Energy Corp., 2013-Ohio-356 (Ninth Dist.) Beck obtained a permit from the Ohio Department of Natural Resources (ODNR) to drill an oil and gas well on property located within the city of Munroe Falls, Summit County, Ohio. When Beck began drilling, the city issued a stop work order and filed a lawsuit. The city claimed that Beck’s activities were illegal because Beck did not comply with city ordinances that required Beck to obtain a city drilling permit (and pay the associated application fee), a zoning certificate, rights-of-way construction permits, post a performance bond and attend a public hearing. The trial court agreed with the city and issued an injunction. Beck appealed.

The appellate court framed the issue on appeal as, “whether the City of Munroe Falls can enforce its ordinances governing oil and gas drilling and related zoning and rights-of-way issues despite the state’s comprehensive statutory scheme for drilling set forth in R.C. Chapter 1509.” The court added that this was a case of first impression; i.e., the first time the court had considered this question.
Continue Reading ODNR’s Preemption of Oil & Gas Regulation Upheld