DEC 12 OHIO OIL & GAS MAGAZINE by Gannett NEO

Dix Communications - Gas & Oil

www.OhioGO.com

December 2012 Edition

Ohio octobER 2012 • www.ohiogo.com

A FREE monthly PublicAtion

Table of Contents

◆ Injection well operation is 24/7 ...............pg. 3 ◆ Drilling on state park property ................pg. 6 ◆ City of Salem receives $1.3M bonus ......pg. 8 ◆ EQT helps Cumberland VFD obtain gas detector ..................................................pg. 10 ◆ Couple says ‘Do your research ..............pg. 11 ◆ Ohio Legislature considering HB 537 ...pg. 12 ◆ MarkWest Utica and Antero Resources announce agreement ..............................pg. 14 ◆ Bureau of Worker’s Compensation wants to help industry ..........................................pg. 16 ◆ Sherwin Williams helps paint pretty picture in drilling industry .....................................pg. 17 ◆ Should you ratify your lease? ................pg. 18 ◆ Chesapeake honors 1,200 employees on Veterans’ Day ........................................pg. 20

◆ The Right Way for a Right of Way ........pg. 22 ◆ Well production doing well ...................pg. 23 ◆ Gas driller sues New York regulators, town over moratorium ....................................pg. 26 ◆ Gov. Kasich to Farm Bureau: Gas, oil tax is going to happen .....................................pg. 28 ◆ Chesapeake hiring veterans ....................pg.30 ◆ Stark, Marlington have partnership ......pg. 34 ◆ Cash-strapped states weigh tax .............pg. 35 ◆ Ohio Well Activity .................................pg. 36 ◆ Top Counties Drilling Activity ..............pg. 38 ◆ Watershed listens to public ....................pg. 39 ◆ Anchor Drilling opens plant ..................pg. 40 ◆ BP America donates to education ..........pg. 44 ◆ Natural gas vehicle makes sense ...........pg. 46

Attributions Andrew S. Dix Co-Publisher ASDix@dixcom.com

Rob Todor Executive Editor RTodor@dixcom.com

G.C. Dix II Co-Publisher GCDixII@dixcom.com

Cathryn Stanley Regional Editor CStanley@dixcom.com

Ray Booth Executive Editor RBooth@dixcom.com

Niki Wolfe Regional Editor NWolfe@dixcom.com

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Cover Photo: Mike Neilson/Dix Communications Pictured is David Hill at an injection well site in Guernsey County.

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December 2012 Edition - Dix Communications

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Injection well operation is 24-7

riving down one of Guernsey County’s winding picturesque country roads, enjoying the peace and serenity, you might not realize you passed an underground injection well site — if you had not witnessed tanker trucks pulling in and out of an otherwise unobtrusive facility. Judie Perkowski Situated on two acres just Dix Communications outside of Claysville the Devco Unit 1 Class II injection well, built in 2007, is the first of two injection wells drilled by David R. Hill, Inc. in Westland Township. Hill, a petroleum geologist and oil producer for more than 30 years, led a tour of the site for members of the media. “We have 20 different independent contractors who use this facility to dispose of brine, or wastewater, from the hydraulic fracturing process. This process is the best and safest way of disposing of unwanted fluids,” said Hill. “This is a 24-7 operation ... We receive approximately 40 trucks a day, from 6 a.m. to 8 p.m. hauling three to four thousand barrels of brine, which comes in faster than we can process it,” he said. “We receive the water during the day and pump it into the ground at night.” Hill said about 50 percent of the brine comes from the Marcellus Shale Play in West Virginia or Pennsylvania, the rest is from the Utica Shale well sites in Ohio. The facility is run by three full-time employees, including a secretary, two engineers and Hill. “The process and production at the site is checked on a daily basis, by either an engineer or myself,” he said. “ODNR inspectors are here twice a week.” As Hill began the tour a tanker truck rolled in and gave observers a real-time demonstration. The truck hooked up to one of the intake pumps, which draws the water to one of 21 storage tanks which hold 210 barrels of brine. Each barrel contains 42 gallons, which equates to

Photo by Mike Neilson/Dix Communications View from a catwalk at the Devco Unit I Class II injection well site owned and operated by David R. Hill, Inc. The facility’s brine storage tanks are set in the scenic rolling hills near Claysville. Each of the 21 tanks on the two-acre site are part of a self-contained operation monitored by the Ohio Department of Natural Resources and regulated by the U.S. Environmental Protection Agency. A trucker in the background is in the process of delivering about 80 barrels of hydraulic fracturing wastewater, or brine, to a storage tank. 8,400 gallons per tank. (The terms waste water and brine are used interchangeably). “After the dirt and debris is removed from the waste water by a filtering process, it is pumped into the well under a maximum of 1,600 pounds of pressure to approximately 8,900 feet below the surface.” Hill added that a “minute” amount of crude oil is also retrieved during the process and creates another small amount of revenue. The actual wellhead stands alone behind the tanks and covers an area about the size of an automobile parking space, fenced off and chained. “Everything is self-contained for safety and protection of the environment,” he said. “The dike that surrounds the processing area was built under construction and inspection by the Ohio Department of Natural Resources. The dike can hold 11/2 times the volume of ALL full tanks ... Even the rainwater

“This process is the best and safest way of disposing of unwanted fluids.” - David Hill.

Continued on next pg.

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December 2012 Edition - Dix Communications

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is collected and pumped back into the well,” said Hill. All Class II injection wells are subject to the Clean Water Act. According to the Ohio Dept. of Natural Resources, the brine solution that is safely disposed of through injection back into brine-bearing or depleted oil and gas formations deep below

Water Act, passed in Congress in 1974. • Ohio is home to 181 Class II injection wells. In 2011, Ohio accepted an estimated 1.03 million gallons of wastewater for

Photo by Mike Neilson/Dix Communications David Hill, owner/operator of David R. Hill, Inc., at the Devco Unit 1 Class II injection well site near Claysville, explains to members of the media the process for injecting brine (hydraulic fracturing waste water) into the ground almost 9,000 feet below the surface. The actual wellhead Hill is standing behind takes up approximately one automobile parking place — fenced and chained. the surface is performed under proper regulation by the ODNR and guidelines created by the United States Environmental Protection Agency. The USEPA sets class distinctions for different types of injection wells used nationwide. “Class II injection wells are constructed with three layers of steel and three layers of concrete casings ... We drill until we reach Beekmantown dolomite and Rose Run sandstone. We put the water back into the Earth where it came from,” said Hill. Background on Class II injection wells from Energy in Depth, the Ohio Project: • The use of injection wells is regulated under the Underground Injection Control program of the federal Safe Drinking

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disposal per day, less than .05 percent of the total nationwide. The use of injection wells as a safe disposal means for produced water in Ohio was mandated in 1985 with the passage of House Bill 501, a bipartisan bill. • Wastewater is produced in oil and gas context whether or not a well is fractured, whether or not a well is vertical or horizontal, and whether or not the target formation is shale, sandstone or limestone. Injection wells have nothing to do with the current debate over shale, fracturing and/or horizontal drilling.

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TO DRILL OR NOT TO DRILL: Commission to consider leasing state park land

I Norm Shade President, ACI Services

n the search for greater revenues in the current period of economic upheaval and uncertainty the State of Ohio looked to capitalize on gas and oil developments in the Marcellus and Utica shale formations. Several weeks ago Gov. John Kasich signed into law legislation creating a state oil and gas leasing commission tasked with considering and granting leases of state property — including state parks but excluding state nature preserves — to gas and oil

developers and producers. The commission will consider the environmental, geologic, tourism and other impacts before finalizing leases. Proceeds from leases, signing fees, rentals and royalty payments will be applied toward the purchase of land and improvements to parks and other state property. Proponents of the legislation argue that revenues generated from drilling lease could fund much-needed infrastructure upgrades and repairs at state parks. According to the ODNR, parks have more than $500 million in deferred maintenance projects as of 2010, requiring a specific revenue stream to address. Deferred maintenance projects, according to online ODNR documents, include: • Waste water system upgrades — $50,336,440 • Shoreline erosion rebuilding and control — $83,635,200 • Dam modernization — $72,600,000 • Modernize vault rest rooms to flush — $47,898,840 • Major renovations to resort lodges — $39,001,600 • Add electric service in campgrounds — $28,862,403 • Cottage renovations and upgrades — $21,268,060. Opponents of expanded drilling on state-owned property cite environmental concerns. Some legislators have called for a halt to all developments, including formation of the oversight commission, pending research that definitively indicates drilling offers no threat to environmental well-being. At risk, opponents say, is the Ohio State Park System, the third most-visited state park system in the nation. It includes: 75 state parks in 60 counties; 174,264 land and water acres; 1,030 miles of shoreline; more than 50,000,000 “visitor oc-

casions” annually; 57 state park campgrounds; nearly 10,000 family campsites; nine resort lodges; 518 cottages; six golf courses; 178 boat ramps; 78 beaches; 37 nature and visitor centers; 193 playgrounds; 408 trails covering 1,185 miles; and 1,858 miles of roadways. (Statistics taken from the ODNR website.) However, the launch of drilling in state parks is not hovering just beyond the horizon, ready to burst into reality at a moment’s notice. “They have not started drilling,” said David Hill, treasurer/ secretary and vice president-elect of the Ohio Oil and Gas Association. “They have not yet populated the commission, they have not yet picked the members and started the process of the commission. The law has passed. We’re waiting on the commission to be established so they can establish the rules and guidelines of the bidding process and how this is going to work.” The process to form the commission is moving at a sluggish pace. “We are not rushing into it,” Hill said. “The fact is, I’m disappointed that it hasn’t progressed more rapidly. And I think as Ohioans we would hope it would move a little quicker because the State of Ohio owns those royalties and maybe that would hope with our budget items.” The state owns 600,000 acres of land. Two-hundred-thousand acres show promise of producing gas and oil. Of this, 10 percent lies in Salt Fork State Park in Guernsey County. “If we’re looking for increased revenue there is a source that is sitting idle at this point,” Hill said. Material Safety Data Sheet (MSDS) noun Written or printed documents for a chemical product or additive prepared in accordance with the Hazard Communication Standard set forth by the federal Occupational Safety and Health Administration (OSHA). MSDS must include information about the physical and chemical characteristics, physical and health hazards, and precautions for the safe use and handling (including emergency and first-aid procedures) of the hazardous chemical components contained in the specific product or additive for which the MSDS was prepared, along with the name, address, and emergency telephone number of the company that prepared it.

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City of Salem receives $1.3M sign-on bonus

alem Mayor John Berlin has announced the city received a $1,352,000 sign-on bonus from Chesapeake Energy in November that could be one of two parts. “I’ve been working on this ever since I came into office in January,” Berlin stated during a recent interview. “I negotiated the lease with Chesapeake, and, Laurie Huffman with city council’s approval, Dix Communications I signed it. I met with Chesapeake officials many times and talked with them on the phone many times, and our law director approved the contract language. The result of which, is the check we just received.” An agreement was signed between the city and Chesapeake this summer setting the price at $3,500 per acre for non-surface mineral rights on roughly 387 acres with a 20 percent royalty on gross product and a three-year renewal option. “The EPA and the state have to make sure the drilling is safe. But, if someone is offering us money to lease city-owned land, I’d be remiss not to take it,” Berlin added.

The next decision to be made by the city is how the money will be used. Berlin indicated Auditor Betty Brothers is awaiting direction from the city law director, Brook Zellers, regarding what the city is legally permitted to do. Berlin indicated there are rules governing how the city’s money has to be spent, and Ohio laws must be reviewed. He also noted this is not a normal occurrence in Salem, so they are forging a new path. In the meantime, the

“...if someone is offering us money to lease cityowned land, I’d be remiss not to take it.” - Mayor John Berlin money was placed in the general fund, but it is not expected to be used to cover normal expenses. “Any money coming into the city must be deposited in a very short time. So, it was placed in the general fund for now. It can be transferred later to whatever particular funds are determined

Continued on pg. 45

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EQT helps CumberlandVFD obtain gas detector

n Nov. 20, Jessica Baker, community advisor for the EQT Corp., was at the Cumberland firehouse to present the Cumberland Volunteer Fire Department a donation toward the purchase of a four-gas detector. It will be used to aid the CVFD firefighters when they are called out to

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Couple urges: DO YOUR RESEARCH

Judie Perkowski Dix Communications

ohn and Sue Bailey were excited to learn they would have extra money to do a few home repairs and maybe have new windows installed. After all, they owned 241/2 acres, and at $195 an acre, that adds up to almost $5,000 (actually $4,777.50, before taxes). In July of 2011, the Baileys were offered a chance to sign a lease from a person who claimed to be a representative of a major oil and gas company which had recently moved its operation to southeastern Ohio. They were told the oil/gas company from Texas was planning to drill for gas and oil in the area, and a signed lease agreement was all the company needed to begin the process. Sue Bailey said the words “royalty payments” were never mentioned. Up until this point in time John and Sue had not heard anything about the impending gas and oil boom. Gas and oil ... On their property? It sounded too good to be true. So, the Baileys decided to err on the side of caution and contacted a local attorney, who said without hesitation they should be getting at least $2,200 an acre, or more. Needless to say, the Baileys said ‘no thanks’ to the $195 per acre offer. Not long after their initial introduction to the gas and oil industry, a second offer was proposed by the daughter of a driller who offered $3,000 an acre. No thanks, again. By this time, they had read in The Daily & Sunday Jeffersonian that people were being offered $5,000 and acre with 20 percent royalties. The Baileys weren’t sure if they would ever benefit from all this gas and oil exploration, but they did know one thing, they would research any company who presented them with an offer. Unless it was a well-known international company that had been in business for a long time. When this well-known international company contacted the Baileys, they were happy to sign a lease on, for $5,000 an acre plus 15 percent royalties. “The agreement said we would receive our first check in 180 banking days,” said Sue. “They even gave us a bank draft.” “We were familiar with the company’s name, it was one of the biggest names in the business, so we saw no need to research the company,” she said. The Baileys said although the company had brand-name recognition, they knew very little about the gas and oil industry and how it operates. Again, they took a copy of the lease to the same local attorney who said according to the lease, they (The Baileys) gave up most of their rights. In the meantime, after the 180 -day period was up, the company called the Baileys and asked for a 60-day extension. “Since we did not receive a dime within the time frame stat-

ed in the lease, our attorney said the company was in default, we could cancel the lease and get our mineral rights back,” she said. “They should have told us in the beginning that the time frame could have been from 180 to 365 days. They should prepare people, not leave us hanging for all that time and do nothing or pay us anything. The lease was too good to be true, they tied our hands for six months, we could not even talk to another gas/oil company. They kept us hanging for nothing.” On June 11, 2012, hearing nothing from any gas and oil company, the Baileys went to a local office of a company who, they were told, was a go-between, a broker, for land owners and the oil companies. They signed a lease. Hearing nothing for almost four months, they paid a visit to the business’s Cambridge office. Sue said she thought it was kind of odd that they didn’t receive any document or a draft for a specified amount. Then she found out why. They were told their lease — requesting $5,250 an acre with 20 percent royalties — was rejected by two gas and oil companies in the area. The person at the local office said he sent the Bailey’s a letter a few days ago (Oct. 5, 2012) explaining the rejection of their lease. “Then, this person offered us $3,500 an acre which they would pay on the spot. Really? We learned too late that this person was what they call a flipper, someone who buys leases then resells them for a profit. He had no intention on doing anything with our lease. He said he would present our lease to some gas and oil companies, he never did. He was hoping we would accept his offer of $3,500 so he could “flip” the lease. “When we got back home, the letter of rejection he sent to us was in our mail box,” Sue said. Upon reading the letter Sue called the gas and oil companies named in the letter stating their rejection of the Bailey’s lease. “Neither company knew anything about the person at the local office or why he said they rejected our lease. It never happened, and he had no right to use their names. “It was no surprise that the letter also said, ‘no leases nor memorandums were filed at the county recorder’s office, so titles were not affected.’ Guess he should have mentioned that. “I just wanted to tell our story so people who are thinking about signing any lease agreement, do your research, talk to an attorney familiar with the industry, talk to people who have signed a lease. It’s worth the time and effort,” she said. “What began as a pleasant surprise and anticipation of some additional income tuned into a year of frustration. And, no, we have not heard from any other gas and oil company, so far.”

“I just wanted to tell our story so people who are thinking about signing any lease agreement, do your research, talk to an attorney familiar with the industry, talk to people who have signed a lease. It’s worth the time and effort.”

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Ohio Legislature considering HB 537

ounties, townships and other local governments would have the power to regulate the locations of oil and gas wells and enforce health and safety standards, under legislation offered in the Ohio House. Rep. Bob Hagan, a Democrat from Youngstown, offered House Bill 537 to restore local control Mark Kovac rather than rely on statewide Dix Communications standards and regulations under the Ohio Department of Natural Resources. The switch in state law to the latter was made about eight years ago. “Numerous localities across the state have requested local control be restored due to the increasingly in appropriate placement of drill sites — many in highly populated areas,” Hagan told the House’s agriculture committee Tuesday afternoon. “... This legislation will provide freedom to communities, not un-

elected bureaucrats, to decide what is best for them and their families.” Hagan offered sponsor testimony on the legislation Tuesday, though the bill is not expected to pass before the end of the session in a couple of weeks. Under existing law, the ODNR’s Division of Oil and Gas Resources and Management “has sold and exclusive authority to regulate the permitting, location and spacing of oil and gas wells and production operations within Ohio,” according to an analysis by the Ohio Legislative Service Commission. Hagan’s bill would enable local governments to adopt standards for oil and gas wells, as long as “those standards are not less restrictive” than state laws and rules. The legislation also would require a 1,000-foot setback for new oil and gas wells and apparatus. That would be more than triple the current requirement. Marc Kovac is the Dix Capital Bureau Chief. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog.

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MarkWest Utica and Antero Resources announce agreement to construct midstream infrastructure; land purchase being negotiated in Noble County

arkWest Utica EMG, L.L.C. (MarkWest Utica), a joint venture between MarkWest Energy Partners, L.P. (NYSE: MWE) (MarkWest) and The Energy and Minerals Group (EMG) on Nov. 6 announced the completion of definitive agreements with Antero Resources (Antero) to provide processing, fractionation, and marketing services in the liquids-rich corridor of the Utica Shale. Antero has over 60,000 net acres of leasehold in Ohio that holds rich gas and condensate resources in the Utica Shale Play. The company is currently running one drilling rig in the play and plans to add a second drilling rig in the second quarter of 2013. Antero is in the process of building the initial gathering infrastructure to move rich gas production to processing infrastructure to be located in Noble County. Under the terms of the agreements, MarkWest Utica will develop natural gas processing infrastructure located in Noble County to process Antero’s rich gas Utica Shale production.

MarkWest Utica will initially bring online an interim 45 million cubic feet per day (MMcf/d) refrigeration natural gas processing plant at its Seneca processing complex, with an expected second quarter 2013 completion date. This interim facility will be followed by Seneca I, a 200 MMcf/d cryogenic gas processing facility, which is expected to begin operations by the third quarter of 2013. The definitive agreements also provide for the construction of an additional facility, Seneca II, a 200 MMcf/d cryogenic processing facility, which may be installed as soon as the end of 2013. The company is reportedly in the process of purchasing more than 200 acres near Summerfield in Noble County with the purchase expected by the end of the year. In addition to its Seneca processing complex, MarkWest Utica will construct an NGL gathering system to its Cadiz processing complex and on to a new fractionation and marketing complex both located in Harrison County. The Cadiz process-

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ing complex will include a de-ethanization facility where purity ethane will be produced and delivered into the ATEX ethane pipeline. The propane and heavier natural gas liquids will then flow via pipeline to the Harrison County fractionator for further separation into valuable purity products. Together these facilities will represent the largest fractionation and marketing complex in the Utica Shale, providing 100,000 barrels per day (Bbl/d) of C2+ fractionation capacity with an expected completion date of first quarter 2014. Prior to the completion of the Harrison County fractionation complex and associated pipeline infrastructure, Antero NGLs produced at the Seneca complex may be transported to either MarkWest’s Houston, Pennsylvania fractionation and marketing complex or its Siloam fractionator located in South Shore, Kentucky. The Harrison County fractionation complex will be connected through an expansion of MarkWest’s Marcellus NGL gathering system to its Houston facility, the largest fractionation and marketing complex in the Marcellus Shale. The Houston and Harrison County facilities will provide tremendous operating flexibility and reliability as well as access to multiple markets. The Harrison County fractionator will be owned jointly by MarkWest Liberty Midstream, L.L.C. and MarkWest Utica,

December 2012 Edition

and the capital required to build the complex will be shared accordingly. By the end of 2014, MarkWest will be able to provide its producer customers with nearly 275,000 Bbl/d of C2+ fractionation capacity and extensive market access to all of the planned ethane and propane pipeline projects in the Marcellus and Utica Shales. “We are excited to extend our strong partnership with Antero Resources and continue the development of leading midstream infrastructure in the heart of the Utica Shale,” said Frank Semple, chairman, president and chief executive officer of MarkWest. “We believe that Antero’s success in the Marcellus will prove to be a natural extension into the hydrocarbon-rich area of the Utica. With the support of our strong partner EMG, we are committed to providing best-of-class, fully-integrated midstream services for our producer customers.” “We are fortunate to have a rich gas and condensate play in Ohio in such close proximity to our Marcellus Shale rich gas project,” said Paul Rady, chairman and chief executive officer of Antero. “MarkWest is a natural fit for Antero to partner with in the Utica to build the first processing complex near our acreage position, given their processing and fractionation plans in the Utica and the integration with their leading position in the Marcellus.”

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Bureau of Worker’s Compensation WANTS TO SERVE

he Bureau of Worker’s Compensation is engaging the subcontractors for any of the work? If so, then you’ll want to read oil and gas industry to increase awareness about certain the following information from the BWC. BWC requirements, programs and services applicable to General contractor liability in Ohio employers working in the shale play of eastern Ohio. Along with Many employers assume they can shield themselves from the oil and gas activity, there are numerous ancillary services and workers’ compensation liability by using subcontractor relationsupporting occupations impacted. ships rather than hiring employees. Maybe not, in Ohio. The Bureau of Worker’s Compensation is engaging the oil and Ohio law mandates that the workers’ compensation liability gas industry to increase awareness about certain BWC requireof any non-complying subcontractor is transferred to the general ments, programs and services applicable to employers working in contractor.* To avoid assumption of liability, the BWC reminds the shale play of eastern Ohio. Along with the oil and gas activity, you to ensure each subcontractor you use has valid Ohio workers’ there are numerous ancillary services and supporting occupations compensation coverage. Doing so protects your company from impacted. unexpected claims and premium BWC is a conduit for ecobillings for subcontractors without nomic development with the coverage, and it’s the right thing to goal of minimizing confusion do for workers. Compensation and affirming the agency’s serAt BWC, we’re eager to partner vice and assistance at any level. The BWC is eager to partner with the oil and gas industry employers that are coming to our with any employer to ensure a positive and successful experience. state. So, if you have questions about coverage or Ohio’s stateOn that note, the BWC staff is grateful for the continued suprun, monopolistic system, we’re here to help. port and partnership to make this educational outreach successful. Visit ohiobwc.com and click on the Oil and Gas Employers link This is the second in a series of articles the BWC will publish on the home page. From there, you’ll find additional details about over the next few months illustrating our dedication to properly Ohio’s system and contact information for our business consulserve this growing sector of our economy. tants. ••••••• When it comes to workers’ compensation coverage for your Using contractors in Ohio? company and subcontractors, it’s better to be safe than sorry. Learn more about workers’ compensation liability. We’re here to help. Are you setting up operations in Ohio? Do you plan on using

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Sherwin-Williams paints a pretty picture in drilling industry

Rob Todor Dix Communications

ryan Strazinsky has been with Sherwin-Williams for many years. A graduate of Hiram College in Northeast Ohio, he didn’t envision being a major player in the Gas & Oil industry. But that’s where much of his energy is devoted these days. The boom in the Utica shale play caused Strazinsky, an area manager with the Cleveland-based Sherwin-Williams corporation, to take a long look at what his company’s products could be used to

assist the gas & oil drillers. “I tell my store managers, if you see a person pull up in a vehicle with Texas or Oklahoma or Louisiana license plates, and they’re asking for standard industrial enamel paint, you should have a pretty good idea what business they’re in,” said Strazinsky, who oversees 30 stores in Northeast Ohio and West Virginia. Strazinsky said Sherwin-Williams has been involved in the gas & oil industry in the Plains states but just now they are getting to work with drillers in Eastern Ohio with the increased play in the Utica Shale. “We can be, and are, involved in every phase of drilling and processing,” said Strazinsky. “We’re at the drill sites (tanks, well-heads and piping), which is typically steel and very easy

for us to coat. “We’re also involved at the processing plants, providing some high tech coatings there, and also with the tank linings.” Sherwin-Williams has had a relationship with Chesapeake Energy, for instance, for several years in other areas of the country. “In the gas and oil industry, it’s locally a somewhat new phenomenon,” said Strazinsky. “Fortunately we have the luxury to

“They walk in the store and just say ‘We need paint.’” Bryan Strazinsky reach out to our counterparts in Texas and Oklahoma who have been working in the industry for many years.” In Northeast Ohio, Chesapeake is planning a major processing plant in Louisville, Stark County. Strazinsky hopes to partner with Chesapeake in the production and upkeep of the facility. “You know, sometimes they don’t care,” he laughs. “They walk in the store and just say ‘We need paint.’” “But we can assist with every phase of the drilling process,” Strazinsky says. “Pipeline, rail, truck, ship, on site; we’ve proven we can handle it all.”

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Should you RATIfY your lease?

ou are a landowner with a current oil & gas lease for your property. The current lessee sends a land man asking you to “ratify” your existing lease. Should you do it? Probably not. Do you know what it means to “ratify” the lease? Do you know why your current lessee wants you to sign a “ratification”? Ethan Vessels Do you know what the marMarietta Attorney ket would pay in bonus and royalties for your land if you did not already have a lease? Do you know what other landowner protections are being written into new leases? Until you know the answers to these questions, you should not sign anything. To “ratify” a lease means that the landowner and oil & gas producer, as current lessor and lessee of the land, agree (or re-agree) to the terms of the existing lease. It is basi-

“If you already have an existing lease, why would the lessee want you to sign something?” - Ethan Vessels cally saying, “Yes, this is our agreement, and it will be our agreement going forward.” It is as though you are starting anew with the same agreement—but you can add or change terms. The real question is why? Why is the land man coming to you now? If you already have an existing lease, why would the lessee want you to sign something? In all likelihood, the lessee (usually the current producer) believes that you have legitimate grounds to break the existing lease. The most common reason is that there has been little or no production from your property. Your existing lease may not have unitization or pooling language in it (and the lessee now wants to add this as part of the “ratification”). The current lease may contain terms regarding shallow and deep rights that make the property unmarketable to the “deep” producers. The bottom line is that the lessee needs you to “re-agree” to the original lease (perhaps changing some terms here and there) so that the lessee can sell these gas rights to

one of the dozen or so shale developers. Think before you sign. If asked toa ratify, the landowner probably has the better negotiation position. Yet, the landowner often has insufficient information to effectively negotiate. First, you should learn why the lessee wants to ratify. It is important to know the strength of your case if you attempt to break the existing lease. Second, you need to understand the market. Is the lessee offering bonus money and enhanced royalties as an enticement to ratify? How much could be reasonably obtained if your land were clear of the existing lease? Third, new leases often contain favorable terms for landowners. They often contain clauses for increased domestic use, land use restrictions, restrictions on pipeline placement, etc. Can you negotiate these terms into a “ratification”? Only when you, the landowner, believe that you have negotiated a ratification based on the market conditions and with ample knowledge of your lease should you agree to a ratification. Of course, when in doubt, hire a lawyer. Disclaimer. As with all articles on legal issues, this article is intended for educational and informational purposes.

Continued on pg. 43

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Chesapeake Honors 1,200 Employees On Veterans’ Day

his Veterans’ Day, Chesapeake Energy Corporation honored its more than 1,200 veteran employees by issuing commemorative challenge coins to each veteran. Military service personnel also received a letter of gratitude

ber of Commerce’s Hiring Our Heroes program, and serves on the national Veteran Employment Advisory Council. Through these initiatives, the company encourages its vendors to hire veterans. The company also supports disabled veterans by conducting regional presentations about transitioning into the workplace; is an active participant in the Yellow Ribbon reintegration program focused on National Guard members; and is a member of the White House’s Joining Forces program.

from Chesapeake’s CEO, a pin and a hard hat sticker. Chesapeake offices, including Canton, hosted special receptions for their local employees, who are veterans. In addition to internal veteran support, members of Chesapeake’s military relations team work to prepare all veterans for the workforce. Chesapeake partners with the U.S. Cham-

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Right Way for

Right-Of-Way

erhaps you haven’t been part of the big oil play yet. Either your land was already under lease or the minerals were severed several years ago, or you just don’t sit in the areas currently deemed “hot.” Don’t lose heart; things change in this business all the time. In the interim you may be Don Gadd approached about something Landman else common for this industry: Pipeline right-of-ways. The gas doesn’t get to market in five gallon pails. It has to be shipped through a delivery system and

“Gas doesn’t get to market in five gallon pails.” - Don Gadd in order to get there many new lines will have to be constructed as the area may not have existing pipeline systems, the lines there may not be of sufficient size, or the content of the gas is

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of high BTU content and has to be shipped independently to these new refrac plants that strip a lot of the components out of the gas (a story for a different column). In that event, you will be contacted about a pipeline right of way which in some instances is many miles from the existing field. (Remember from point A to B has to be covered.) But, unlike the old days, these pipes in this system may be of massive size and very high pressures. To compensate for this, these companies are paying much more in roddage fees (a lenghth of 16.5 feet). Today, it is common to see fees that include a payment of so much per foot and an escalating scale of payment determined by the O.D. size (how many inches in diameter a line is). This is great as it makes for a much larger payment for something that is going to remain on your land perhaps for a very long time. So, it is important to consider this right of way very carefully as it will have lasting effects on your property for years to come. I am not saying not to sign. But, as with every contract, take your time to read and study it. It is important for your neighbors, the area, and even this region that right of ways get signed. But, long after the excitement has died down, you shouldn’t be sitting there kicking yourself because you let them build a line right through that area of a good house site that you were going to build on someday. In the next several articles I want to explore several of the issues I have dealt with over the years. Some of the current complications being dealt with and some possible alternatives to resolve these issues to the benefit of all. Let’s hope I get to them before you are contacted.

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December 2012 Edition

WELL production doing WELL

Gulfport currently anticipates it will begin flowing the Groh 1-12H gas and oil into a sales pipeline by the end of January. As of October 2012, there are currently 24 wells in Guernsey County at various stages, from drilling to production. Gulfport’s Ryser 1-25H in Harrison County, tested at a peak rate of 1,488 barrels of condensate per day, 5.9 million cubic feet per day of natural gas, and 649 barrels of natural gas liquids per day assuming full ethane recovery and a natural gas shrink of 21 percent, or 2,914 barrels of oil equivalent per day. The peak rate production for the highest producing well in Carroll County, the Chesapeake operated Shaw 5H, is 1,440 barrels of oil equivalent per day, composed of 770 barrels of oil, 180 barrels of natural gas liquids and 2.9 million cubic feet of natural gas per day. “Looking at the Gulfport numbers, along with what we’ve already seen in the region as far as infrastructure and investment, we are beginning to see the true potential of what we have in the Utica Shale Formation,” said Shawn Bennett, field director for Energy In Depth Ohio. “More development means more jobs, and more opportunity for our workforce.”

10070230

ANTRIM — Oklahoma-based Gulfport Energy Corporation recently announced production results on its Groh 1-12H well near Antrim in Guernsey County. The Groh 1-12H tested at a peak rate of 1,186 barrels of condensate per day, 2.8 million cubic feet per day of natural gas, and 367 barrels of natural gas liquids per day, assuming full ethane recovery and a natural gas shrink of 18 percent, or 1,935 barrels of oil equivalent per day. The Groh 1-12H well was recently brought online from its resting period. The well was drilled to a true vertical depth of 7,327 feet with a 5,414 foot horizontal lateral. The well tested at a gross peak rate of 1,186 barrels of condensate per day and 2.8 million cubic feet per day of natural gas. Based upon composition analysis, the gas being produced is 1,247 British Thermal Unit-rich gas. Assuming full ethane recovery, the composition above is expected to produce an additional 131 barrels of NGLs per MMCF of natural gas and result in a natural gas shrink of 18 percent. In ethane rejection mode, the composition is expected to yield 50 barrels of NGLs per MMCF of natural gas and result in a natural gas shrink of five percent.

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Gas driller sues NY, town over local moratorium

natural gas drilling company is suing state regulators and a western New York town where it has operated for decades over a local moratorium that threatens to put the company out of business. Papers were served this week in a lawsuit against the Livingston County town of Avon and the state Department of Environmental Conservation, said John Holko, owner of Lenape Resources, a small natural gas company based in Alexander, 35 miles southwest of Rochester. Holko is seeking at least $50 million in damages from the town, claiming its recent ban on gas drilling and storage has cost Lenape millions of dollars in lost business and unused mineral rights. “I’ve drilled over 100 wells in this county,” Holko said. “I have 100 miles of pipeline, compressor stations and a disposal well. I supply gas to farmers, industrial users and interstate commerce. Now, because three guys on a town board decide they don’t want me here anymore, I’m out of business. There’s something dramatically wrong with that.” Holko said the town’s gas-drilling moratorium and similar ones passed by dozens of other upstate New York towns violate a 1981 law giving the state Department of Environmental Conservation sole authority to regulate oil and gas development. He’s also suing DEC, saying it’s required to take action against the local bans. Local courts have upheld drilling bans in the towns of Mid-

dlefield and Dryden. Both cases are under appeal with arguments before the state Appellate Division expected in February. Lenape’s suit is the first that also names DEC. “This issue is before the courts and we will let that process progress,” DEC spokeswoman Emily DeSantis said Thursday in response to a question about the Lenape lawsuit. Avon Town Supervisor David LeFeber said Thursday that he could not comment on pending litigation. DEC has had a moratorium on gas wells using horizontal drilling and high-volume hydraulic fracturing since it began an environmental impact review in 2008. The technology frees gas by injecting a well with millions of gallons of chemically treated water at high pressure to crack rock deep underground. Environmental groups say it could contaminate air and drinking water supplies or cause other harm, but drillers and DEC say state regulations and standard industry safeguards protect against harm from drilling and fracking. A deadline for finalizing new regulations expired on Thursday, but DEC sought a 90-day extension to allow a health impact study to be completed. Revised regulations will be released for public comment within that 90-day period. Lenape’s wells, drilled in sandstone deposits, aren’t subject to the state’s moratorium because they’re vertically drilled and use low-volume fracking rather than the newer technologies necessary for shale gas development.

Continued on pg. 43

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Kasich to FB: Gas, oil tax ‘is going to happen’ Mark Kovac Dix Communications

he Ohio Farm Bureau Federation is having its annual meeting near the Statehouse this week, with members poised to take positions on a variety of issues. The state’s large agriculture-related group earlier voiced its opposition to the privatization of the Ohio Turnpike but has refrained from offering a thumbs up or down to a plan to increase taxes on oil and gas production. New stances on both issues could be in place before the end of today. On Thursday, Gov. John Kasich made his case to the group on both issues. And he didn’t leave much wiggle room on his severance tax plan. “We are going to get a higher severance tax in this state,” he said. “It’s going to happen. It’s just a matter of when ... I will not give up on this until we get this done, and it is going to get done.” Kasich has made comparable comments for months since introducing his proposal to increase tax rates on oil and gas produce via horizontal hydraulic fracturing, or fracking, an emerging means of extracting fuels from deep underground shale formation by pumping in large volumes of water, chemicals and sand. The industry is expected to add billions of dollars into the state economy in years to come, and Kasich wants to increase

severance taxes and use the proceeds to implement a corresponding decrease in the state’s income tax rates. The governor has said the changes are needed to ensure some economic benefit for Ohio from big profits expected by out-of-state energy companies. But some farmers are voicing concern about the plan, because they have sometimes-decades-old contracts in place that require them to pay the severance taxes on production, not the oil companies. Others are questioning whether an increase in the severance tax rate would prompt some oil and gas companies to avoid operations in Ohio. But Kasich downplayed both concerns Thursday, saying companies have already invested billions in eastern Ohio, and their executives are fully aware that a tax hike is in the works. “I want the Farm Bureau to help me on this,” Kasich said. “... There’s a handful of farmers that have wells and they didn’t do a contract the right way to make the oil companies pay the severance tax, so they yell and scream and yell and complain. ... I need your support. ... You want the income tax to come down in Ohio, don’t you?” Kasich has not yet revealed his plans for the potential privatization of the Ohio Turnpike. A multi-million-dollar study is expected to be unveiled in the next couple of weeks. mkovac@dixcom.com

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Chesapeake Creates Hiring Initiative For Veterans

n 2012, Chesapeake Energy Corporation created a military hiring initiative and hired more than 600 veterans for highpaying, quality jobs in the oil and natural gas industry. This initiative formalizes Chesapeake’s commitment to hiring former and active military personnel for positions ranging

“Creating American jobs and hiring veterans to work in our oil and gas fields and in our offices has become central to our recruiting strategy.” -Martha Burger

corporate resources. “Veterans perform well in our industry and share our company’s commitment to energy independence. We hope to honor their talent, experience and military service with rewarding careers, while easing their transition to civilian life.” The team of recruiters that leads Chesapeake’s military hiring initiative focuses most of its efforts on job fairs held on military bases and offers veterans direct access to recruiters through a veterans-only e-mail address. Of the more than 600 veterans hired this year, many filled positions in the field. Performance Technologies, a Chesapeake

from rig workers to engineers and geologists. “Chesapeake is an American company that is a top producer of American oil and natural gas. Creating American jobs and hiring veterans to work in our oil and gas fields and in our offices has become central to our recruiting strategy,” said Martha Burger, Chesapeake senior vice president – human and Landowners

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‘Shale-ionaires’ estate planning Scott Swartz Attorney

t’s a problem we’d all like to have. You’re a rural landowner in Ohio, living your life and paying your bills, when a landman offers you a small fortune for your underground mineral rights ... plus the possibility of even more money in future oil and gas royalties. Thousands of property owners in eastern Ohio are now — what some call — “shale-ionaires” and many have the ironic problem of ensuring their new wealth is a blessing and not a curse.

“The time to see a qualified attorney is before you sign an oil and gas lease or sale of mineral rights.” Atty. Scott Swartz “Many people, even those who had large land assets before, are now ‘cash rich,’” says Attorney Scott Swartz of the Business Succession Planning and Wealth Management practice of Benesch, Friedlander, Coplan & Aronoff LLP in Cleveland. “They have never had to confront the issues they face now. Wealth of this scale requires a completely different level of financial and legal sophistication, and many landowners simply don’t have the experience to cope with their new reality.” Swartz, who also has experience as a certified public accountant, says attorneys with financial backgrounds have the ability to anticipate and avoid common problems leasing landowners face. In some cases, the attorney can act as a referee between multiple family members who own a common plot of land under lease. “There needs to be a management structure in place so everyone benefits and they can all avoid the grief that comes with family infighting,” Swartz says. There are also issues with saving new wealth from unnecessary taxation. “Many people don’t know the difference between capital gains taxes and income taxes. This means some landowners, without professional help, could pay twice the taxes they are legally required to,” says Swartz. Other common legal needs include establishing trusts for children and giving money to family members in a way that is both legal and avoids extra tax penalties. Whatever the specific need, Swartz warns that timing is crucial.

“The time to see a qualified attorney is before you sign an oil and gas lease or sale of mineral rights. There needs to be a plan in place that helps the landowner achieve his or her financial goals, and that may require modifications to the agreements. Before a signature, there are options — but after a lease is signed, the list of options gets much shorter.” It’s not all worry and guardedness for Ohio’s new shaleionaires. Swartz says the state has created a tax break they, and other Ohioans with assets, can enjoy easily, the elimination of the estate tax. Up until now, Ohio has enforced a very low threshold for paying inheritance tax. Beneficiaries owed a tax of up to 7 percent on any money over $388,888. Ohio House Bill 153, signed by Ohio Gov. John Kasich in June of last year, repeals the entire estate tax on December 31 of this year. Swartz says many people don’t know this because, while the Ohio General Assembly quietly dispatched the estate tax, the public’s focus was on other matters of public law, such as Ohio Senate Bill 5 – the controversial law governing public union employees that voters defeated in a referendum last November. “The elimination of Ohio’s estate tax is a big advantage for Ohio landowners with oil and gas proceeds. It could tip the balance to encourage them to stay in their home state, near family, instead of moving to a more tax friendly state so they can pass on their good fortune to their children,” said Swartz. About Benesch Benesch, Friedlander, Coplan & Aronoff, LLP was established in Cleveland in 1938. Benesch is a full-service business law firm with offices in Cleveland, Columbus, Indianapolis, Philadelphia, White Plains, Wilmington and Shanghai. The Shale Oil and Gas Team practice co-chairs are Orla E. “ Chip” Collier III (Columbus office) and Kevin D. Margolis (Cleveland office). Learn more about Benesch by visiting www.beneschlaw. com. Attorney Scott Swartz can be reached by calling (216) 3634154, or emailing sswartz@beneschlaw.com.

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Stark-Marlington partner

arlington High School, which is conducting the first Gas and Oil Technology Course in the state of Ohio, is partnering with Stark State College on some of the training, and the adult students hailed from

Submitted Photo Stark State College and Marlington High partner for gas and oil industry training places as far flung as Canada and Louisiana. Stark State College, in association with ShaleNET, is offering a Floor Hand Training course that, among other components, includes certificates in the operation of a rough terrain forklift and an aerial work platform, or man lift. In mid-November, the college and high school shared the use of these pieces of equipment, as well as an instructor, Bob Givens, as they trained the students on the grounds at Marlington. ShaleNET U.S. is a private and government-funded college consortium that is working to develop and implement standardized, “stackable” certificate and associate-degree programs serv-

ing the high-demand employment areas of the oil and natural gas and associated supply-chain industries. ShaleNET student Sean McKinnon, of Niagara Falls, Ontario, Canada, said he learned about the Stark State College course from a neighbor. Jim Tedrick currently unemployed, was told of the training opportunity at The Employment Source, of Canton, and he said he hopes he will find a job after he completes the course. Fellow student, Steve Shell, said the training will help him “get his foot in the door” in an oil and gas company or supplier, and Willie Kolbs said he is definitely using the training as a way to knock on the door of opportunity. Only two of the 11 Stark State students have any type of college degree at this time. Malcolm Walker, of Louisiana, recently completed service as a lieutenant in the U.S. Army, and he immediately began searching online for a way to get into the emerging industry. “I wanted to get baseline training for a job as a floor handler,” said Walker. “Obviously, I will want to work my way up from there, but I knew I when I left the Army I wanted to work in the oil and gas industry, because it’s pretty lucrative.” Marlington students trained on the shared equipment during the day, and the ShaleNET students trained at the high school for three evenings as part of the floor handling course, which is 120 hours, or three weeks long. The ShaleNET students said they would definitely recommend the course because along with equipment operation, the training also includes resume classes, mock interviews, job placement assistance, and rig safety. Walker noted the Rig Safety Certificate, or “rig pass” as he called it, is crucial in getting an entry level job in the oil and gas industry. “With the resume training on top of that, plus team building, communications, and mock interviews, it is really well rounded,” Walker said. “But,” he added, “the employers will ultimately decide how well the training stacks up.” Givens said he thinks the ShaleNET course is really a good one, and he indicated he wants to also work with Stark State College to get college credits for his high school students who take his Gas and Oil Technology course during their junior and senior years at Marlington. For more information on the ShaleNET and the Marlington High School Gas & Oil Technology course, contact Stark State College, in North Canton, at 330-966-5455 or Marlington, in Alliance, at 330-823-1300.

“The employers will ultimately decide how well the training stacks up.”

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Cash-strapped states weigh tax policy on drilling

or decades, one tiny county in the rolling hills of Ohio’s rural reaches was a depressed farm community saddled with double-digit unemployment. Now, Carroll County boasts more active oil and gas wells than any other in the state, and the tax dollars are flowing right along with the crude and natural gas. And in the same county, where unemployment reached 13.4 percent in 2009 amid declines in agriculture, there’s now bustling activity at Carroll restaurants, car dealerships and the area’s one hotel. While the economic surge has been a welcome relief, Carroll County and others enjoying the newfound prosperity aren’t all that interested in sharing the wealth. But that decision might not be theirs to make. Ohio lawmakers and policymakers in other states are weighing how to use taxes and fees on oil and gas production to bolster state budgets and economies without alienating local com-

munities or scaring away energy development. In Ohio, many Carroll residents are up in arms over a proposal by Republican Gov. John Kasich to raise severance — or taxes on high-volume drillers — and then share the wealth from the state’s oil and gas boom through an income tax cut. “I’m not for supporting everybody else with what we’re doing, when this has been an area that’s been depressed for a long time and nobody’s done anything to help us along the way,” said Amy Rutledge, who directs the visitors’ bureau and local chamber. “Why should Appalachia Ohio support the rest of the state?” A dozen states since 2011 have seen proposals to impose a new tax on oil and gas production, or to raise, lower or amend an existing tax, according to the National Conference of State Legislatures. Most of the proposals have died or never got off the ground, though Florida passed a measure reducing severance taxes to offset the higher cost of new technology needed

Continued on pg. 42

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December 2012 Edition - Dix Communications

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Top CounTies WiTh horizonTal Drilling aCTiviTy By numBer of siTes

1. Carroll County 162 2. Columbiana County 61 3. Harrison County 57 4. Jefferson County 33 5. Monroe County 28 6. Guernsey County 24 7. Noble County 19 8. Belmont County 18 9. Mahoning County 15 10. Portage County 14 11. Stark County 13 12. Tuscarawas County 12 13. Coshocton County 5 14. Muskingum County 3 15. Holmes County 2 Knox County 2 Trumbull County 2 14. Ashland County 1 Geauga County 1 Medina County 1 Wayne County 1 Well SiteS SiteS in variouS variouS Stage tageS:: Permitted, drilling, drilled, ComP ComPleted, ProduC ProduCing, Plugged SourC Sour Ce: ohio dePartment of natural reSour ourC CeS aS of 11/30/12

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December 2012 Edition

Watershed district listens to public

recent decision by the Muskingum Watershed Conservancy District to allow water sales from public reservoirs to serve the shale drilling industry has some property owners and local conservationists up in arms. The Muskingum Watershed Conservancy District had announced it would consider short-term sales of water from Clendening and Piedmont lakes to the oil and gas industry to reduce the pounding of tanker trucks on rural roads during the upcoming lake “drawdown” period when billions of gallons of water are released downstream as part of routine flood reduction operations. Members of the MWCD Board of Directors authorized the temporary water sales, which are limited to those two lakes only and will be negotiated with the industry and capped at designated amounts, after receiving an update on oil and gas activities at the MWCD lake regions during a board meeting Sept. 21. Groups opposed to the measure said it was a reversal of previously announced policy by the board, with Terry Lodge, an attorney working with opponents of water sales and leasing next to public reservoirs, saying, “The decision to sell water and the leasing of MWCD land for horizontal gas drilling around and under public reservoirs, essentially guarantees that those lakes will eventually be contaminated with toxic and radioactive waste from this unregulated industry. The shocking lack of responsibility to act for the public benefit violates the very principles on which the District was given public assets and warrants investigation into the continued right of MWCD to exist and to collect property taxes.”

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MWCD officials said water from the lakes are released at “drawdown,” anyway, “making this the optimum time to supply excess from the lakes to the oil and gas industry without any negative impacts on recreational activities at these two lakes, including boating,” according to Sean D. Logan, MWCD chief of conservation. By removing the water from the lakes, potentially thousands of loaded tanker truck trips will be eliminated across township and county roads that normally are not constructed to withstand such activity, reducing inconveniences for residents of the regions and the additional hassle and expenses for township governments for road repairs. “The MWCD is making irresponsible decisions on behalf of area landowners and their own lessees around these lakes. What they are doing threatens to destroy property values, threaten residents’ health and ruin fresh drinking water supplies forever for profit. This cannot continue,” said Lea Harper, of Southeast Ohio Alliance to Save Our Water (SOASOW). Darrin Lautenschleger, public affairs administrator for MWCD, said the agency is committed to receiving public input about the conservancy district’s operations and missions, including Seneca Lake in this region. “The MWCD has taken additional steps to ensure that anyone who wants to provide input can be heard specifically concerning the leasing of mineral rights and potential withdrawals of water at Seneca Lake,” Lautenschleger said. “The MWCD hosted a public input meeting concerning the Seneca Lake region on Wednesday, Oct. 17, at 6 p.m. in the Robert T. Secrest

Continued on pg. 44

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Anchor Opens Plant

Laurie Huffman Dix Communications

nchor Drilling Fluids USA, an Oklahoma-based business that boasts being the largest independent drilling fluids company in the country, recently celebrated at its newest plant in Wellsville, which CEO and co-owner Bob West said was twice as hard to put in than any of the other facilities they have across the U.S. But, we got ‘er done,” West told those gathered at the grand opening. West later stated the reason it was the most difficult of the 25 plants he and his son, Phil West, have built, was due to stricter regulations in the state of Ohio. “We had to go through regulations here that we don’t normally have to deal with, and the real problem was they didn’t understand what we do. Once that happened, things moved quicker,” West said. “Now, we’re ready for business. Ready for invoices.” David Cunningham, manager of Anchor’s Southern Region, explained the fluid the company produces is used to maintain the character of the well bore, and it can be used in both vertical and horizontal drilling. “We built this plant because there is a source of activity here. Wherever there’s drilling activity for oil and gas in the United States — we’ll be there.”

“

“It is another example and another sign of opportunity, job creation, and economic development in the Appalachian Region.” - Jason Wilson Don Crane, of the Columbiana County Port Authority, reported the PA extends as far south as the Ohio River. “This part of Port Authority, at the Wellsville Intermodal Facility, is becoming the place to be,” Crane said, “as far as oil refinery work and shipping of oil and materials required for drilling is concerned, which include sand, gravel and limestone.” The Wellsville Intermodal Facility was completed in August after 10 years of development and an investment of $5.7 million, and Crane indicated it is an area of commerce for a variety of industries, but, he indicated shale drilling is what seems to be taking off the most at the industrial park. Jason Wilson, director of the Governor’s Office of Appa-

Submitted Photo Workers gave tours at Anchor Drilling Fluids USA’s newest plant, located in Wellsville, during a grand opening celebration in November.

lachia, spoke from the state’s perspective when he said, “We are obviously excited about this announcement. It is another example and another sign of opportunity, job creation, and economic development in the Appalachian Region, of which this facility is a part.” While Bob West stated the state’s regulations seemed stiff, when questioned on the matter, Wilson said his office has been striving to create rules “that provide the best balance between upholding and still welcoming the industry.” Anchor Drilling Fluids will hire 15 to 20 employees at the Wellsville plant. It will also expand its employee base out in the field with two workers assigned to each rig. “We have to manage the use of the product at the drill. So, if we have 20 rigs, that’ll be another 40 employees right there,” Bob West

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reported. “Trucking is also anticipated to accelerate in the area because Anchor has a lot of products that are necessary to make the drilling fluid shipped in from all over the country. And, more jobs will also open as the grinding of barite, one of the main products used in Anchor’s fluid production, will increase at Cimbar, the company Anchor is partnering with on the fiveacre Intermodal Facility. Anchor, which produces and stores drilling fluid product, opened its doors in Wellsville in October and invited potential clients and media outlets from around the area to a grand opening celebration the following month to help get the word out. Among those present were Sarah Poulton, field representative for Ohio Congressman Bill Johnson, of Ohio’s sixth district; and media representatives from The Alliance Review, The East Liverpool Review, Youngstown’s Channel 27, and Channel 9 of Steubenville. Anchor did not build a plant to serve the shale drilling in Pennsylvania, which may be another indication the play in Northeastern Ohio is anticipated to be very large and very active. In a statement issued to announce the grand opening of its Wellsville plant, Phil West said, “The Utica Shale reportedly has recoverable reserves of more than 940 million barrels of oil and 38 trillion cubic feet of natural gas. The development of this U.S. Energy resource will significantly contribute to long-term economic growth and job creation in Ohio and the region.”

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Submitted Photo Anchor Drilling Fluids USA co-owner Phil West talks gives a statement to Brianna Arradondo, of Channel 9 News in Steubenville during an event to mark the opening of Anchor’s newest plant in Wellsville.

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“Cash-strapped states” from pg. 35 to extract the hard-to-get oil remaining in those fields. At least 36 states impose some sort of severance tax on oil, gas, coal, timber and minerals, generating more than $11 billion in revenue in 2010. Of those, 31 states levy severance taxes specifically on production of oil and gas, according to the legislative conference. Pennsylvania is the only state that’s part of the recent Marcellus and Utica boom that imposes no production tax. For now, state lawmakers have opted for an impact fee based mostly on the number of wells. Proceeds are targeted toward boosting regulation and repairing or upgrading roads and bridges around burgeoning well sites. Of the first $202 million that Pennsylvania collected since approving the impact fees in February, the state gets $23 million off the top and $107 million is being split among 37 counties and some 1,500 municipalities hosting gas well. The remainder is ticketed for state regulatory agencies. West Virginia also opted to increase permit fees rather than raise its severance tax. Proponents of the production tax approach, including Kasich, argue that taxes on the extracted oil, natural gas and natural gas liquids can bring long-term benefits to state economies that impact fees can’t. Once the resources are tapped and well construction is completed, wells could continue producing for half a century, according to some experts. The Pennsylvania Budget and Policy Center, a liberal think tank, estimated the state lost $300 million between October 2009 and January by not passing a proposed tax on oil and gas production. Kasich’s tax plan is similarly stalled, as fellow Republicans who lead the Legislature grapple with the political fallout. Though the national Americans for Tax Reform has sanctioned Kasich’s plan as compatible with its anti-tax hike pledge, that doesn’t mean the well-funded energy industry couldn’t run ads against lawmakers who support the increase when they come up for re-election in two years. As it stands, Ohio’s production tax rates — 20 cents a barrel on oil and 3 cents per 1,000 cubic feet of natural gas — are among the lowest in the country. Annual collections on oil production have remained roughly flat from 2007 to 2011. According to the Ohio Department of Taxation, tax revenue on natural gas production rose by less than 2 percent last year — up $40,000 to $2.1 million — despite an explosion of drilling activity that has included 391 new shale wells permitted the last 20 months. And Ohio never thought to tax natural gas liquids, a newly developing revenue area for the industry. By contrast, total taxable sales in Carroll County rose 33 percent from 2011 to 2012, from $94.9 million from January to June of last year to $125.7 million during the same period this year. That meant more than $300,000 in additional sales tax revenue for the county — one of about two dozen across eastern and southern Ohio benefiting from the boom in exploration mostly of the Utica Shale formation.

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That uptick comes in a county that had been struggling against rising unemployment. Dairies that once thrived in Carroll, the state’s smallest county in total area, dwindled over the past 20 years as family farms struggled and shrank as it became harder to make money in the milk business. Tree and nursery farming — a business dependent on people having extra spending money — is now the county’s largest industry. Oil and gas taxes collected in Carroll and Ohio’s 87 other counties are sent to state oil and gas regulatory programs, not to the general revenue fund, as in many other states. Texas, for example, saw $3.6 billion added to state coffers from its oil and gas severance taxes in the fiscal year that ended last month, according to the state comptroller’s office. Some states — including Alaska, Wyoming and New Mexico — reserve a portion of the oil and gas production taxes they collect for permanent funds. Interest from the funds can be used to help balance state budgets, providing support to government services like education, health care and environmental protection. Oil and gas producers in Ohio oppose Kasich’s plan. They argue that growth will result in the industry paying $1 billion in new taxes by 2015, even without any regulatory changes. They also point to local communities like Carroll County that are benefiting greatly from the boom. Governments that raise taxes and increase impact fees risk driving away a lucrative new industry that could help with budget woes, said Kathryn Klaber, president of the Marcellus Shale Coalition, which represents producers. “Businesses are looking at the return on the significant investment to explore and extract a resource and their overall costs, including what they’re being asked to pay in taxes and fees,” Klaber said. “Governments are looking at it from kind of the other side of that coin, which is how much can we extract revenue for government needs and position this revenue in a politically salient way. Those two perspectives often result in a real mismatch of interests.” The Kasich administration argues that if energy companies want the resources badly enough, they will have to come to Ohio to get them. The governor points to the nearly 400 new wells permitted, and 140 drilled in the Marcellus and Utica formations since December 2009. Carroll County’s Rutledge said she just wants to guarantee her county is standing strong when the boom subsides. “It’s not that we don’t want to share, but we should be given more of a consideration because it’s happening here,” she said. “We’re the ones that have to deal with all the things that come with progress: more traffic, more people, more crime. At this point, the companies have been taking great care of the roads, but who’s to say what’s going to happen for the next 15 years?”

Dix Communications - Gas & Oil

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December 2012 Edition

“Should you Ratify” from pg. 18

“Gas driller sues NY” from pg. 26

The reader should not rely on this article as a substitute for actual legal advice regarding his or her particular case. You should consult an attorney regarding the specifics of your situation.

Michael Joy, a Pittsburgh lawyer representing Lenape, said papers filed with the lawsuit demonstrate that Avon officials weren’t acting to prevent a problem caused by gas drilling, but were bowing to political pressure from anti-drilling groups. Local control over gas drilling has also been an issue in other states in the Marcellus Shale region, which includes southern New York, Pennsylvania, Ohio and West Virginia. The gas industry says local laws create a patchwork of regulation that thwarts development.

Ethan Vessels is an attorney in Marietta, Ohio with the firm of Fields, Dehmlow & Vessels, LLC. His firm is actively representing landowners throughout East and Southeast Ohio regarding oil & gas lease forfeiture actions, as well as royalty disputes and other oil & gas matters. Visit www.fieldsdehmlow.com for more information.

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Gas & Oil

December 2012 Edition - Dix Communications

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“Watershed district listens” from pg. 39

BP America Donates To Education

P America recently announced it is funding a $50,000 effort to equip Trumbull County teachers and students with a web-based STEM education program. STEM is a science, technology, engineering, and mathematics education effort in force across the nation to bolster performance by students across the country in these subjects, which are considered crucial to the success of the country as well as in Ohio’s growing oil and gas industry. BP America made the funding announcement at the Trumbull County Educational Service Center, where local educators, elected officials, and media were gathered for the purpose. The referenced STEM program will help 20,000 students in grades 4-12, and the donation will cover the cost to buy enough licensed software to make it available in every classroom in Trumbull County. It will also pay to have 200 teachers trained during a two-year period. BP is reportedly seeking leases to drill gas wells on 84,000 acres in Trumbull County, with the first well anticipated to be under way early next year.

Senior Center at 201 High St., Senecaville. The MWCD also will be sending letters of invitation about the meeting to its recreational user groups and others in the Seneca Lake region. The purpose of the meeting is for attendees to receive an update from and provide input to MWCD staff members concerning future oil and gas leasing of MWCD-owned property at Seneca Lake and potential water withdrawals from the lake. In recent months, properties available for lease in the counties surrounding Seneca Lake have been the focus of oil and gas development companies, who soon will be drilling wells in the region. The majority of MWCD-owned property at Seneca Lake presently is not under lease for development of the Utica Shale. The MWCD has been contacted repeatedly in recent months by oil and gas development companies seeking to negotiate with the MWCD for the rights to access the Utica Shale and the potential for water withdrawals from the lake. At this time, the MWCD is preparing to begin these negotiations.” Officials of SOASOW said they were involved with several events to protest the action taken by MWCD, including the MWCD meeting in Senecaville on Oct. 17. In addition, there was a public information event from 10 a.m. to p.m. on Oct. 13 with the Ohio Environmental Council in Cambridge at the Francis Family Restaurant downtown. Officials said the purpose is to inform the public about the risks from horizontal drilling in the area and what can be done to lessen them. Additionally, MWCD opponents and watershed preservationists protested at the Oct. 19 MWCD board meeting in New Philadelphia followed by a rally at the Tuscarawas County Courthouse. This event is being co-sponsored by Food and Water Watch.

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December 2012 Edition

“Chesapeake Creates Hiring” from pg. 30

“CITY OF SALEM REceives” from pg. 18

affiliate, recruited veterans to make up more than 30 percent of its 2012 new hires. Veterans also filled one in five Chesapeake Operating jobs in 2012. Mike Hostetler joined Chesapeake in January as a field engineer after serving six years active duty in the United States Air Force. Working out of Chesapeake’s Canton office eased Hostetler’s transition to civilian life. “Chesapeake’s core values reflect many of my own personal and professional values,” Hostetler said. “There are plenty of companies that appear to shy away from hiring veterans, claiming that our skill sets aren’t easily translatable. Fortunately, Chesapeake sees service members as we are; unpretentious leaders, attentive professionals and people that get the job done. The company not only recognizes the value of my active duty military experience, but also provides opportunities to enhance that experience in a challenging and rewarding industry.” At Chesapeake, support for veterans goes beyond hiring. In 2012, the company created a Troop Connect program to provide resources and networking opportunities to veterans within Chesapeake. “As we hired more veterans, we came to realize the value that they gain by having a way to connect with each other. Through Chesapeake’s Troop Connect program, we are able to provide an avenue for our veterans and their families to share common experiences and form a strong community,” said Burger. For more information or to view available jobs, see www.chk. com/careers. Veterans may also contact chkmilitary@chk.com.

to be appropriate,” Berlin said. The bonus was negotiated on a three-year lease, with a renewal option. This means if Chesapeake does not drill the gas and oil wells within a three-year period, and wishes to renew the lease for another three years, another bonus for the same $1,352,000 amount must be paid to the city of Salem. Berlin said he believes the city received a very good deal. Berlin further reported a deal is pending with Chesapeake for the company to purchase water from the city, and he is making an effort to get a price of $7.50 per 1,000 gallons, but he said it is becoming difficult because there is no sense of urgency on the part of Chesapeake. “I am glad to see this phase over with and will be happy to see some activity now, which will precede any sale of water for the drilling,” Berlin said. “Most companies buy water from municipalities within miles of their leasing activity area, but Chesapeake has told me there is no emergency on that at this time.”

Horizontal Wellbore noun A wellbore that starts down through the rock in a vertical direction, but is then turned horizontally for some length into the producing formation. Fractures are often placed along the horizontal wellbore to help spur new production.

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Gas & Oil

December 2012 Edition - Dix Communications

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Compressed Natural Gas Vehicles Make Economic Sense

igh gasoline and diesel prices, coupled with an abundant supply of low cost natural gas from shale, are boosting the interest in natural gas fueled vehicles (NGVs). NGVs run on compressed natural gas (CNG) or liquid natural gas (LNG) instead of gasoline or diesel fuel. Around for decades, there are more than 14.8 million NGVs in use, worldNorm Shade wide, but only about 265,000 in the U.S, where historically President, cheap oil and years of declinACI Services ing domestic natural gas reserves left the U.S. behind other countries. Fueling infrastructure is now the biggest barrier to NGV growth. Of the 150,000 gasoline stations in the U.S., 42% offer diesel, but only about 7% (1100) have NGV fueling lanes. Given that situation, vehicles that return-to-base, or that travel regularly from point-to-point, are the good NGV options, able to refuel at strategically located stations. NGV fueling stations are increasing rapidly in many parts of the country. Clean Energy Fuels Corp. is building 150 new LNG fueling stations on a Natural Gas Highway for overthe-road trucks in 33 states. LNG, or natural gas in a refrigerated liquid state, provides more stored energy per gallon than CNG, an important consideration for long-haul trucks. Shell planned to add LNG fueling lanes at 100 stations this year. General Electric and Chesapeake Energy are introducing mass-produced “CNG in a Box” fueling stations. And last month, the U.S. Department of Energy (DOE) announced a program to develop low cost home CNG fueling stations. Where available, CNG costs 30 to 60% less than gasoline, and today’s price differential is greater than ever. Interest in NGVs is growing at a record pace for regional truck fleets, busses, over-the-road trucks, and even private vehicles. NGVs cost

more than comparable gasoline or diesel vehicles, but technological improvements, mass production, and competition are reducing the first cost premium. The more miles NGVs are driven, the faster the payback from fuel cost savings. A 2 to 3 year payback is typical for CNG vehicle fleets In June 2012, the CNG pump price was $1.50 to $2 less per gallon equivalent than gasoline or diesel. There is a significant CNG price advantage even if the currently low natural gas wellhead prices double or even quadruple. This is because most of the pump price is the cost of processing, transportation, fueling stations and taxes. There are 8 gasoline gallons equivalent (GGE) to 1,000 cubic feet (Mcf) of natural gas. In June the wellhead price was $2/Mcf, which equates to $0.25/ GGE, but the pump price was $1.75/GGE due to processing, transportation and taxes. Doubling the wellhead price to $4/ Mcf equates to $0.50/GGE and a $2/GGE pump price. Quadrupling the raw gas price to $8/Mcf equates to a pump price of $2.50/GGE, still well below gasoline and diesel prices. Natural gas wellhead prices are currently about $3.50/Mcf, with CNG pump prices averaging about $2.18/GGE. The selection of NGV trucks and buses continues to grow. 40% of all trash trucks purchased in the U.S. in 2011 were NGVs, with the rate nearly 50% in 2012. New NGV delivery vans are also coming on the market. NGV automobiles are far less available in the U.S., with only Honda making a CNG auto in the U.S. today. General Motors produces 18 different NGV models under various global brands, but none are sold in the U.S. yet. Fortunately, there are many companies that offer NGV conversions and even dual fuel offerings. The potential for NGVs is huge. Nearly 20% of every barrel of oil in the U.S. is used by 18-wheelers moving goods around and across the country. Today, most of that oil is imported. In 2010 NGVs consumed only 0.045 trillion cubic feet (Tcf) of natural gas in the U.S. DOE projects this will grow to 1.25 Tcf by 2025, accounting for about 5% of the total vehicle fuel market. If the price advantage stays anywhere near current levels, NGV use will likely exceed those estimates.

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Dix Communications - Gas & Oil

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December 2012 Edition

Revised ‘fracking’ regulations released in NY George M. Walsh Associated Press

revised set of proposed regulations for hydraulic fracturing natural gas has been released by New York environmental officials who will begin taking public comment on them in December. The voluminous technical document was made public by the Department of Environmental Conservation on its website Wednesday, a day before the deadline for adopting rules for the controversial drilling known as “fracking” or making changes and allowing more comment. It has been a year since the last public hearings on the original proposal. New York has not yet approved the technology, which drillers want to use to tap gas in the Marcellus Shale formation. The first round of hearings on regulations proposed in 2011 generated 80,000 comments, which DEC officials said slowed their review and revision of the proposal. It said the latest changes include a number responding to the original comments. The agency said Thursday the changes allow it to extend the review process and take into account a pending analysis by the state health department. Calls by opponents for an independent study of potential health threats from the drilling were rejected by the Cuomo administration, which instead asked state Health Commissioner Nirav Shah to oversee an assessment of health issues. “DEC will not take any final action until after Dr. Shah’s health review is completed,” agency spokeswoman Emily DeSantis said. “This action merely extends the rule-making period

to enable DEC to take into account Dr. Shah’s review.” The DEC said it will take written comments on the latest revisions from Dec. 12 until Jan. 11. Hydraulic fracturing injects millions of gallons of water mixed with sand and chemicals into wells to crack the shale and free the gas. It has divided environmental and business interests at odds over potential harm to water and other resources and the potential for tapping an abundant supply of gas and creating jobs. One of the major objections raised by environmental groups was that the regulations didn’t spell out how drillers should dispose of the enormous volume of wastewater produced from fracked wells. The revised regulations leave it up to drillers to say how they’ll dispose of the wastewater while complying with various pollution rules. The regulations say the driller “must have an approvable plan identifying the ultimate disposition” of wastewater, and must also submit an acceptable contingency plan to be used if the primary plan turns out to be unworkable. According to the DEC documents, among the other revisions are removing a $2 million cap on financial security that drillers must put up based on anticipated costs of plugging and abandonment of a well, potentially requiring them to put up more; stronger requirements for plugging and abandonment of wells; stricter disclosure requirements for fracking chemicals; a 15day public comment period on permit applications; and provisions for collection of fees. Continued on pg. 48

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Natural gas viable alternative to fuel transportation needs

ince July 2011 when the astounding news broke that Guernsey County was situated on a humongous gas and oil reserve, nary a newspaper or any other reliable communication network could ignore the plethora of stories about gas and oil that would be forthcoming. To ensure reliable, accurate information is dispensed to the community, Jo Sexton, president of the Cambridge Area Chamber of Commerce, formed the Guernsey Energy Coalition where knowledgeable people from the gas and oil industry and related entities, could explain in layman’s terms, how our area was on the cusp of a major economic boon. The meetings, held at the Southgate Hotel, have commenced the first Thursday of the month since its inception in July of 2011. This month’s guest speaker, Bradley S. Couch, CNG business development manager for Ariel Corporation based in Mount Vernon, provided insight into an area of the industry that has been on the back burner for many years. Compressed natural gas — CNG — has not exactly been a buzzword. But, since the price of gasoline is more than likely to hover just below the $4 a gallon mark, Couch believes the time is right to seriously consider natural gas as a viable alternative to gasoline and diesel to fuel our transportation needs. “There are approximately 120,000 natural gas vehicles on the road in the United States. Vehicles that burn a fuel that is available abundantly right here in Ohio, and will be for many years to come, and is cheaper and cleaner ... CNG provides a tremendous opportunity for Ohio,” said Couch. According to a PowerPoint presentation by Couch, Ohio Department of Development statistics explain how Ohioans spent $7 billion in 2008 to satisfy our energy needs. Here’s what it would mean for Ohio to produce and keep a large portion of this money within Ohio boundaries: As of Sept. 12, 2012, the national retail price for a gallon of gasoline was $3.78. Subtract 12 percent (45 cents) for taxes, six percent (221/2 cents) for distribution and marketing, six percent (221/2 cents) for refining and 76 percent ($2.88) for the crude oil, which has typically gone to other countries. “When you pay $3.68 for a gallon of fuel from the Middle East, $3.18 or more leaves this country, about 60 cents stay here in the U.S. Even less stays in Ohio. So, where does your money go when you fill up with CNG? “As of September 2012, the Ohio average retail price for a gasoline equivalent of shale gas, CNG, was $1.98. Considering cost of gas, fixed transportation and delivery, 65 cents, 43 cents goes to the local station owner/operator; 23 cents goes to AEP for electricity, which lowers to 10 cents over time and 67 cents for equipment. So, when you spend $1.98 for a gallon of fuel produced in Ohio, as much as $1.40 stays in Ohio, and most or all of it stays in America. And, you save almost $2 per gallon.” Couch said if you buy a natural gas vehicle, the fuel supply will come from the Marcellus and Utica, the largest natural gas resource base of any U.S. shale basin. “For example, natural gas produced from the Buell Well 8H

in Harrison County, operated by Chesapeake, represented two percent of statewide natural gas production in 2011. “Just from this one well.” And, just as important is the $3 billion that has been invested in Ohio by the gas and oil industry, and counting, and that does not include lease and royalty payments. “It is projected that by 2030, 50 percent of natural gas will come from Ohio. If there are still any questions about availability, let me tell you, it is here to stay,” said Couch. “And, natural gas is so much cleaner.” How clean is it? “It’s so clean you could run your car in a closed garage without getting so much as a headache (although I would not advise it)” he said. “Natural gas is lighter than air and does not pool on the ground. Its major safety feature. Natural gas would have to be 10 times more concentrated than diesel to ignite, and it is non-toxic,” he said. The 22-state Joint Purchasing Natural Gas Vehicle Memorandum of Understanding is a starting point. The memo says that states, including Ohio, joined together to create a market for NGVs and to cut upfront and long-term fuel costs for NGVs. It is the first of its kind for NGV original equipment vehicle purchases. “The bottom line is, the choice of what type of car we purchase, determines who community benefits from the fuel we purchase,” said Couch. The Ariel Corporation, founded in 1966 with headquarters in Mount Vernon, is 98 percent Ohio made and 100 percent American made. The company manufactures reciprocating natural gas compressors that move natural gas around the country and compresses it at CNG fueling stations. The company employs 1,400 Ohioans. For more information about natural gas compressor or natural gas vehicles, visit www.arielcorp.com. “Revised ‘fracking’ regulations” from pg. 47

Regarding the industry’s costs for complying with the regulations, the documents say the Independent Oil and Gas Association of New York estimated costs would range from $400,000 to $1.7 million for the first well drilled on a well pad. The DEC said its own cost assessment found the industry estimate to be excessive. The documents also say enforcing the regulations and overseeing shale gas development will create additional cost for the DEC and the state departments of health and transportation, but that those costs can’t be calculated accurately at this point. ___ Associated Press Writer Mary Esch in Glenville, N.Y., contributed to this report. ___ Online: http://bit.ly/pzDBZw