MAJOR SHALE PLAYS OHIO: SB165 UPDATES THE OHIO OIL AND GAS REGULATORY PROGRAM

• Jurisdiction: United States

Development Issues in the Major Shale Plays
(Dec 2010)
CHAPTER 8D
MAJOR SHALE PLAYS OHIO: SB165 UPDATES THE OHIO OIL AND GAS REGULATORY PROGRAM
W. Jonathan Airey
Vorys, Sater, Seymour and Pease LLP
Columbus, Ohio

W. JONATHAN AIREY is a Partner in the Columbus Office of Vorys, Sater, Seymour and Pease LLP, and a member of the energy and environmental group. His oil and gas practice is broad in scope, representing numerous clients in state and federal regulatory proceedings and in connection with gas market agreements and disputes. He is a member of the Ohio State Bar Association, the California Bar Association, the Ohio Oil and Gas Association, the Independent Petroleum Association of America, the Rocky Mountain Mineral Law Foundation, and the Energy and Mineral Law Foundation. Mr. Airey annually presents a natural gas market report to the Ohio Chamber of Commerce Energy Conference and has led discussions of gas royalty issues for the Independent Petroleum Association of America Law Committee. Mr. Airey received his J.D. from the University of California at Los Angeles School of Law where he was a member of the University of California at Los Angeles Law Review. He received his B.A. with honors from Loma Linda University.

Presented by:

W. Jonathan Airey

Partner

Vorys, Sater, Seymour and Pease LLP

52 East Gay Street | Columbus, Ohio 43215

Direct: 614.464.6346

Fax: 614.719.4857

Email: wjairey@vorys.com

www.vorys.com

1. Substitute Senate Bill 165

a. Changes to Ohio Oil & Gas Law

b. The Impact on Industry

2. The Legislation Objectives

a. Provide an "Ohio Response" to present day health, safety, environment and safety issues

b. Provide the state regulatory program adequate funding

c. Update urban drilling issues that have emerged since 2005

d. Protect the Ohio oil and gas regulatory environment from hot issues such as produced waters & waste management, hydraulic fracturing, well construction and non-producing wells

3. Legislative Status

a. June 30, 2010 - Legislation became effective Ohio law

b. July 1, 2010 - New fee and taxes became effective (ORC 1509.50)

4. Regulatory Costs

a. SB 165 takes current $3.5 million DMRM regulatory program to $7.1 million

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5. Statewide - Production Operations Definition

a. HB 278 (2004) reserved sole and exclusive regulatory authority over all aspects of oil and gas drilling and production to DMRM (1509.02)

b. SB 165 further clarified DMRM's existing authority by explicitly inserting "Production Operations" and "Well Stimulation" into 1509.02

c. Production Operation includes (1509.01 (AA)

1. Site preparation, access roads, drilling, well completion, well stimulation, well operation, site reclamation, and well plugging

2. Piping and equipment used for the production and preparation of hydrocarbon gas or liquids for transportation or delivery

3. Processes of extraction and recovery, lifting, stabilization, treatment, separation, production processing, storage, and measurement of hydrocarbon gas and liquids

4. Processes associated with production compression, gas lift, gas injection, and fuel gas supply

5. Well Stimulation: the process of enhancing well productivity, including hydraulic fracturing operations (1509.01 (Z))

6. Setbacks Set in Statute

7. Statewide - Well Construction

a. Well constructed using industry standard materials

b. Cased to:

1. Support unconsolidated sediments

2. Protects & isolates all USDW sources

3. Provides a base for blowout protector

c. Sour gas or over-pressurized zones cemented off

d. Annular Overpressurization:

1. Accumulation of fluids within the annulus with sufficient pressure to allow migration of annular fluids into underground sources of drinking water (1509.01 (BB))

e. Upon discovery that the casing in a well is defective or that a well was not adequately constructed, the owner of the well shall

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1. Notify the chief within twenty-four hours of the discovery, and

2. Immediately repair the casing, correct the construction inadequacies, or plug and abandon the well

8. Statewide - Hydraulic Fracturing Regulation

a. "Well Stimulation": the process of enhancing well productivity, including hydraulic fracturing operations (1509.01 (Z))

b. Brine definition: formation water resulting from, obtained from, or produced in connection with E&P activity, and well stimulation (1509.01 (U))

c. Submit to DMRM Frac / Acid ticket, job log or frac chart (rate and pressure) (1509.10 (A) 8, 9)

d. Notify inspector 24 hours prior to frac operation (1509.06 (G))

e. DMRM maintains public MSDS database (1509.10 (E))

9. Statewide - Insurance

a. Urban: $3 million minimum coverage (bodily injury and property...