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. 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. 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.

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. 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.

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 NGI, Feb. 11).

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.

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