Articles, Alerts & Perspectives

Administrative Watch

After months of negotiation, the state of Ohio’s biennial budget was signed into law on June 30, 2013 by Governor John Kasich. The new budget covers a wide range of topics, but it is notable for what it does not include – an increase in the oil and gas severance tax. The budget also makes several changes to oil and gas industry regulations. The changes include:

• Horizontal well owners must report production on a quarterly basis rather than an annual basis;

• Beginning on March 31, 2015, well owners must disclose the country of origin of all steel pipes used in the drilling process;

• Only synthetically lined pits or impoundments may be used for temporary storage of brine and other fluids;

• After January 1, 2014, the storage, recycling, treatment, processing or disposal of brine or other waste substances must be in accordance with a permit issued by the chief of the Ohio Department of Natural Resource’s Division of Oil and Gas Resources Management, and the chief is required to adopt rules addressing the issuance of the permits;

• The owner of a horizontal well must test drill cuttings for the concentration of radium-226 and radium-228 if the material is technologically enhanced naturally occurring radioactive material (TENORM) and is not reused in connection with the well, disposed of by injection or transported out of Ohio;

• The owner or operator of a solid waste facility may accept material containing TENORM if the material contains less than five picocuries per gram above natural background of radium-226 or radium-228; and

• Material that is not TENORM, but has come in contact with refined oil-based substances, may only be disposed at an authorized solid waste facility or used in accordance with rules adopted by the director of environmental production. …

Administrative Watch 

The Ohio Department of Natural Resources, Division of Oil & Gas Resources Management, recently published new guidelines for applications for a unitization order under Revised Code Section 1509.28. That Section provides the method preferred by the industry for creating units for horizontal drilling where parcels within the proposed unit are unleased. The guidelines are intended to formalize the unitization application process and provide consistency and efficiency in the review process. The guidelines provide notice to applicants that applications lacking information listed in the guidelines will be considered to be incomplete, and will not be processed by the division.

Fifteen unitization application requirements are listed, and can be found at http://www.oilandgas.ohiodnr.gov/industry/unitization. Several requirements of particular importance are:

• Applicants must provide an affidavit setting forth a detailed account of the attempts to lease the unleased properties that includes the date of each attempt, identification of both the person contacted and the person who made the contact, and identification of how the contact was made;

• Applicants must provide a list of all uncommitted working interest owners in the unit which includes the name, address, parcel numbers and the respective acreage of each owner;

• Applicants must submit a statement of why unitization is necessary, a description of the plan for development of the unit, identification of the formation to be produced, estimated value of the recovery of oil and gas for each proposed well, an estimated cost of drilling and operating a well and a designated contact person for the applicant; and

• Applicants must bring large exhibits or slides of maps, cross-sections, gamma ray-density logs identifying the proposed formations to be produced and reserve calculations to the hearing.

The published guidelines also provide additional information concerning revisions and updates to applications, the hearing procedures, requests for continuances of the hearing and the division chief’s action on applications. …

Administrative Watch

Numerous sources, from elementary schools to chemical manufacturers will be affected by recently finalized rules governing boilers, process heaters and incineration units. In late December 2012, the U.S. Environmental Protection Agency (EPA) signed the long-awaited final revisions to its combustion air rules affecting boilers, process heaters, incinerators and kilns at a wide variety of facilities and institutions. This rulemaking package includes a revised: (1) Major Source Boiler Rule; (2) Area Source Boiler Rule; (3) Commercial and Industrial Solid Waste Incineration (CISWI) Units Rule; and (4) Non-Hazardous Secondary Materials (NHSM) Rule. After nearly two years of deliberation and legal challenges, the EPA published the final revisions in the Federal Register in late January and early February. The changes to the regulations are effective on different dates.

EPA issued the four rules together because they are interrelated. The two Boiler Rules control emissions of hazardous air pollutants from boilers and process heaters located at industrial, commercial and institutional facilities, while the CISWI Rule controls air pollutants from devices at commercial and industrial facilities (regardless of Major or Area Source designation) that combust “solid waste.” The NHSM Rule defines “solid waste” for purposes of determining which air pollution control rule applies, whether it be the CISWI Rule or one of the Boiler Rules. If, for example, a boiler located at a Major Source facility combusts “solid waste,” which the NHSM Rule defines broadly to include liquids, semisolids and contained gases, then the boiler is subject to the CISWI Rule—not the Major Source Boiler Rule. Generally, the regulated community has preferred to avoid the CISWI Rule, because it imposes tougher requirements than the Boiler Rules’ regime.

The recent revisions should prompt owners and operators of boilers and other combustion devices to evaluate whether their devices are subject to one of these rules. …

Administrative Watch

On January 30, 2013, the Ohio Supreme Court ruled that the issuance of a permit to drill a new well, deepen a well, reopen, convert or plug a well is not considered to be an “order of the chief” of the Ohio Department of Natural Resources’ Division of Oil and Gas Resources Management (DOGRM), Chesapeake Exploration, LLC, v. Oil & Gas Comm., 2013-Ohio-224 (January 30, 2013). As such, the Court held that the Ohio Oil and Gas Commission has no jurisdiction to hear an appeal of such permit under Ohio’s oil and gas law.

The case was brought before the Court by a drilling company seeking a writ of prohibition to prevent the Oil and Gas Commission from exercising jurisdiction in a landowner’s appeal of a permit to drill issued by DOGRM. In determining the Commission’s jurisdiction, the Court was asked to reconcile one provision of Ohio’s oil and gas law authorizing the Commission to hear appeals of any “order of the chief” of DOGRM (R.C. § 1509.36) with another, recently amended, provision of the statute stating that the issuance of a permit to drill “shall not be considered an order of the chief” (R.C. § 1509.06(F)). The Court concluded that R.C. 1509.06(F) manifestly divests the commission of appellate jurisdiction over the chief’s decisions to issue permits for oil and gas wells. An issue not addressed by the Court is whether a permit to drill may be appealed to state court under Ohio’s administrative procedure law.

If you would like to discuss this decision or other issues related to natural gas exploration and production in Ohio, please contact David E. Northrop at 412-394-6590 or dnorthrop@babstcalland.com, Robert W. Thomson at 412-394-5656 or rthomson@ babstcalland.com, Michael H. …

Administrative Watch

On March 27, 2012, EPA Administrator Lisa Jackson signed a Proposed Rule to establish New Source Performance Standards for emissions of Carbon Dioxide (CO2) from new affected fossil fuel-fired electric generating units (EGUs). The Proposed Rule is due, in part, to the U.S. Supreme Court’s 2007 opinion in Massachusetts et al. v. Environmental Protection Agency and the EPA’s subsequent 2009 “endangerment” finding.

The Proposed Rule would apply to EGUs that commence construction after publication of the Proposed Rule in the Federal Register. More specifically, the Proposed Rule would require “new fossil fuel-fired EGUs greater than 25 megawatt electric (MWe) to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour (lb CO2/MWh) . . . .” EPA reports that this standard is “based on the performance of widely used natural gas combined cycle (NGCC) technology.” EPA opines that, even without the Proposed Rule, no new coal-fired EGUs will be constructed through 2030 without “Carbon Capture and Storage” (CCS) technology.

EPA states that new coal-fired or pet coke-fired units could meet the standard by either employing CCS to approximately 50 percent of the CO2 in the emissions at startup, or through later application of CCS to meet the standard over a 30-year period. The Proposed Rule would not apply to existing EGUs whose CO2 emissions increase as a result of installation of pollution controls for conventional pollutants, or to proposed EGUs that have acquired a complete preconstruction permit by the publication date of the Proposed Rule and commence construction within 12 months of the publication.

Comments on the Proposed Rule will be due 60 days after publication in the Federal Register. The pre-publication copy of the Proposed Rule is available online at http://epa.gov/carbonpollutionstandard/pdfs/20120327proposal.pdf. …