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Table of Contents JULY 2017
4
A Look Ahead Gas & Oil Events
5
The Federal Whirlwind Continues
G ROUP PUBLISHER Bill Albrecht
EXECUTIVE EDITORS
6
OOGA Scholarships
8
First Rover, Now Utopia Pipelines Cut Through Wayne & Ashland Counties
9
Ray Booth RBooth@dixcom.com Rob Todor RTodor@dixcom.com Lance White LWhite@dixcom.com
Utica Shale Gas Production Climbs in First Quarter
RE G IO NAL E DIT O RS
12
Advocacy Groups Want Rover Stopped
14
Oil & Natural Gas Production on the Rise
16
How to Protect a Pipeline
Scott Shriner sshriner@recordpub.com Cathryn Stanley CStanley@dixcom.com
CO NTE NT CO O RDINAT O R
WE KNOW
Emily Rumes
THE DRILL
erumes@the-daily-record.com
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MAGAZINE
OHIO’S GAS & OIL INDUSTRY NEWS. BUSINESS. TECHNOLOGY.
CALL YOUR LOCAL OHIO GAS & OIL SALES REP. TODAY SEE PAGE 3 FOR MORE INFO 2
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Table of Contents JULY 2017 ADVER TISING
18
Kim Brenning Cambridge, Ohio Office kim@daily-jeff.com 740-439-3531
20
Oil & Gas Lease Did Not Terminate for Unpaid Royalties
22
Ohio Supreme Court Rules in Oil & Gas Lease Interpretation Case
24
NEXUS Could Meet Target Date
26
Rover Pipeline to Pay State’s Historical Society
26
Ohio Well Activity Graph
28
Horizontal Drilling Activity Graph
Kelly Gearhart Wooster & Holmes, and Ashland, Ohio Offices KGearhart@the-daily-record.com 330-287-1653 419-281-0581 Mindy Cannon Alliance & Minerva, Ohio Offices mcannon@the-review.com 330-821-1200 Diane K Ringer Kent, Ohio Office DRinger@recordpub.com 330-298-2002 Janice Wyatt National Major Accounts Sales Manager jwyatt@recordpub.com 330-541-9450
Pipeline Project Perplexes Property Owner
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IN THIS ISSUE: NEXUS COULD MEET
TARGET DATE
The latest numbers released by the Ohio Department of Natural Resources (ODNR) Division of Oil and Gas Resources Management show a modest increase in production from West where left off in , Marknumbers nthe o n h o i s t n ra e This xpa new sign of life is E a 2016. y M E definitely an encouraging sight for the gas and oil industry.
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A Look Ahead
Gas & Oil Events • July 13-17, 2017
representatives showcasing 100+ vendors annually. More information at: www.ohiofirechiefs.org/aws/ Mark your calendars and plan to join us for the 2017 OFCA/pt/sp/conference Ohio Fire & Rescue Officer Development Conference, at the Columbus Hilton at Easton. The theme for this year’s conference is Leading Tomorrow’s Leaders • July 20-21, 2017 OOGEEP STEM Teacher Workshop Today. The always popular and educational St. Clairsville, Ohio conference draws 500+ attendees and company The goal of these workshops is to help foster energy representatives showcasing 100+ vendors annually. education by connecting science education to the More information at: www.ohiofirechiefs.org/aws/ energy industry. Each free workshop includes: OFCA/pt/sp/conference curriculum, classroom supplies, material kits, seven “hands-on” learning stations, evening social • July 13-17, 2017 gathering, a special oilfield tour (day 2), Continuing Mark your calendars and plan to join us for the 2017 Education Units credit documentation, overnight Ohio Fire & Rescue Officer Development Conference accommodations, meals and much more! Optional at the Columbus Hilton at Easton. The theme for this graduate credits are available through Ashland year’s conference is Leading Tomorrow’s Leaders University at an additional cost. Today. The always popular and educational More information at http://oogeep.org/events/ conference draws 500+ attendees and company
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The Federal Whirlwind Continues From the OOGA VP of Public Affairs
A
Penny Seipel • OOGA, Vice President of Public Affairs nother day brings another regulatory or legislative issue being discussed at the federal level, and for once, we can say that those in the oil and gas industry are enthusiastic about the prospect. Before President Trump was elected, America’s energy producers had been targeted for eight long years by the Obama administration, which was searching for ways to regulate the industry out of business—putting YOU out of business.
would not support the CRA, in voting against it: Lindsey Graham (R-SC) and Susan Collins (R-ME). In spite of its failure, OOGA would like to thank Senator Portman and his colleagues who voted to support the CRA.
While the CRA’s failure was a disappointment, this is not the end of the opportunity to revise and improve the rule. Through President’s Trumps previously issued executive order, the Department of Interior had been directed to review the Venting and Flaring Rule. Almost immediately In a past article featured in the April edition of the after the vote, the BLM issued a statement that they would Bulletin, I shared updates on President Trump’s Executive be suspending the rule while the agency worked to begin Orders focused on regulatory reform and encouraging the formal process to revise it. domestic energy production. Those activities continue at a fast and furious pace, attempting to right the regulatory OOGA will be looking forward to working with our ship, which had gone far off course under the Obama producers, with our federal partners, and with the Administration. Director Zinke to make the BLM’s venting and flaring rule more reasonable than what the previous administration In addition to Presidential action, Congress has been hard enacted. at work as well. In March, the U.S. House of Representatives had passed the Congressional Review Act (CRA) to stop the Bureau of Land Management’s (BLM) Venting and Flaring Rule which would have required that both new wells and existing wells on federal land be subject to strict emissions control requirements. At the time we applauded the House on their good work and began the task of educating members of the U.S. Senate on the dire impact the rule could have on the industry. For two long months the CRA languished in the Senate, the deadline for passage rapidly approached. One of the U.S. Senate members that had outstanding questions was Ohio’s own Rob Portman. OOGA worked to illustrate the detrimental effects of the rule, Department of Interior Secretary Ryan Zinke also worked tirelessly with the Senator to find a path forward to address the Senators outstanding concerns (BLM is a division within the Department of Interior). Finally, we got the word that Senator Portman would vote to support use of the CRA to repeal the Venting and Flaring Rule, with the vote scheduled for May 10, 2017.
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On the morning of May 10, OOGA was excited that the Senate was prepared to move the issue to the Senate floor for a vote. To our great shock, as well as for his colleagues leading the issue in the Senate, we got word that Senator John McCain (R-AZ), who was believed to be supporting the CRA came out against it. Senator McCain joined two other Republicans, who had previously stated that they
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OOGA Scholarships T
he Ohio Oil and Gas Energy Education Program announced that Carter Streiff of Salesville, Ohio has received a $1,000 scholarship to pursue a career in the oil and natural gas industry. Streiff is working toward an engineering degree at Ohio University.
Samuel Wilhelm and Tyler Sealover of Zanesville, Payton Henderson of Chandlersville, Hunter Barnes of Duncan Falls and Mitchell Horner of New Concord have each received $1,000 scholarships to pursue oil and natural gas related degrees. Horner, Sealover and Wilhelm are Muskingum University students, while Henderson and Barnes attend Marietta “The oil and gas industry is growing now College. more than ever before,” said Streiff. “Once I receive my degree, I will be able to do my “There is so much good that comes out of part in helping the industry prosper.” our energy infrastructure, that I knew I had to be a part of it,” said Wilhelm. “OOGEEP Five Muskingum County students have has been with me every step of the way.” received scholarship funding to continue their higher education studies in the oil and “I enjoy problem solving and finding better gas industry through a program sponsored ways to do things,” says Horner. “I will bring by the Ohio Oil and Gas Energy Education these qualities to the oil and gas industry to Program. find ways to better it.”
This year, OOGEEP has awarded another 50 scholarships to students pursuing careers in Ohio’s oil and gas industry. To date, the OOGEEP’s scholarship program has funded over $350,000 in scholarships to students attending 31 different colleges, universities and trade or technical schools pursuing 39 different career degrees or certificates. A complete list of scholarship recipients is available here.
“As Ohio’s crude oil and natural gas industry moves toward advancing our state, nation and the world with reliable and affordable energy, these students will be at the forefront of this activity,” said Frank Gonzalez, Scholarship Committee Chair, and GonzOil, Inc. “We are encouraged “I want to make by their determination, leadership and the oil industry commitment as they chart their career goals more efficient with within our industry.” resources,” said Henderson. “I aspire “Ohio’s oil and natural gas producers are to help promote committed to seeking out and assisting public awareness of the next generation of energy industry the oil industry and leadership in our state,” said Rhonda its economic benefits Reda, OOGEEP Executive Director. “Our to society.” scholarship recipients represent some of our state’s best and brightest students. We “I want to search are excited to play a role in their educational and find new ways journey.” to bring energy to the energy poor The scholarships are made possible by countries using contributions from Ohio’s oil and natural gas oil and gas,” said producers, and funded through OOGEEP’s Barnes. 501(c)(3) foundation. Each scholarship is renewal for up to four years. Producers “I want to continue and affiliated companies interested in what others have supporting the industry’s scholarship efforts begun to do, in are encouraged to contact OOGEEP to learn paving the way for how to make a tax-deductible donation. not only innovative change, but also OOGEEP works with over 70 Ohio colleges, be a pioneer of universities, and career and technical efficiency,” said schools that offer training for the 75 different Sealover. “I have careers serving the crude oil and natural gas more than enough industry.
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First Rover, Now Utopia Pipelines Cut Through
Wayne & Ashland Counties Bobby Warren • GateHouse Media
K
inder Morgan officials have seen the kind of news coverage another pipeline project has received, and they are hopeful they can avoid some of it as the Utopia project continues through Wayne County. The Utopia and Rover projects are much different in scope and size. The Utopia will be a single 12-inch line running for 215 miles. Rover is two 42-inch pipes. Utopia will carry ethane and ethane-propane mixtures from the Harrison County area through Ohio, cutting through Wayne and Ashland counties. The product will ultimately reach Windsor, Ontario, where it will be used in making plastics. Because the Utopia Pipeline runs entirely within this state, it falls under the jurisdiction of the Ohio Department of Natural Resources. Rover, a multistate project, falls under the supervision of the Federal Energy Regulatory Commission. Utopia’s route through Wayne County is final, and it involves 157 tracts of land and 110 landowners. Crews are currently installing the pipe. Kinder Morgan has reached agreements with all of the property owners in Wayne County, said Allen Fore, vice president of public affairs Kinder Morgan. A small percentage of property owners had not reached an agreement along the pipeline, and compensation is a big part of it.
Pipeline projects continue throughout Wayne & Ashland Counties. While Kinder Morgan is hoping for everything to go smoothly, Stuart Mykrantz has had an issue on his property. His agreement reads he will have access to the back part of his property. However, the pipeline on his property has not yet been buried, meaning he does not have access to that back area. “You can’t get from one side to the other,” Mykrantz said. “The pipe should have been buried.” However, Mykrantz said he was told the order in which the pipe was being buried was changed, and it would take a few weeks before it is done on his property. He was also told the company would compensate him for his troubles.
“It’s in everyone’s best interest to get everything done up front,” Fore said. “They will be part of our system for a long time.” Hay grows in the back section, and “The longer it stays in the field, the less it is worth,” he said. “The longer it takes to get it off, Fore said he believes Kinder Morgan has done a good job then you get into the summer days, and as it gets hotter, it does preparing for the project, and even though construction is not grow as fast. ... underway, public awareness and education is still important. “But, my contract says ‘You will have access.’” “A successful project ... is when you make people whole,” Fore said. He recognizes issues will arise on a project, “but it is how you address it and fix it.”
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Fore did not know the particulars of Mykrantz’s situation, “But, if we agreed to unfettered access to his property 24/7, we either need to give it to him or compensate him for it,” Fore said.
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Reporter Bobby Warren can be reached at 330-287-1639 or bwarren@ the-daily-record.com. He is @BobbyWarrenTDR on Twitter. GasandOilMag.com
Utica Shale Gas Production
Climbs in First Quarter
N
Jackie Stewart • Energy In Depth-Ohio ew data released by the Ohio Department of Natural Resources (ODNR) show Ohio shale natural gas production continued its upward trajectory in the first quarter of 2017. Ohio Utica Shale wells produced 371,921,659 Mcf (371 billion cubic feet) of natural gas in the first quarter, a 13 percent increase compared to the first quarter of 2016. Not surprisingly, the best wells were again found in Monroe and Belmont Counties, as the table on page
10 illustrates. Eclipse Resources and Gulfport Energy nabbed the top spots this past quarter for best producing wells. And while Jefferson County did not make the top-10 list, Ascent Resources and Chesapeake both had strong producing wells in that county as well. Noble and Harrison counties round out the overall best producing counties in Ohio, but it’s extremely clear that Monroe County is continuing to show the best production results consistently quarter after quarter. Story continued on page 10
According to ODNR, 1,560 shale wells reported oil and gas production in the first quarter, and ODNR also announced: • The average amount of oil produced was 2,503 barrels. • The average amount of natural gas produced was 238,411 Mcf. • The average number of first quarter days in production was 86.
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Top 10 Natural Gas Wells RANK
OPERATOR
COUNTY
TOWNSHIP
OIL
GAS
1
ECLIPSE RESOURCES I LP
MONROE
SALEM
0
2,211,694
2
ECLIPSE RESOURCES I LP
MONROE
SALEM
0
1,812,158
3
ECLIPSE RESOURCES I LP
MONROE
SALEM
0
1,772,993
4
ECLIPSE RESOURCES I LP
MONROE
SALEM
0
1,737,737
5
ECLIPSE RESOURCES I LP
MONROE
SALEM
0
1,725,731
6
GULFPORT ENERGY CORPORATION
BELMONT
YORK
0
1,647,486
7
GULFPORT ENERGY CORPORATION
BELMONT
YORK
0
1,632,222
8
GULFPORT ENERGY CORPORATION
BELMONT
YORK
0
1,591,283
9
GULFPORT ENERGY CORPORATION
BELMONT
YORK
0
1,586,510
10
GULFPORT ENERGY CORPORATION
BELMONT
YORK
0
1,585,471
Guernsey and Harrison Counties topped the top-10 quarter. Ohio shale oil production was 3,904,732 barrels best producing oil wells. Eclipse Resources and Ascent in the first quarter, down 29 percent compared to the first Resources showed the best producing oil wells this quarter of 2016.
Top 10 Oil Wells RANK
OPERATOR
COUNTY
TOWNSHIP
OIL
GAS
1
ECLIPSE RESOURCES I LP
GUERNSEY
MILLWOOD
68,171
543,318
2
ASCENT RESOURCES UTICA LLC
HARRISON
NOTTINGHAM
58,468
456,904
3
ASCENT RESOURCES UTICA LLC
HARRISON
NOTTINGHAM
57,985
446,289
4
ASCENT RESOURCES UTICA LLC
HARRISON
NOTTINGHAM
53,677
444,520
5
ASCENT RESOURCES UTICA LLC
GUERNSEY
LONDONDERRY
53,006
265,916
6
ASCENT RESOURCES UTICA LLC
HARRISON
NOTTINGHAM
52,736
458,304
7
ASCENT RESOURCES UTICA LLC
GUERNSEY
LONDONDERRY
52,327
276,342
8
ASCENT RESOURCES UTICA LLC
HARRISON
NOTTINGHAM
52,035
452,818
9
ASCENT RESOURCES UTICA LLC
GUERNSEY
LONDONDERRY
51,790
268,193
10
ASCENT RESOURCES UTICA LLC
GUERNSEY
LONDONDERRY
51,101
272,581
The Utica’s production this quarter and throughout 2016 were significant contributing factors to the United States’ retaining its status as the world’s top producer of both petroleum and natural gas for the fifth straight year in 2016, according to data released last week by the U.S. Energy Information Administration (EIA). Thanks largely to advances in horizontal drilling and hydraulic fracturing technology, the U.S. initially surpassed Russia and Saudi Arabia as the world’s top overall producer of oil and gas in 2012.
10 OhioGas&Oil
Recent Ohio production trends are in line with what has occurred nationwide, particularly with regard to declines in oil production, as nationwide oil production actually fell slightly in 2016 compared to the prior year ’s output level, diminishing by 300,000 barrels per day (bpd) due to consistently low commodity prices that provided incentive for American producers to scale back new drilling in high-cost basins. For most of 2016, U.S. natural gas prices in were at their lowest level since 1999, contributing to an output reduction of 2.3 billion cubic feet per day (bcfd). GasandOilMag.com
But, as EIA noted in its June 6 Short Term Energy Outlook, U.S. oil production should reach 9.3 million bpd in 2017, up from 8.9 million bpd last year, in addition to shattering the all-time production by reaching 10 mbpd by 2018. ODNR released Ohio’s first quarter production results just days after this outlook was published by EIA, and it’s clear that 2017 is already showing improving figures.
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These improving figures are in large part due to a modest price recovery and current record-high exports of oil and natural gas from the United States. The shale gas boom has unleashed a wave of liquefied natural gas (LNG) exports over the past year, and the U.S. has now exported LNG to 20 countries. That number will only go up as more export terminals become operational in the next few years. And with Russia and Saudi Arabia set to abide by oil production limits until March 2018 as part of the recent OPEC agreement, it’s shaping up to be another record-breaking year for the U.S. in 2017.
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If Ohio’s first quarter production results are an indicator of things to come, the United States may in fact realize the encouraging prediction laid out by the EIA for 2017.
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Advocacy Groups Want
Rover Stopped
R
Bobby Warren • GateHouse Media over Pipeline officials continue to respond to the inadvertent release of 2 million gallons of drilling fluid in Stark County, outlining federal commission measures they have taken and will take to address
Partners from starting any new horizontal directional drilling on the Rover project, but the environmental and advocacy groups want the entire thing shutdown.
Joey Mahmoud, executive vice president of engineering for Energy Transfer Partners, responded to FERC, writing, “Environmental stewardship is a core value of our organization. The Rover project falls within the jurisdiction of the Federal We strive in all our construction projects to utilize best practices Energy Regulatory Commission because it is an interstate line to protect the environment.” carrying natural gas. There are those who voiced opposition to the Rover Pipeline during public hearings organized by FERC As a result of the spill, the company has filed a supplement to due to environmental concerns, and the release of drilling its horizontal directional drilling contingency plan. It includes: fluid, a slurry of bentonite clay and water, has only intensified the opposition. • Monitoring procedures to identify inadvertent releases as soon as possible; Nearly 115 organizations, including Sustainable Medina County, submitted a letter to FERC asking it to halt the Rover • Notification procedures to ensure FERC and others are aware of the event; project. Due to the spill, FERC has prohibited Energy Transfer concerns.
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• Corrective actions to immediately begin remediation of an inadvertent release; and • Contingency plans in the event the HDD cannot be safely maintained. Rover has hired GeoEngineers to analyze data and design drawings for each of project’s remaining horizontal drills, and GeoEngineers will serve as an onsite supervisory role for each drill site. It will also add personnel at these locations to better identify any spills. Attorneys from Columbus-based Goldman & Braunstein have filed comments to FERC on behalf of the firm’s 200-plus clients who are property owners along the route. In a follow-up to a May 11 public comment, the attorneys wrote, “Rover continues to trespass on these properties by installing and leaving in place outside of the approved right-of-way sediment filtration structures constructed using straw bales. Rover’s dewatering activities also are causing damage to adjacent agricultural land. Rover is pumping excess water into saturated fields causing prolonged flooding. “Rover is also pumping unfiltered, silt-laden waters into adjacent fields and streams. Additionally, Rover continues to violate the Agricultural Impact Mitigation Plan (‘AIMP’) by operating heavy equipment in extremely wet conditions and by cutting field drain tile and leaving it unscreened and otherwise exposed and vulnerable to contamination ….” GasandOilMag.com
Dan Plumly, a partner with Critchfield Critchfield and Johnston, said just about all his clients who own property along the pipeline route have had some kind of issue, whether major or minor, with Rover. A construction report filed in mid-May outlined some of the problems in Wayne County. There was the spill of 200 gallons of drilling fluid that was cleaned. Many of the problems listed dealt with mixing topsoils and subsoils or wetlands soils. When these issues are identified, they are immediately addressed by separating the soils. Some of the problems have been due to the rains. “Rover Pipeline understands the concerns of Ohio farmers related to the issues caused by the unprecedented recent rainfall in the state, The Rover Pipeline crossing farmland in Wayne County. which have caused our construction workspace and pipeline trenches to fill with water,” the same time avoiding and minimizing impacts to crops and spokeswoman Alexis Daniel stated in an email on May 19. “We working within the bounds of our certificated right-of-way as are working with the Ohio Environmental Protection Agency approved by FERC.” (EPA), the Federal Energy Regulatory Agency (FERC) and the impacted farmers to remove the water from our construction Reporter Bobby Warren can be reached at 330-287-1639 or bwarren@ workspace as quickly and as efficiently as possible, while at the-daily-record.com. He is @BobbyWarrenTDR on Twitter.
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Oil & Natural Gas
Production on the Rise Lyndsey Kleven • OOGA, Communications Coordinator
T
he latest oil and natural gas horizontal production numbers released by the Ohio Department of Natural Resources (ODNR) Division of Oil and Gas Resources Management show a modest increase in production from where we left off ending 2016. The quarterly results show that Ohio producers recovered 3,904,732 barrels of oil and 371,921,659 Mcf (371 billion cubic feet) of natural gas, spanning the first quarter of 2017. The results are always reflective of the previous quarter, this time covering all oil and gas production that took place January 1, 2017 through March 31, 2017 across Ohio.
for oil (up from 3,577,553 barrels) and 8% for natural gas (up from 345 billion cubic feet). Yes, we are up from the lowest point thus far, which is reassuring but production is still increasing modestly.
For example, some of the largest production increases on a quarterly basis that we have seen in the ODNR’s statistics is oil increasing 26% in the second quarter of 2015 (going from 4,401,687 in first quarter, to 5,578,255 in the second) and natural gas increasing 23% in the fourth quarter of 2015 (going from 245 bcf in the third quarter, to 404 bcf in the fourth quarter). Since both of those quarters, if production was not decreasing—which it did The production results this quarter are a positive sign, as at one point for both products—we have only seen single we left 2016 seeing both oil and natural gas production digit percentage increases. decrease for the first time since ODNR began recording horizontal production numbers. Production increased 9% So how does someone make sense of seeing any array of headlines with conflicting message like these: Ohio oil production down in first quarter 1Q Valley oil, gas production down year over year Natural-gas output on rise, oil down in Ohio Ohio natural-gas production continued to rise in first quarter as oil numbers fell Utica Shale Oil, Natural Gas Volumes Rebound in First Quarter
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The confusion behind some of these headlines is that outlets are choosing to report on Q1 2017 compared to Q1 2016. Go back to the first paragraph of this post, and you will see that the number have increased—for both commodities. When looking for an overall trend of a cyclical industry, a quarter-by-quarter comparison over a number of years tends to provide the most accurate representation. We are encouraged to see that oil and natural gas producers are slowly ramping back up. The past two years brought a crippling downturn for the industry and this new sign of life is definitely welcomed by the industry.
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OhioGas&Oil 15
How to
Protect a Pipeline
P
Jacob Runnels • GateHouse Media ipelines aren’t perfect, and that’s metal deformations or characteristics” that would lead to a evident with something like the recent weakness in the pipe’s walls. gas spill with Energy Transfer Partners’ He said corrosion of the pipelines involves “degradation Rover gas pipeline in April. through erosion,” which there are multiple ways to correct The Rover pipeline is a project that would this, ranging from protecting it with a fusion-bonded epoxy, involve an interstate pipeline transporting natural gas from to rock shields, and to simply pouring concrete around the the Marcellus and Utica shales, and it recently had a burst pipe if there are buoyancy issues. when, according to the Canton Repository, construction workers had “inadvertently released two million gallons According to the Pipeline and Hazardous Material Safety of drilling mud into 6.5 acres of wetland.” Jason Harris, Administration (PHMSA), an agency of the U.S. Department technical oversight engineer for Dominion Energy, said of Transportation, states, from 2011 to 2016, corrosion incidents where a third party causes an incidents like the accounted for 315 reported pipeline incidents, or 21 percent of all 1,493 the reported pipeline incidents within those five Rover pipeline spill are common. years. That number was comprised of 127 (or 8.5 percent of “Third party damage is probably the more common operator the total) external damage and 188 (or 12.6 percent of the issue, and sometimes the operator can’t prevent it,” he said. total) internal damage reports. “Most of the time if there’s an issue with third party damage it’s because... they struck the pipeline or removed a portion However, there are 137 (or 9.2 percent of the total) incidents of the coating, unbeknownst to the operator, which causes involving incorrect operation, which can involve “damage by operator or operator’s contractor.” This, along with 142 problems down the road.” (or 9.5 percent of the total) reports of outside force damage Harris said some pipeline incidents can come from other and the 101 (or 6.8 percent of the total) reports of natural reasons, such as metallurgic flaws and corrosion. He said force incidents, total up to 380 (or 25.5 percent of the total) metallurgic flaws can happen from coke or other manmade of all incidents reported where the operator had no control or natural products experiencing a large change in chemistry. over the effect of third parties and other forces. With this, gives “opportunities for small fissures or other Overall, corrosion incidents in that five year time frame resulted in $402 million in losses. Incidents a company couldn’t account for — damage caused by operators, contractors, and nature — resulted in more than $353 million in losses. Compared to that data, however, the PHMSA states there were 505 (or 33.8 percent of the total) reports for materials failure, such as defective tubing, malfunctions of control/ relief equipment, and other equipment failures. This totaled up to $399.4 million in losses. When creating the parts that make up a pipeline, there are ways to deal with problems such as corrosion. Harris said 16 OhioGas&Oil
GasandOilMag.com
“We comply with all the relevant safety requirements and environmental regulations,” Durbin said. “In doing so, that goes a long way toward building that credibility and trust within the community and the governmental entities we deal with on pipeline projects.” Harris said companies are making strides toward advancing their technology to prevent more mistakes, but there are some hard sells, such as people who simply don’t want to have a pipeline built near them. He said PHMSA often gets “directly involved with changes to the code,” and is there to initiate research and development grants for broadening research on pipeline safety.
This chart shows the break down of pipeline incident causes (on average) over a 5 year period.
He said, with each incident comes the regulatory codes they follow include creating cathodic the opportunity for PHMSA to build “a better mousetrap,” protection for pipelines that protect them from degradation. to help make new legislation to prevent mistakes from There are also “smart pig” equipment that helps detect leaks. happening again. He said pipelines get in-line inspections every seven years, but not every pipeline gets inspections as frequently. He said this is “based on the code requirements.” The company would take the inspections and then have them audited by the Public Utilities Commission of Ohio (PUCO).
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“These are all things that are put in place to try to eliminate those demographics that are issues for us in the field,” he said.
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Harris said, when pipelines are about to be built, there are many federal requirements a company must go through beforehand, such as contacting the PUCO, as well as contact the Ohio Utilities Protection Service. He said Dominion Energy talks to the Environmental Protection Agency and many other organizations to get its “environmental ducks in a row.” However, these regulations vary based on the type of facility it is, either interstate or intrastate.
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Ultimately, though, with the Rover pipeline burst, according to InsideClimate News, “more than 100 local and environmental groups are demanding federal regulators immediately halt all construction” of the project because of its effect on the environment. With that, Neil Durbin, senior communications specialist for Dominion Energy, said the way to combat that mentality with new pipeline projects is to assure people that the company responsible is complying with all federal mandates for upholding safety with construction.
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This land is not part of an easement agreement on the Rover Pipeline project, says property owner Roger Meggyesy. He wants the company to mitigate his property at the corner of Blachleyville and Firestone roads when it restores the land on the right of way.
Pipeline Project
Perplexes Property Owner Bobby Warren • GateHouse Media
A
fter the Rover Pipeline was announced and Roger Meggyesy learned it would bisect farmland he owns, he expressed concerns about maintaining the quality of the topsoil and proper mitigation programs to restore productivity. That was in 2015. Fast-forward to 2017, and Meggyesy’s fears have not been allayed, which prompted him to request a roadside meeting with a pipeline monitor and environmental inspectors. “We worked to get good easements and good language (in the contract), but once construction started, everyone seemed to forget,” Meggyesy told Gary Anderson, a third-party pipeline inspector who submits his reports
to the Federal Energy Regulatory Commission; Damon McCarthy, who deals with right-of-way issues on the project; and inspectors from Land Stewards, including Wendell Swartzentruber, who monitors the work to minimize environmental impacts. Joining the makeshift meeting on the side of the road at the intersection of Blachleyville and Firestone roads were Lindsay Shoup, organizational director for the Wayne County Farm Bureau; Roger Baker, a farmer and state trustee for the Ohio Farm Bureau; and Rod Scheibe, a dairy farmer who rents land from Meggyesy.
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“I don’t appreciate what’s been done,” Meggyesy said. He wants Rover to put that corner of his property under the same mitigation plan in place to restore the rest of the land. “Give us the damages and put it under mitigation plan. When you mitigate that, you mitigate this. ...
Because Meggyesy uses a wheelchair to get around, he sat in his vehicle the whole time. However, he had a perfect vantage point from which he could point out compliance problems. He told the group to look CANOEING at his property & KAYAKING and notice how One of the best Reasons for truck tracks were Canoeing or Kayaking at present at the Camp Toodik is convenience. corner.
“Why do we have to come and fight after the fact?”
“Look at the tracks,” Meggyesy said. “This is not the easement; this is not the ingress or egress.”
Scheibe alleged workers moved survey stakes off the easement onto the farm property to allow for a larger work area.
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It bothered Meggyesy that workers appeared to use his property to access the pipeline right of way, but Energy Transfer Partners opted not to pay him to use that portion of the land. So, trucks were supposed to be limited to accessing the project from Blachleyville Road/state Route 95.
Meggyesy answered his own question: “Because the ends justify the means.” During the meeting, Meggyesy did not hold back his feelings and opinions, but he also made clear he was not directing his frustrations at the workers, rather at “the people in Houston” from Energy Transfer Partners.
“We sent survey crews back out to this property following the meeting with GasandOilMag.com
the landowner to verify the placement of our stakes,” Rover spokeswoman Alexis Daniel wrote in an email. “We confirmed that our stakes were properly placed and the easement was marked correctly. We were not working outside of our approved easement. ...
Baker asked, why does it become the farmers’ problem to demonstrate the project had an impact on production and yields?
The contract for the Meggyesy land includes language that Rover will pay for 100 percent crop loss in years one “We take all landowner concerns and two; 60 percent in year three; 30 seriously and want to ensure we remain percent in year four; and 10 percent in good neighbors for many years to come year five, McCarthy said. as we complete construction and begin Swartzentruber explained the soil was operations.” “triple-lifted,” meaning topsoil was Baker, who was not there in an official separated, along with the subsoil and capacity for Farm Bureau and who substrata. A couple piles were close does not have a “dog in the hunt,” let together, and there was some mixing. Anderson and McCarthy know farmers are talking about the project. He asked If there is a dispute, then the contracts questions to better understand how and guidelines are consulted, Anderson issues are resolved. Another concern said. “I have to make sure (the Meggyesy had, and it has been reported contractors) go by them. I am an extra elsewhere along the project line in set of eyes out here.” weekly reports submitted to FERC, is Anderson provides an additional the mixing of topsoil and subsoils.
level of accountability beyond the consultants from Land Stewards, but “I have two spreads and a lot of stuff to look at. I can’t be everywhere.” His area covers nearly 100 miles. Anderson said he was going to write up a noncompliance issue in a report, which will get sent to Washington, D.C. “I wish you would say, ‘We did wrong; it is a mess; and I will add your property to mitigation plan,’” Meggyesy said. He doesn’t want his property any better than it was, he added, but he wants it just as good. Reporter Bobby Warren can be reached at 330-287-1639 or bwarren@the-dailyrecord.com. He is @BobbyWarrenTDR on Twitter.
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OhioGas&Oil 19
Oil & Gas Lease Did Not
Terminate for Unpaid Royalties
A
Dan Trevas • Court News Ohio lease to drill for oil and gas in Washington County did not terminate when the energy companies failed to pay annual royalties it promised the landowners, the Ohio Supreme Court ruled on June 1.
The company completed two wells within a year, and neither produced oil. One well produced gas in 2007, but not since. The other has produced gas since its inception in 2007. Between 2007 and 2013, Alliance only paid the Bohlens $5,500 once, and every other year paid between $4,172 and $5,448. During that period, At issue was a form contract that was altered by striking out Alliance assigned part of its lease interest to Anadarko E&O provisions, and adding an addendum that caused the parties Onshore LLC. to dispute whether failure to pay a “delay rental” was a reason to terminate a contract. Writing for the Supreme Court majority, Bohlens Seek to Terminate Lease Justice Patrick F. Fischer ruled the energy companies complied with the provision that prevented the contract from terminating, In 2013, the Bohlens filed for a declaratory judgment in and remanded the case to the trial court for further proceedings. Washington County Common Pleas Court requesting an order that the lease be declared forfeited. They argued the lease violated Company Drilled and Underpaid public policy because it allowed the companies to tie up the land indefinitely by only paying the $5,500 annual rentals. They also Ronald and Barbara Bohlen own 12 parcels of land covering 500 suggested that the lease terminated when the companies failed acres in Lawrence Township, Washington County. In 2006, the to pay $5,500 and that it terminated because the wells failed to Bohlens entered an oil and gas lease with Alliance Petroleum produce. Corp., which granted the company exclusive rights to use the land for exploration. Alliance agreed to make a royalty payment The trial court sided with the Bohlens accepting all three of their to the Bohlens based on gas production and proceeds. arguments. The companies appealed to the Fourth District Court of Appeals, which reversed the trial court’s decision. In late 2014 The lease contained an industry-standard “habendum clause” Artex Energy Group LLC became a successor to Anadarko, and that required the company to drill a well within one year and the Bohlens appealed the decision in favor of the three energy allowed the company to lease the property as long as oil and gas companies to the Ohio Supreme Court, which agreed to hear the were capable of being produced in paying quantities. case. The lease contained a provision to pay a delay rental of $5,500 for each year it deferred from drilling a well. If it did not pay the delay rental, the lease terminated. Separately, the lease contained an addendum that provided that Alliance would make up the shortfall between the royalty payments and the “annual rental payments” when the royalty payments were less than $5,500.
Leases Are Enforceable Contracts Justice Fischer explained that the Court had previously noted that while oil and gas leases deal with property interests, they are contracts and the principles of contract law apply. This prompted the Court to examine the terms of the contract and determine what the parties intended when they used the terms “delay rental” and “annual rental payments” in this specific contract.
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Oil and gas leases generally have a habendum clause with two components: a “primary term” that requires a definitive action, and a “secondary term” that carries on for an unspecified duration as long as certain conditions are met, typically producing oil and gas in paying quantities. A delay rental clause permits an energy company to delay drilling as long as it pays the landowner for the right. Citing recent Ohio Supreme Court and appellate court decisions, the Court noted that the delay rental provision only applies to the primary term.
20 OhioGas&Oil
In this lease, Alliance was required to drill a well within one year of signing the agreement with the Bohlens, or pay a $5,500
GasandOilMag.com
delay rental fee. The Bohlens maintained that this lease was not typical in that the parties struck out some of the language dealing with delay rentals and added an addendum that provided that Alliance must pay the $5,500 annual rental.
opinion stated.
The couple argued the two clauses must be read together to mean that if the energy companies paid less than $5,500 a year, the lease terminates.
The Court also rejected the argument that the arrangement violated the public policy against perpetual leases. The Bohlens cited the Court’s 1983 Ionno v. Glen-Gery Corp. decision where a mining company was found to have breached the “implied duty to reasonably develop the land” because the lease did not contain a time when mining operations needed to start. That type of lease allowed the mining company to pay a minimal delay rental for as many years as it wanted without ever having to mine, which the Court found violated public policy and was void.
The Court disagreed. It ruled that since the company drilled two wells in the first year, the delay rental clause was not triggered. The lease was in its secondary term when the companies failed to pay the full $5,500.
The opinion noted that whether the companies owe the Bohlens for the underpayment was not an “issue before this Court.”
that oil and gas leases with habendum clauses do not allow for perpetual payments to avoid drilling. The Court ruled delay rental payments apply only to the definite primary term. In this case, that term was one year, and the companies met the obligation by drilling the wells. Delay rental payments do not apply to the indefinite secondary term, and the lease does not allow the companies to indefinitely stall drilling without paying. Chief Justice Maureen O’Connor and Justices Terrence O’Donnell, Judith L. French, William M. O’Neill and R. Patrick DeWine joined Justice Fischer’s opinion. Justice Sharon L. Kennedy concurred in judgment only.
“Therefore, we conclude that the underpayment by the lessees of the 2015-0187. Bohlen v. Anadarko E&P minimum annual rental, as provided in Onshore LLC, Slip Opinion No. 2017the lease addendum, does not entitle the Recently, the Court explained in its 2016 Ohio-4025. Bohlens to a forfeiture of the lease under State ex rel. Claugus Family Farm, L.P. v. the unrelated delay-rental clause,” the Seventh Dist. Court of Appeals decision
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OhioGas&Oil 21
Ohio Supreme Court Rules in
Oil & Gas Lease Interpretation Case
I
David J. Wigham • Attorney
n yet another case in a long series of rulings brought about by Ohio’s shale boom, the Supreme Court of Ohio has interpreted the terms of a certain oil and gas lease in favor of the producer and against the landowner. This case that should be a wake-up call to all landowners about the importance of having oil and gas leases carefully reviewed and revised prior to signing them.
to produce in paying quantities – does not constitute a legal basis to terminate a lease.
It has been long held in Ohio that oil and gas leases fall under the purview of contract law; thus, leases are interpreted under the same rules as traditional contracts. This means that rights and remedies of parties to an oil and gas lease are determined by the rules governing the interpretation of the written document, i.e., the lease. Bohlen restated this law In Bohlen v. Anadarko E&P Onshore, L.L.C, the Supreme and gave it continued vitality. Court of Ohio affirmed the long-standing rule that oil and gas leases are contracts and are generally determined by The Bohlen Court then explained how oil and gas leases the terms of the written document. Therefore, according to typically contain two terms: (1) a primary term, which is a the Court, the landowner could not void the lease at issue definite term (typically in years) during which the producer because, according to the lease, the delay rental provision did must commence drilling a well to avoid expiration of the not extend beyond the one-year primary term, and a poorly lease, and (2) a secondary term, which is an indefinite that worded minimum royalty provision in the lease addendum typically extends the lease “for so much longer thereafter” was held to be inapplicable. In general, in Ohio, a producer’s as oil or gas are produced in paying quantities. The Court failure to pay royalties – as opposed to the failure of a well also reviewed the purpose of a “delay rental” clause, which serves to extend the primary term upon payment of delay rents to the landowner.
WO-10516536
In Bohlen, the core of the dispute surrounded the interplay between two lease provisions: the delay rental provision and a minimum royalty provision (unartfully referred to in the lease addendum as an “annual rental”) to be once a well was drilled. The problem was that both terms contained the word “rental.” It was undisputed that the producer had failed to pay the “annual rental.” The landowner therefore argued, among other things, that the producer’s failure to pay this “annual rental” during the secondary term entitled the landowner to void the lease under the “delay rental” clause.
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The Supreme Court of Ohio rejected this argument, ruling instead that the parties must adhere to the plain, unambiguous language of the agreement, which provided that the lease terminated only if the deferment of a well went beyond the one-year primary term without the payment of “delay rents.” Because the producer had already drilled wells within the primary term, the lease was in its secondary term and the delay rental clause did not apply. In addition, the lease did not contain a clause that terminated the lease if the annual rent was not paid. Therefore, it was determined that the lease was still valid and did not expire, even though the annual rent was not paid. The ruling in Bohlen underscores the importance of landowners carefully reviewing and negotiating oil and gas GasandOilMag.com
leases before they are signed. Once signed, oil and gas leases bind the parties, like any other contract, and cannot be revised or terminated, without the written consent of both parties to the agreement. Also, oil and gas leases are likely to remain effective for decades. Landowners should never simply sign the initial lease offer from a producer, as these leases are very likely to contain provisions that are much more favorable to the producer and much less favorable to the landowner. Usually, landowners will be able to substantially revise a proposed oil and gas lease by adding landowner-friendly terms in what is known as a lease addendum. Tis must be done before the lease is signed. The lease addendum will modify the lease and is signed at the same time as the lease.
knowledgeable and experienced oil and gas attorney to be a guide in reviewing and entering into lease agreements for valuable oil and gas interests. David J. Wigham is a second-generation Ohio oil and gas attorney with more than 25 years of experience in the industry. He practices at the law firm of Roetzel & Andress and maintains offices in Akron and Wooster, Ohio. He can be reached at 330-762-7969.
Given the Shale boom in Ohio, the complexity of the new Shale leases used by producers, and the tremendous financial consequences of signing a bad lease, landowners are strongly encouraged to seek the assistance of experienced legal counsel during lease negotiations and before signing a lease. This will allow the landowner to avoid the unfavorable consequences of a bad lease in which the language is either ambiguous or unfavorable but to which landowners will be forced to adhere for the duration of the lease. The Bohlen case is just one example highlighting the complexity of oil and gas leases, and the need for engaging the services of a
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OhioGas&Oil 23
NEXUS Could Meet Target Date Pipeline Still Could Hit Year-End Service Target If FERC Gives Approval Soon Shane Hoover • GateHouse Media
T
he stalled NEXUS Gas Transmission project still could be completed before year’s end, but federal regulators would have to approve the pipeline soon to meet that target.
and Marcellus shales to users in Ohio, Michigan, Canada and other Midwestern markets.
“We’ve got that race car sitting there revved and all ready to go, we just need that go ahead,” NEXUS President Detroit-based DTE James Grech said Wednesday during the Utica Capital Energy and Spectra Midstream Seminar at Walsh University. Energy, which merged this year NEXUS was one of several pipeline projects discussed at with Calgary-based the conference hosted by the Canton Regional Chamber of Enbridge, are partners Commerce and ShaleDirectories.com. in the project. NEXUS is a proposed 36-inch-diameter interstate natural gas pipeline. The $2.1 billion project would cross eastern and northern Stark County and the city of Green in Summit County and carry natural gas from the Utica
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Jason Stechschulte from Marathon NEXUS had Pipe Line answers questions during expected the Federal the Utica Capital Seminar Series held Energy Regulatory at Walsh University on June 7, 2017. Commission to (CantonRep.com / Michael Balash) approve the project earlier this year and to have the pipeline in service during the fourth quarter. That didn’t happen before one of FERC’s three commissioners resigned in February, leaving the commission without a quorum and stalling the project. The term of another commissioner ends June 30. “We were waiting until the last minute to see if we got our certificate, and obviously we didn’t get it, but we feel pretty good about our prospects once FERC has its quorum back in getting approved,” Grech said. FERC nominees That quorum could arrive soon.
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On Tuesday, the Senate Energy and Natural Resources Committee sent President Donald J. Trump’s two FERC nominees — Robert Powelson and Neil Chatterjee — to the full Senate for a vote. Powelson is a member of the Pennsylvania Public Utility Commission. Chatterjee is a senior energy adviser to Senate Majority Leader Mitch McConnell, R-Kentucky. Federal bureaucracy isn’t the only obstacle for NEXUS, however.
GasandOilMag.com
The Coalition to Reroute NEXUS (CORN) landowner group, with support from the city of Green, took FERC and NEXUS to court in May, asking a federal judge to bar FERC from approving the project.
meet the year-end target.
NEXUS also would need to find workers to build the pipeline at a time when other projects, such as Energy Transfer’s Rover Pipeline are under construction.
Utopia is a 12-inch-diameter pipeline designed to carry natural gas liquids, such as ethane or an ethane-propane mix, roughly 215 miles from Harrison County to Fulton County for shipment to Canada.
“We pride ourselves on that and feel it sets us apart from others,” Parker said.
Utopia underway CORN alleged that FERC’s review of the project was arbitrary and failed to Conference attendees also heard an account for safety issues. The case is update on Kinder Morgan’s Utopia pending. Pipeline.
Dave Ledonne, VP Operations - Utica and Appalachia for MarkWest Hydrocarbon gave a presentation during the Utica Capital Seminar Series held at Walsh University on June 7, 2017. (CantonRep. com / Michael Balash)
Grech said contractors have assured NEXUS they will have the needed The $540 million pipeline is under workers to build the pipeline. construction and should be in service in January, said Allen Fore, Kinder Utopia’s route crosses southwestern Project spokesman Adam Parker said Morgan’s vice president of public Stark County and parts of Tuscarawas NEXUS would follow all safety and affairs. and Carroll counties. environmental guidelines in trying to
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State’s Historical Society GateHouse Ohio Media Report he Rover Pipeline has agreed to pay $1.5 million to the Ohio state historical society as part of its effort to mitigate harm caused by construction.
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An amendment to an agreement filed with the Federal Energy Regulatory Commission states that Rover Pipeline LLC will pay $1.5 million to the Ohio History Connection Foundation on July 7. The amendment settles a months-long dispute between the preservation office and Rover. The preservation office argued Rover owed $1.5 million as of March 1, per an agreement signed in February saying Rover would pay the office $1.5 million a year for five years to compensate for damage to historic properties. The money was to be used to pay for statewide historic preservation education.
26 OhioGas&Oil
Rover did not make the payment, however, and lawyers representing the company filed a letter with FERC saying the company had done enough, as Rover paid $2.3 million for demolishing the historic Stoneman House near Leesville in Carroll County. The company had not notified regulators about the purchase of the historical property or its demolition until after the house had come down.
A spokeswoman for the pipeline project confirmed the $1.5 million will be a onetime payment.¬†Rover also will make a $250,000 donation to help fund the “Ohio as America” social studies resource.
“Rover is pleased to make these contributions to help protect Ohio’s historic resources and to provide the many educational and preservation opportunities these funds will facilitate,” according to a statement emailed The preservation office asked FERC - the to The Canton Repository. lead federal agency overseeing the pipeline project - to solve the disagreement. A spokeswoman for the preservation office could not be reached for comment at the Rover, FERC, the State Historic Preservation time this article was released. Office and the Advisory Council on Historic Preservation all signed off on the This dispute was separate from penalties amendment that mandates Rover pay $1.5 Rover faces for environmental damage. million “in full satisfaction of additional mitigation measures.” The amendment Rover is building a natural gas pipeline changes the language in the original system that will transport gas to Ohio, agreement, which had said Rover would Michigan, West Virginia and Canada. make payments of $1.5 million annually on Construction includes parts of Stark, March 1 for the length of the agreement. Tuscarawas and Carroll counties.
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