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Ohio Producer Group: State Better Prepared for Shale Surge

With a drilling industry begun in the mid-1800s and modifications to its decades-old oil and gas law in place, Ohio is well prepared for the kind of shale industry growth that has to varying degrees overwhelmed other states, according to Ohio Oil & Gas Association (OOGA) Executive Vice President Tom Stewart.

While the Marcellus Shale penetrates into Ohio's eastern counties and the Utica Shale covers the eastern third of the state, no laws specific to natural gas shale operations have been passed by Ohio legislators, Stewart told NGI's Shale Daily. But SB 165, which was signed into law last year, amended the state's oil and gas law with language pertaining to well construction, hydraulic fracturing (fracking) and other issues sure to impact the shale industry.

He believes Ohio's regulatory framework is prepared for a sharp increase in shale drilling.

"We've been drilling oil and gas wells in the state of Ohio now for 150 years, and we've had the Oil and Gas Law since 1965. There's been several major amendments to it -- HB 278 in 2004 and then SB 165 that was done last year were both major, significant amendments to the law. And SB 165 had a lot of specific language toward well construction, enforcement procedures, hydraulic fracturing, definitions of production facilities -- a lot of those issues that you see swirling around in other states."

Existing law already covers the disposal of produced water and a severance tax on production -- 3 cents/Mcf and 20 cents/bbl, with 90% of the revenue supporting the state's oil and gas regulatory program and the remaining 10% going to the Ohio Department of Natural Resources' (ODNR) Division of Geologic Survey -- has been in place for some time. Both issues remain under debate in other states. And a pair of bills allowing oil and gas drilling on state-owned land (HB 133 and HB 153) were signed into law by Gov. John Kasich this summer (see Shale Daily, June 16). A series of last-minute amendments to HB 133, including a call for a moratorium on fracking until the U.S. Environmental Protection Agency completes a study on the practice, were tabled by the Ohio Senate before it approved the bill in June.

"There's a lot done and I believe that the tools are there to manage this process here in Ohio," Stewart said. "We tried real hard to get ahead of the curve. We could see the ball coming."

Shale drilling is starting to ramp up in the state. The ODNR issued nine permits for horizontal wells into the Utica and Point Pleasant shales in June, more than half of all the permits ever issued by the agency for horizontal drilling into those formations to that point (see Shale Daily, July 13). The permits were clustered primarily in neighboring Carroll and Jefferson counties, along the West Virginia border.

Since June the ODNR has issued another 13 permits for horizontal wells in the Utica and Point Pleasant shales. All but one of those permits were issued to Chesapeake Energy. CNX Gas Co. was issued a horizontal well permit in Tuscarawas County Aug. 16 and Ohio Buckeye Energy has applied for a horizontal well permit in Harrison County, according to ODNR.

"Interest in the Utica is picking up," Stewart said. "There have been several completions on the eastern side and some test [wells] drilled on the western flank of the play. What these people are doing is testing various areas for the prospective quality of the reservoir and then see where the thing goes. By the end of fall of this year we're going to know a lot more about the reservoir quality and we expect the rig counts to dramatically rise after that."

The natural gas industry is more bullish about the Utica than ever before, but several geologists remain skeptical until more data is publicly available about the play (see Shale Daily, Aug. 24).

OOGA doesn't see any major public policy hurdles that would hinder the industry's growth in the state, but there are some potential clouds on the horizon, according to Stewart. "I do believe that forces are gathering to come into Ohio to try to stop it." And those forces aren't homegrown, he said -- they are mainly based outside of Ohio.

"It's all about an organized campaign to stop the development of the nation's resources, and I think that they're looking at Ohio and they intend to make Ohio a battleground state in this regard. And I think they're going to be disappointed. We intend to fight them with vigor. We will not let them take the stage."

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