Legislature acts on energy law

Judie Perkowski Dix Communications Published:

After the introduction of Senate Bill 315, testimony by the Ohio Department of Natural Resources, the Ohio Oil & Gas Association and other representatives of the oil and gas industry, the bill was amended, hence the term Substitute Senate Bill 315, was signed into law by Gov. John Kasich on June 11, 2012, and became effective Sept. 11, 2012. New provisions in SB 315 updates Ohio Revised Code 1509, which regulates the oil and gas industry.

The following is a compilation from the Ohio Oil & Gas Association on the comprehensive energy legislation set into law with Kasich’s signature. To read OOGA’s entire article on Substitute SB 315 visit ooga.org/issues-advocacy/archieve/substitute-senate-bill-315.

After several negotiations and committee hearings on the subject, SB 315 was moved out of the Ohio Senate and House of Representatives before their Memorial Day legislative break. The bill endured several changes before it left the respective Senate and House committees dealing with the issue. The bill creates substantial changes to Ohio oil and gas law, including making Ohio the national leader in disclosure of hydraulic fracturing fluids.

The relevant provisions to the Ohio oil and gas industry can be broken down into three distinct categories: direct oil and gas policy, midstream proposals, and underground injection control program proposals.

Direct Oil and Gas Policy

These were the most extensive set of changes to Ohio oil and gas law contained in the bill. Several provisions were altered, including material and substantial violations, water well testing, per-day violations, insurance requirements and unitization. However, the most discussed change to oil and gas law has been the disclosure of hydraulic fracturing fluids.

With SB 315, Ohio now has the most stringent regulations for disclosure of hydraulic fracturing fluids in the nation. When the bill was introduced, language included in the bill would have created a total “spud to plug” disclosure program on all aspects of the drilling process. The program was generally modeled the recent regulatory rule package approved in Colorado. It meant that every chemical used on the well site would need to be reported to the Ohio Department of Natural Resources (ODNR). This would have included reporting chemicals contained in any paint used on site during the life of the well.

Since the Ohio Department of Natural Resources’s focus was to gather all pertinent chemical information during the drilling process, the bill was amended to mirror the Colorado rule in the Ohio Revised Code with some alterations. SB 315 requires the disclosure of all chemicals intentionally added during the drilling process until the surface casing is set (including the chemical abstract services on all wells. The bill was amended to exclude chemicals deemed a trade secret by an operator or service company. Invoice for all chemicals used on the well site must be maintained by the operator for two years and made available to the chief upon request. A producer is in substantial compliance with these reporting provisions if a minor variation is found due to an inaccurate or incomplete report from a supplier.

After the initial completion, operators must again make all chemical disclosure if the well is refraced or newly completed. An amendment by the industry was also accepted to remove the term “rework” from the disclosure requirements. This language, which would have included recompletion and moving down hole, was included in the original bill’s language. Since “rework” was a wide-reaching term under Ohio law, it was removed from disclosure provisions.

The bill was also amended to provide chemical information, including those deemed a trade secret, to a medical professional in the event that an incident happens on the well site and an injury due to a chemical compound occurs. The medical professional will utilize the trade secret information for their treatment of the patient but have an obligation to keep the trade secret information confidential.

Other important changes include:

• SB 315 allows the ODNR to enter into “cooperative agreements” with other state agencies. OOGA was successful in amending this language to clarify that such agreements “shall not be construed to dilute or diminish the Division’s sole and exclusive authority as established in this section.”

• The Road Use and Maintenance Agreement requires a producer to file a RUMA or check the appropriate box on an oil and gas permit pertaining to the RUMA. The producer can then state they do have a RUMA in place and submit an affidavit to the ODNR stating they negotiated in “good faith,” but could not reach such an agreement.

• The bill changes definitions of industry terms currently within Ohio law, such as condensate, well pad, and horizontal well. Importantly, a horizontal well is now defined in Ohio law as a well that is drilled to the Point Pleasant, Utica, or Marcellus Shale formations and is stimulated. Well pad was defined as the area needed for one or more horizontal wells.

• Water wells are now required to be tested prior to drilling in urbanized areas and on horizontal wells. Water wells within 300 feet of a wellhead in an urbanized area and 1,500 feet of a horizontal wellhead should be tested. If a producer is denied access to such a water well by a landowner, then the producer reports the denial to the Division. Though discussed during the process, requirements for post-drilling testing of water wells were not made a part of the final bill.

• A provision was included in SB 315 that gives the OOGA great concern. Ohio Attorney General Mike DeWine pushed for per-day violations on oil and gas operators (for civil and criminal violations) under the law. The industry pushed for an amendment that would clarify this broad provision under the law to an intentional standard and focus it on civil penalties. For now, the language remains applicable to even minor violations and will remain in Ohio law. However, the industry has grave concerns over broad per-day violations being part of Ohio oil and gas law without some guardrails to avoid abuse of this power.

Midstream Proposals

With the expected development of Utica Shale in Ohio comes the anticipated construction of an underground pipeline network. This network is needed to move the natural gas and natural gas liquids from the site of production to newly constructed processing plants and then to the marketplace. It is this network of pipelines and processing plants that is commonly referred to as the “midstream industry.”

After several amendments, the Ohio legislature clearly drew lines of regulation by Ohio’s three midstream regulatory agencies. The ODNR retains its jurisdiction over production sites and production facilities. The Public Utilities Commission of Ohio has the exclusive jurisdiction over all gas gathering lines that are currently regulated and overseen by their Pipeline Safety Division for production from a horizontal well. This authority has been expanded to cover Class One rural gas gathering pipelines. A Class One pipeline is a classification by the United States Department of Transportation which includes pipelines in rural areas.

Finally, the Ohio Power Siting Board will continue to have the authority to site major utility facilities. Their final role was not expanded from the gas transmission lines that they currently site but the midstream processing plants and gathering systems will not be subject to Power Siting Board jurisdiction.

All midstream jurisdictional pipelines under the Ohio Power Siting Board authority are required to have a corrosion control program, damage prevention program, maximum allowable operating pressures, public education program, above-ground markers, excavation registration and leak surveys.

Underground Injection Control Program Proposals

Due to recent seismic events in northeastern Ohio and concerns from the public, changes to the underground injection control (UIC) program were brought forward. The program deals with the underground disposal of produced waters ad brine stemming from oil and gas exploration and development. These fluids are disposed of in underground rock formations as deep or even deeper than the geologic formations from which the brine was extracted.

• The bill passed removed all increases to the brine disposal fee. Also stripped from the final version of the bill are the electronic monitoring provisions via transponder and additional chemical disclosure provisions for “out-of-district” brine.

• SB 315 retains all previous requirements under today’s UIC law. Those transporting brine into the State of Ohio must be registered with the ODNR. Those operating UIC wells must collect all information required under the law today before the fluids are injected. This information must be reported to ODNR electronically every quarter for all vehicles, vessels and containers transporting brine, specifically rail cars.

While the book on Substitute Senate Bill 315 can now be shut, it may not be too long before the next chapter plays out before the legislature. In testimony before the House Public Utilities Committee, ODNR Director Jim Zehringer stated that the ODNR would like to revisit two issues before the legislature — broader chemical disclosure provisions and additional changes for UIC injection.

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