Operators of horizontal oil and natural gas wells in Ohio face a bevy of regulatory changes -- including quarterly production reports, a $25,000 per well impact fee, and new testing and disposal requirements for drilling waste -- under Gov. John Kasich's biennial budget proposal.
According to an analysis of the budget bill -- also known as HB 59 -- by the Ohio Legislative Service Commission (OLSC), several aspects of the state's Oil and Gas Law would change, as would the duties of the Ohio Department of Natural Resources (ODNR).
Under HB 59, operators would be required to submit quarterly production statements to the ODNR and include additional information, including the production of condensate, the American Petroleum Institute gravity of any oil, and Btu of any natural gas. Currently, operators only need to submit annual production reports to the ODNR.
The bill also requires the owner of a horizontal well that has no reported production for eight consecutive reporting periods to plug the well, obtain temporary inactive well status for the well, or perform another activity at the well that is approved by the ODNR's Chief of the Division of Oil and Gas Resources Management (DOGRM). With the shift from annual to quarterly reporting, both current law and the proposed change amount to the same length of time: two years.
Operators would be required to retain records substantiating the figures made in its production reports for at least seven years, even if the well is subsequently sold to another owner or ultimately plugged. Receipts, transfer vouchers, bills of lading and other documentation would all need to be kept on file and presented at the ODNR's request. But the bill also restricts the disclosure of most severance tax information to the ODNR.
HB 59 would also mandate that operators notify the ODNR within 30 days of assignment or transfer of an interest in an oil or natural gas lease -- as long as at least one well has been drilled on the interest in question -- and continue to post a $5,000 bond to ensure that the well will be properly plugged, but under slightly different circumstances. The DOGRM chief would then have the power to approve or deny the assignment or transfer.
"Current law instead authorizes the [DOGRM] chief to approve the application if it is accompanied by a release of all of the oil and gas leases that are included in the applicable formation of the drilling unit, in a form such that the well ownership merges with the fee simple interest of the surface tract, and the release is in a form that may be recorded," the OLSC said.
HB 59 also prohibits anyone from placing brine, crude oil, natural gas or other waste fluids into groundwater, on land or into surface water -- even if those substances were previously treated mechanically or chemically -- and bans all brine from horizontal wells from being spread on a road for deicing. Current law allows some application of brine to roads for deicing.
The bill also requires pits and steel tanks for containing brine and other wastes to be liquid tight, and impoundments must have a synthetic liner. Impoundments can be used on a temporary basis during the construction, stimulation or plugging of a well.
HB 59 also makes several regulatory changes for Technologically Enhanced Naturally Occurring Radioactive Materials (TENORM) produced from horizontal wells.
Well owners would be required to determine the concentration of radium-226 and radium-228 in any TENORM, and submit samples to the state Department of Health (DOH). The material can't be removed until the DOH's analysis is complete, but it may be temporarily stored in an adjacent location approved by the DOGRM while the results are pending.
But HB 59 stipulates that well owners are not required to determine the radium concentrations if the TENORM is reused in the horizontal well it came from, or is transferred to another site for reuse in another horizontal well.
Solid waste facilities would be prohibited from accepting TENORM if it contains either type of radium, or both, at concentrations equal to or greater than five picocuries per gram (pCi/g) above "natural background," which it defines as 2 pCi/g or the actual pCi/g measurement as defined by an individual licensed solid waste facility, subject to verification by the DOH.
"The owner or operator of a licensed solid waste facility may receive and process, for purposes other than transfer or disposal, contaminated TENORM at concentrations equal to or greater than 5 pCi/g above natural background, provided that the owner or operator has obtained and maintains all other necessary authorizations, including any authorization required by rules adopted by the Director of Health under the Radiation Control Program Law," the OLSC said.
The OLSC added that the state would now define natural gas as "all hydrocarbons that are in a gaseous state at standard temperature and pressure, rather than all natural gas and all other fluid hydrocarbons that are not oil, including condensate, as in current law."
Kasich has proposed a 1% severance tax on natural gas produced from unconventional wells, but has proposed eliminating the severance tax on gas from conventional wells that produce less than 10 Mcf/d; conventional wells that produce more than 10 Mcf/d would be taxed at 1%, up to a cap of 3 cents/Mcf (see Shale Daily, Feb. 6).
Meanwhile, the Republican governor has proposed enacting a 1.5% severance tax on crude oil and natural gas liquids (NGL) from horizontal wells for the first year, and 4% in subsequent years. The state's 20 cents/bbl severance tax on oil from conventional wells would remain unchanged; Ohio does not currently levy a severance tax on NGL.