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January 2013
 

2012 – Oil and Gas Development in Ohio
A Year in Review

By Greg Russell

Last year was a good year for oil and gas development in Ohio.  We've seen a 5-fold increase in the number of wells producing from the Marcellus and Utica shales – going from just 9 in 2011 to 45 in 2012, according to the Division of Oil and Gas Resources Management.  With 29 rigs now running in Ohio, there were more than 190 horizontal wells drilled last year, a substantial increase from the 23 wells drilled in 2011.  And we've seen more and more operators enter Ohio looking to expand their domestic opportunities – to the point that today there are over 20 producers permitting and drilling wells in the Utica alone.

This has led to an increased demand not only for oilfield services, trucks and drivers, but also for new investments in housing, restaurants and commercial locations.  Midstream facilities, such as pipelines and processing and treatment plants, are also in the works, with billions of dollars planned to be invested in Ohio over the next several years.  And if you have young adults in your life wondering what to do with their futures, you might consider suggesting a career in petroleum engineering.  Marietta College has seen a 60% increase in applications for its Petroleum Engineering program this year, and projections are that one-half of the engineers currently working in the industry will retire in the next 10 years.

We've also seen an increase in activity on the legal front.  As lease bonuses have multiplied from their historical average, landowners have filed suit on the flimsiest of claims to try and break longstanding, existing leases with conventional operators.  We have seen landowners assert that a lease is invalid because the broker taking the lease was not a licensed real estate agent (not true – see, e.g., Ohio Rev. Code Ch. 4735).  We have seen claims that leases are invalid because there is a possible defect in the acknowledgement by the notary (also not true – see, e.g., Swallie v. Rousenberg).  Additionally, we have seen landowners try to prevent seismic and other exploration activities in order to leverage new deal terms (unsuccessfully – see, e.g., TGS-NOPEC Geophysical v. Coldwell).

Nor is the activity on the legal front limited to lawsuits.  Ohio's oil and gas regulatory program has seen substantial change throughout the year: from new reporting and permitting requirements and enhancements in how Ohio looks at spacing and setback issues to new water sourcing and planning requirements.  Additionally, Ohio has seen its first unitization proceedings in decades, allowing operators to combine large acreage blocks for development purposes, while protecting correlative rights and preventing both economic and physical waste.

What will 2013 look like?  It seems a safe bet that we'll see even more oil and gas development activity. Let’s hope so!

Top News from the Energy & Environmental Blog

Environmental Groups File Ozone Petition with U.S. EPA
Posted on December 31, 2012

On December 19, 2012, a number of environmental groups filed a petition with U.S. EPA seeking, among other things: 1. A "broad deployment of ozone air quality monitors in oil and natural gas development areas;" and 2. that U.S. EPA provide communities with "tools to help reduce smog-forming pollution from oil and gas development by issuing control technology guidelines ("CTGs") for oil and gas equipment." You can find a copy of the petition here.

U.S. EPA Releases Update on HF Study
Posted on December 30, 2012

U.S. EPA has released an update on its hydraulic fracturing study outlining the work currently underway. You can find a copy of the press release here, and more on the study itself here (including more information on two webinars related to the update scheduled for early January).

A Foreign Perspective on America's Resource Abundance
Posted on December 30, 2012

Deutsche Welle has an interesting article on our domestic natural gas boom: "At the moment, the US can only export natural gas to countries with which it has a free trade agreement. But it would be ideal for American exporters to be able to send gas to countries like Germany and Japan. The US Department of Energy will decide by the end of 2012 whether it will open exports to such regions. Experts in Washington expect to see a decision in favor of more exports. The International Energy Agency (IEA) reports that by 2015, the US could top Russia to become the world's biggest gas exporter."

Ohio Supreme Court Rules on Civil Penalties for Air Permit Violations
Posted on December 16, 2012

The Ohio Supreme Court recently decided a case involving the appropriate method for determining civil penalties for air permit violations. State ex rel. Ohio Atty. Gen. v. Shelly Holding Co.. The central issue was whether the violation was considered a continuing violation. The Court held a violation was continuing from the date of a failed stack test until evidence is presented to prove the violation was not continuous.

First Oil and Gas Producer GHG Enforcement Case
Posted on December 14, 2012

A California oil and gas producer recently settled USEPA’s first enforcement case for greenhouse gas ("GHG") permitting violations. According to USEPA, the company failed to obtain a prevention of significant deterioration ("PSD") permit before it installed three steam generators at its oil field in 2011. Here's a link to the Consent Order.

Related News

Navigant's North American Natural Gas Market Outlook, Fall 2012

Forbes - How Unconventional Oil And Gas Is Supercharging The U.S. Economy

Akron Beacon Journal - Companies investing heavily in Ohio natural gas-processing plants

Cleveland Plain Dealer - $1 billion Ohio natural gas processing plant to open in May, encouraging more drilling

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Contacts

Gregory D. Russell
614.464.5468
gdrussell@vorys.com

Sheila Nolan Gartland
614.464.8225
sngartland@vorys.com


 

 

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This alert is for general information purposes and should not be regarded as legal advice. As always, please let us know if you want more information or have questions about how these developments apply to your situation.