Ohio Gas & Oil September 2018 by Gannett NEO

September 2018

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UTICA SHALE TO GET BOOST FROM SALE OF OHIO LAND

CABOT EYES LOUDONVILLE AREA

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SEPTEMBER 2018

OhioGas&Oil

Table of Contents SEPTEMBER 2018

A Look Ahead Gas & Oil Events

Utica Shale to Get Boost From Sale of Ohio Land

Bill Albrecht

Cabot Eyes Loudonville Area, Opens Office in Jeromesville

EXECUTIVE EDITORS

Trump Replacement For Obama Climate Plan Moves Forward

Ray Booth rbooth@daily-jeff.com

High Paying Jobs For The Taking

OOGA awards Zanesville businessman the 2018 Oilfield Patriot Award

Ohio Court Of Appeals Affirms “Paying Quantities” Ruling Against Local Producer

Philpott Solutions Putting Down Roots in Aurora

Report: Shale Saved Ohio Natural Gas Consumers More Than $40 Billion Over 10 Years

Schools, Local Governments to Share $31 Million From Cadiz Power Plant Developer

Ohio Well Activity

Horizontal Drilling Activity Graph

G ROUP PUBLISHER

Ted Daniels tdaniels@the-daily-record.com

CONTENT CO ORDINATOR Emily Rumes

erumes@the-daily-record.com

OhioGas&Oil

On The Cover:

The announcement that Oklahoma City-based Chesapeake is selling its stake in the eastern Ohio region for $2 billion to Encino Acquisition Partners figures to result in more production from a better-financed company that can invest in the region. “We can’t grow the investment as we like, and that makes it a strong candidate for divestiture,” said Doug Lawler, Chesapeake’s president and CEO. Chesapeake was one of the early developers of the Utica and its biggest producer. The region has become mostly known for natural gas, although oil and natural gas liquids also are produced.

SEPTEMBER 2018 ADVER TISING John Kridelbaugh Cambridge, Ohio Office jkridelbaugh@daily-jeff.com 740-439-3531 Kelly Gearhart Wooster & Holmes, and Ashland, Ohio Offices kgearhart@the-daily-record.com 330-287-1653 419-281-0581 Mindy Cannon Alliance & Minerva, Ohio Offices mcannon@the-review.com 330-821-1200 Kim Brenning Kent, Ohio Office kbrenning@recordpub.com 330-298-2012

L AYOUT DESIG NER Phil Luks

pluks@recordpub.com

A Division of GateHouse Ohio 212 E. Liberty St. Wooster, OH 44691 330-264-1125 editor@spectrumpubs.com. SEPTEMBER 2018

A Look Ahead

Gas & Oil Events September 12, 2018

September 20, 2018

October 23-25, 2018

OHIO OIL AND GAS SAFETY COUNCIL (OOGSC) MEETING

SOOGA FALL TRADE SHOW

H2S Updated and OOGEEP/ SOOGA Safety Trailer. Presented by: Gary O’Brien, O’Brien Safety Services. Location: Cambridge Country Club, Cambridge, Ohio https://www.ooga.org/page/ OOGSC/Ohio-Oil--Gas-Safety-

Washington County Fairgrounds, Marietta, Ohio. More info at: http:// sooga.org/upcoming-events.aspx

October 6-7, 2018 OGEEP FIREFIGHTER TRAINING

The Oglebay Resort, Wheeling, West Virginia. More info at: http://

2018 Responding to Oilfield Emergencies Training. Additional dates are November 3-4, 2018. Register online or contact Catherine Watkins at (740) 587-0410 or cwatkins@oogeep.org. More info and specifics details on training at: h t t p : //w w w.o o g e e p .o rg /eve n t /

www.naro-us.org/page-1863713

oogeep-firefighter-training/

Council.htm

September 16-18, 2018 NARO APPALACHIA 2018 ANNUAL CONFERENCE

SEPTEMBER 2018

Celebrating its 8th year, SHALE INSIGHT™ 2018 continues the strategic partnership between the Marcellus Shale Coalition (MSC), Ohio Oil and Gas Association (OOGA) and West Virginia Oil and Natural Gas Association (WVONGA). New for 2018, SHALE INSIGHT™ will integrate all exhibit hall activities with the general session main stage and breakout session presentations. As the nations leading industry forum, SHALE INSIGHT™ 2018 will return to Pittsburgh’s David L. Lawrence Convention Center. Register today at www.ShaleInsight.com

OhioGas&Oil

Utica Shale

to Get Boost From Sale of Ohio Land Mark Williams | The Columbus Dispatch / GateHouse Ohio Media Loaded with debt, Chesapeake Energy was never able to fully take advantage of the 900,000 acres of land it controlled in Ohio’s natural-gas rich Utica shale region. That’s about to change. The announcement that Oklahoma City-based Chesapeake is selling its stake in the eastern Ohio region for $2 billion to Encino Acquisition Partners figures to result in more production from a better-financed company that can invest in the region. “We can’t grow the investment as we like, and that makes it a strong candidate for divestiture,” said Doug Lawler, Chesapeake’s president and CEO. Seth Brooks, an analyst with the website ShaleExperts.com, said the sale will benefit the region. “It’s a good thing. You have Chesapeake going through a rationalization of its portfolio. They couldn’t go develop the asset the way they wanted to,” he said. Matthew Hammond, executive vice president of the Ohio Oil and Gas Association, agrees. “Chesapeake divesting its Utica shale assets in Ohio is a positive move for Chesapeake and creates a new opportunity for someone else to come in and continue to develop this resource and acreage,” he said. Chesapeake was one of the early developers of the Utica and its biggest producer. The region has become mostly known for natural gas, although oil and natural gas liquids also are produced. Former Chesapeake CEO and co-founder Aubrey McClendon was an aggressive acquirer of land in the Utica along with other energy-rich shale areas around the country as the shale revolution started, loading up on debt in the process. But prices of natural gas collapsed and have remained low over the past several years. That made it difficult for Chesapeake to service that debt and make the needed investment at the same time. Chesapeake shares sell for about a tenth of what they did a decade ago. Chesapeake said it plans to use the money from the sale to reduce debt. The sale is expected to close before the end of the year. The company has about 100 employees in the state with its offices based in Canton. Lawler said he expects

OhioGas&Oil

Encino Acquisition to add employees as it ramps up production. Houston-based Encino Energy and the Canada Pension Plan Investment Board formed Encino Acquisition a year ago with a goal of acquiring large, high-margin oil and gas production and development assets in the U.S. lower 48 states. The deal gives Encino Acquisition about 900 wells that produce more than 600 million cubic feet of gas

“You’re going to see increasing activity with two major players now focused exclusively on that area,” ~Seth Brooks

a day. Encino says it plans to operate multiple drilling rigs on the properties to increase production and improve cash flow. “With a multi-decade inventory of development projects held by 920 producing wells, the Utica acquisition provides an excellent start for (Encino Acquisition),” said Hardy Murchison, Encino Energy’s CEO. The deal comes on the heels of an announcement on June 29 by Oklahoma-based Ascent Resources that it will spend $1.5 billion on multiple acquisitions in the Utica, an area that extends from eastern Ohio and West Virginia to Pennsylvania and southern New York. “You’re going to see increasing activity with two major players now focused exclusively on that area,” Brooks said. The deal also comes at a time of more pipeline projects in the region that will allow more gas to get to end markets. Also, Royal Dutch Shell is building a plant in western Pennsylvania that will take ethane, a byproduct of natural gas, and break it down a substance used for plastics and chemicals. “It’s an asset that’s going to be better capitalized,” Lawler said. “It’s an opportunity for future growth of employees and contractors.”

SEPTEMBER 2018

Cabot Eyes Loudonville Area, Opens Office in Jeromesville Story and photos by Dylan Sams | Ashland Times-Gazette Staff Writer Cabot Oil & Gas Corp. has opened a field office in a former PNC Bank location, marking the occasion with a ribbon-cutting ceremony in early August. The office was opened as the company continues its search for a fourth exploratory well location, potentially on County Road 529 south of Loudonville, according to a letter sent from Cabot to the Loudonville Council on July 27. The company was set to discuss visual inspections of the section of the road located within the village’s corporation limits at an August Village Council

meeting. “We have ideas on locations,” said George Stark, director of external affairs of Cabot. He stressed Monday that the next location is not yet set in stone. Three other well exploratory wells are in various stages of construction. The first one, located at 1083 Township Road 2375 in Green Township, has already completed the drilling stage and will begin the hydraulic fracturing phase, more commonly known as fracking, within the next week, Stark said.

A ribbon-cutting ceremony was held at the new Cabot Oil and Gas office that opened in Jeromesville. Mayor Randy Spade cut the ribbon as representatives from Cabot and the city government were present. Photo by Dylan Sams, Times-Gazette.com

SEPTEMBER 2018

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Cabot continued on page 6

OhioGas&Oil

Cabot continued from page 5

The initial drilling phase exposes the rock under the ground until the hydraulic fracturing phase, where a pressurized mixture of 99.5 percent water and sand and a combination of chemicals is sent straight at the rock to create cracks into the layers in an effort to have either natural gas or oil flow back up into the well. Units to store the necessary water are being constructed at the Green Township location, Stark said. The exploratory wells are being used to search for potential oil or gas that is in Knox Dolomite that could be between 5,000 and 6,000 feet beneath the surface depending on the county, according to information

The Green Township Kamenik 1 well pad is being prepared for the hydraulic fracturing phase. Containers to store water were being constructed at the pad this past month. Photo by Dylan Sams, Times-Gazette.com

get more from your land

from the United States Geological Survey. The drilling rig is now at the second permitted location, set at 2277 Township Road 257 in Mohican Township. The third well pad permitted through the Ohio Department of Natural Resources is located at 1860 Ohio 511, just north of U.S. 30, and the pad is still under construction. Stark said the exploratory phase would likely continue through the end of the year. At that point, the samples collected at the various locations will be analyzed and Cabot will decide its next steps. “The reason we are doing more than one (well) is to look if we can replicate it,” Stark said. The planned exploratory wells are being used to determine if there is natural gas or oil that can be produced from wells. “We hope to be here for a long time,” Stark said at the office ribbon-cutting, where Cabot employees were present along with Randy Spade, the mayor of Jeromesville, and Kathy Goon, executive director for the Ashland Area Council for Economic Development. The office is located at 31 W. Main St. in the former bank office. The office will be open 9 a.m. to 4 p.m. Monday through Friday. “The opportunity to have an office here is to anticipate a longer engagement right now,” Stark said. The office is intended to be a “clearinghouse for information” if people do have questions about the Cabot Oil & Gas project. The project is the first attempt to develop oil and gas in the region after Devon Energy attempted to drill an exploratory well in 2012. That well, located in Clear Creek Township, was ultimately capped. — Dylan Sams can be reached at 419-281-0581, ext. 240, and dsams@times-gazette.com. Follow him on Twitter @dylan__sams.

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The third permitted exploratory well location is on Ohio 511, just north of U.S. 30. Photo by Dylan Sams, Times-Gazette.com

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OhioGas&Oil

SEPTEMBER 2018

Trump Replacement For

Obama Climate Plan Moves Forward Matthew Brown | The Associated Press

SEPTEMBER 2018

Nearly 200 countries have committed to combat global warming by reducing carbon dioxide and other greenhouse gases that contribute to global warming. Obama sought to cut U.S. carbon dioxide emissions to 32 percent below 2005 levels by 2030, largely by reducing pollution from coal-fired power plants. The emission cuts also were expected to improve public health by eliminating 90,000 asthma attacks and up to 3,600 premature deaths a year. Under Trump, the EPA declared last year that the old rule exceeded federal law by setting emissions Trump continued on page 8

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The Trump administration is advancing a proposal for electric utilities that would supplant President Barack Obama’s principal attempt to curtail U.S. contributions to global warming, with a new rule that’s expected to go easier on the coal industry. The Environmental Protection Agency disclosed that it sent the new rule the White House for review. The document itself was not released, but President Donald Trump has been outspoken in his desire to prop up the ailing coal industry by rolling back what he considers burdensome regulations. Burning coal to generate electricity is one of the primary sources of greenhouse gases blamed for climate change. The submission of the rule to the White House in July coincided with former coal industry lobbyist Andrew Wheeler taking the helm of the EPA, following last week’s resignation of Administrator Scott Pruitt amid multiple ethics scandals. It also comes amid a global heat wave that’s seen record-breaking temperatures across portions of the Northern Hemisphere. Wheeler, like Pruitt, has expressed skepticism about the extent to which coal, oil and gas emissions drive climate change, something mainstream science says is indisputable fact. Paul Wapner with American University in Washington, D.C., said Trump appears intent on dismantling the anchor-piece of Obama’s domestic response to climate change, after already reversing Obama’s biggest international achievement on that front by pulling the U.S. out of the Paris climate accord. “You remove those two pieces and basically the U.S. doesn’t have a climate plan,” said Wapner, a professor of global environmental politics. “It opens the door for other countries now to cut back on their own domestic efforts. This will certainly provide an excuse if another country is looking for it.” EPA spokeswoman Molly Block said in a statement that the agency intends to move expeditiously on the replacement rule. She did not provide a timeline. The EPA said it would seek public comment on the matter only after the White House review is completed.

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OhioGas&Oil

Trump continued from page 7

standards that power plants could not reasonably meet. In December, the agency announced it would craft a replacement plan to limit greenhouse gas emissions from the electric utility sector. The U.S. Supreme Court had put Obama’s plan on hold in 2016 following a legal challenge by industry and coal-friendly states. Nevertheless the Obama plan helped drive a wave of retirements of coal-fired plants, which also have been squeezed by competition from cheap natural gas and renewable power and energy conservation mandates adopted by many states. Follow Matthew Brown on Twitter at https://twitter.com/MatthewBrownAP The Trump administration is advancing a proposal for electric utilities that would supplant President Barack Obama’s principal attempt to curtail U.S. contributions to global warming, with a new rule that’s expected to go easier on the coal industry. The Environmental Protection Agency disclosed that it sent the new rule the White House for review. The document itself was not released, but President Donald Trump has been outspoken in his desire to prop up the ailing coal industry by rolling back what he considers burdensome regulations. Burning coal to generate electricity is one of the primary sources of greenhouse gases blamed for cli-

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mate change. The submission of the rule to the White House in July coincided with former coal industry lobbyist Andrew Wheeler taking the helm of the EPA, following last week’s resignation of Administrator Scott Pruitt amid multiple ethics scandals. It also comes amid a global heat wave that’s seen record-breaking temperatures across portions of the Northern Hemisphere. Wheeler, like Pruitt, has expressed skepticism about the extent to which coal, oil and gas emissions drive climate change, something mainstream science says is indisputable fact. Paul Wapner with American University in Washington, D.C., said Trump appears intent on dismantling the anchor-piece of Obama’s domestic response to climate change, after already reversing Obama’s biggest international achievement on that front by pulling the U.S. out of the Paris climate accord. “You remove those two pieces and basically the U.S. doesn’t have a climate plan,” said Wapner, a professor of global environmental politics. “It opens the door for other countries now to cut back on their own domestic efforts. This will certainly provide an excuse if another country is looking for it.” EPA spokeswoman Molly Block said in a statement that the agency intends to move expeditiously on the replacement rule. She did not provide a timeline. The EPA said it would seek public comment on the matter only after the White House review is completed. Nearly 200 countries have committed to combat global warming by reducing carbon dioxide and other greenhouse gases that contribute to global warming. Obama sought to cut U.S. carbon dioxide emissions to 32 percent below 2005 levels by 2030, largely by reducing pollution from coal-fired power plants. The emission cuts also were expected to improve public health by eliminating 90,000 asthma attacks and up to 3,600 premature deaths a year. Under Trump, the EPA declared last year that the old rule exceeded federal law by setting emissions standards that power plants could not reasonably meet. In December, the agency announced it would craft a replacement plan to limit greenhouse gas emissions from the electric utility sector. The U.S. Supreme Court had put Obama’s plan on hold in 2016 following a legal challenge by industry and coal-friendly states. Nevertheless the Obama plan helped drive a wave of retirements of coal-fired plants, which also have been squeezed by competition from cheap natural gas and renewable power and energy conservation mandates adopted by many states. Follow Matthew Brown on Twitter at https://twitter. com/MatthewBrownAP Story continued on page 11 SEPTEMBER 2018

SEPTEMBER 2018

OhioGas&Oil

High Paying Jobs For The Taking AUSTIN ERICKSON | GateHouse Media Ohio For those looking for alternatives to a four-year college, high-paying trade jobs are readily available. “We’ve done a disservice telling people they need to get a degree. It’s trades we need,” said Rhonda Reda, executive director at OOGEEP, or Ohio Oil and Gas Energy Education Program, a nonprofit group. The organization travels around the state educating people on the many different careers available within the industry. Reda spoke at a “Coffee and Commerce” informational session hosted by the Cambridge Area Chamber of Commerce at the Southgate Hotel in Cambridge on Aug. 2. “People often don’t realize home many jobs are out there,” said Reda. “They only think of the guy on the oil rig, but there are 82 different careers in this field.” According to the U.S. Department of Education, people with technical training are more likely to be employed in their field than those with academic de-

10 OhioGas&Oil

grees. “We’re constantly talking about how we can create jobs and keep them here,” said Jo Sexton, president of the Cambridge Area Chamber of Commerce. “This is one of the ways we can do that.” One of the main concerns for oil and gas companies is the aging workforce, a large chunk of which are nearing retirement. At the same time, demand for these jobs is so high already that in many cases, people are being hired before they even finish their training programs. There’s no reason, Reda says, these jobs can’t go to Ohioans instead of workers from out of state. “Companies are having a hard time with outreach,” Reda said. “There’s a connection that is lacking.” The best way to get these jobs filled is to change the perception of them, Reda said. It’s critical, she OOGEEP continued on page 11

SEPTEMBER 2018

OOGEEP continued from page 10

notes, to get children interested in these jobs early as well as show high school students that there are other avenues for success besides college. Southeast Ohio sits on the Marcellus and Utica Shale regions, which have the largest deposits of natural gas in the country. The area covers parts of Ohio, West Virginia, and Pennsylvania. She mentioned this while addressing the concerns about labor drop off and the low number of wells drilled last year. “Is that a bust?” she asked the crowd. “I certainly don’t think so.” Reda ran through a list of obscure words— schnuckel and traxeline, for example— that relate to the business. She called these terms “word walls,” saying they create a barrier between the professionals and the public. This barrier, however, is one that only appears to be intimidating, and is in fact easily explained with a quick vocabulary lesson. The US is the largest consumer of energy in the world, accounting for about 20 percent of the world’s total energy consumption. With such a substantial amount of power being used, Reda said the country should be looking at all energy options. “We need to use all the energy sources,” she said. “We shouldn’t rely on just one.”

Rhonda Reda (right), Executuve Director at OOGEEP, presents Jo Sexton, Executive Director of the Cambridge Area Chamber of Commerce, with a career guide for oil and gas jobs in Ohio. For those looking for alternatives to a four-year college, highpaying trade jobs are readily available.

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2018 Oilfield Patriot Award Recipient Named Ohio Oil and Gas Association Honors Dan Pottmeyer Lyndsey Kleven | OOGA Communications Manager During an August 6 ceremony, the Ohio Oil and Gas Association (OOGA) presented Dan Pottmeyer, Chairman of Zanesville based Producers Service Corp. with the 2018 Oilfield Patriot Award, an annual honor bestowed by the trade association. Established in 2006, the award recognizes individuals who have made significant contributions to protect, promote and advance the common interests of those engaged in all aspects of Ohio’s crude oil and natural gas industry. Pottmeyer was honored for his long-time advocacy on behalf of the industry, as an authentic entrepreneur who saw the need and took the risk to start Producer Service Corp. at a time when the industry needed a local quality service company that Ohio producers did not have access to. This is in addition to his devout involvement within the Ohio Oil and Gas Association since the late 1980s. “The Oilfield Patriot Award was made for people like Dan Pottmeyer,” said Jim Aslanides, president of the Ohio Oil and Gas Association. “The legacy that Dan is leaving in Ohio for the oil and gas industry has brought countless benefits and created hundreds of local jobs. Dan was the innovator that led the employee purchase of the company in 1994, which laid the groundwork for becoming a 100% employee owned company today with each and every employee being an individual shareholder of the company.” A resident of Zanesville, Pottmeyer left a stable position with Halliburton to take a chance on Producers Service Corp in 1981. Today the company currently operate four large shale fracturing fleets out of its operating districts in Zanesville, Ohio and Hennessey, Oklahoma. Dan is a former football player and graduate of Marietta College

12 OhioGas&Oil

Dan Pottmeyer with The Oilfield Patriot Award with a degree in petroleum engineering. He has been an inspiration to many other members of his family to follow in his footsteps and study petroleum engineering. Learn more about the Oilfield Patriot Award: http://www.ooga.org/?page=OilfieldPatriot About the Ohio Oil and Gas Association The Ohio Oil and Gas Association is a trade association with members involved in all aspects of the exploration, production and development of crude oil and natural gas resources within the state of Ohio. For more information, visit www. ooga.org. Follow OOGA on Twitter, LinkedIn, Facebook, Instagram.

SEPTEMBER 2018

OHIO COURT OF APPEALS AFFIRMS “PAYING QUANTITIES”

RULING AGAINST LOCAL PRODUCER

David J. Wigham | Attorney On July 3, 2018, so long as oil and gas are proOhio’s Seventh Dis- duced in paying quantities.” In trict Court of Ap- order to extend an oil and gas peals issued another beyond its primary term, oil significant decision or gas must actually be disclarifying Ohio law regarding covered and produced in pay“production paying quantities” ing quantities. In other words, that could impact the future of there must be actual producmany “lack of production” cas- tion from a well, and that proes in Ohio. In Kraynak v. Koy L. duction must generate a profit Whitaker, 2018-Ohio-2784, the over and above operating exCourt of Appeals, among other penses attributed to the well things, clarified what operating or wells drilled under the lease. An oil and gas lease that is in expenses should be considered in calculating the profitability its secondary term automatiof an oil and gas well to deter- cally expires on the day the mine if the well is producing in well stops producing in paying sufficient quantities to hold the quantities. Once a lease exoil and gas lease in its second- pires, ownership of the mineral rights for all formations covary term. To understand the depth ered by the lease, typically inof this ruling, it is important cluding the Shale rights, reverts to understand the concept of back to the landowner. This al“paying quantities” and why it lows the landowner to lease its matters under an oil and gas mineral rights, in certain situalease. In Ohio, most oil and gas tions, to a Shale producer for leases contain a primary term a lucrative bonus and a higher and a secondary term. The pri- royalty; hence, the significance mary term is a period of years of whether a lease is being held within which the producer must by production from a well that commence drilling operations is producing in “paying quantiin search of oil and gas. If, af- ties.” The Ohio Supreme Court ter the expiration of the primary term, the conditions of the defined “paying quantities” in secondary term are not being Blausey v. Stein as: “quantities met, then the lease automatiof oil or gas sufficient to yield a cally expires by its own terms. profit, even small, to the lessee The secondary term of an oil over operating expenses, even and gas lease is indefinite and though the drilling costs, or extends the producer’s rights equipping costs, are not recovunder the lease, typically “for ered, and even though the un-

SEPTEMBER 2018

dertaking as a whole may result in loss.” More recent rulings by Ohio’s Seventh Appellate District have further shaped this analysis. For example, whether a well is profitable is usually left to the good faith judgment of the producer, and the party asserting the claim that the well is not producing in paying quantities carried the burden of proof. Also, only direct op erating costs, and not indirect costs that do not contribute to the production of oil and gas, will be considered in a paying quantities analysis. Moreover, a producer cannot report income under the Blausey test without first subtracting the landowner royalties paid to the lessor because royalty paid to the lessor from the well’s production cannot qualify as “profit to the lessee over operating expenses.” Finally, regarding the issue of operating expenses, a producer cannot stop allocating internal operating expenses for operating of the well because, by not charging internal operating expenses, the expenses of the well would be artificially deflated (and the profitability of the well would be artificially inflated). In the Kraynak case, the landowner leased his 99-acre farm in Monroe County, Ohio to Whitaker Enterprises in Rulling continued on page 14

OhioGas&Oil 13

Ruling continued from page 13

2006. Whitaker operated the K. Kraynak No. 1 well on this property. Later, the Shale rights under this lease were assigned to Gulfport Energy. Whitaker Enterprises also owned and operated Whitaker Store, which was the third-party operator responsible for servicing the well. Between 2012 and 2015, Whitaker Enterprises paid Whitaker Store $300 per month, or $3,600 per year, to operate the well. Between this period, when factoring in production income and operating expenses, the well was determined to be not profitable for each of these four years. Also, Whitaker could not reallocate the $300 monthly operating expenses as “indirect” expenses, because doing so would artificially make the well appear profitable. Accordingly,

the Court of Appeals affirmed the trial court’s ruling that the Whitaker lease had expired. As a result of this ruling, ownership of the minerals, including Gulfport’s Shale rights, reverted to the landowner. The Kraynak case is another important decision in the current legal battleground over the ownership of the valuable mineral rights in Ohio. This ruling elaborates on how Ohio law interprets “production in paying quantities.” This case also illustrates how producers cannot internally alter operating costs attributable to a well in an effort to hold a lease that also covers the Shale rights. And, given the recent downturn in oil and gas prices, producers are facing ever increasing challenges to operate wells profitably in order to continue to control ownership of the valu-

able mineral rights. This opens the door for landowners to challenge lease validity. Landowners are encouraged to seek counsel from an experienced oil and gas attorney to help determine whether a case exists against a producer who is attempting to operate a well in “paying quantities” to hold a lease in its secondary term, and thereby deprive the mineral owner of lucrative lease bonuses and higher royalties. David J. Wigham is a secondgeneration oil and gas attorney at the firm of Roetzel & Andress, with more than 25 years of experience in the industry. He maintains offices in Akron and Wooster, Ohio, and can be reached at 330-762-7969 or dwigham@ralaw.com.

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SEPTEMBER 2018

Philpott Solutions

Putting Down Roots in Aurora Bob Gaetjens | GateHouse Media Ohio Editor’s note: This story has been updated to reflect that Philpott Solutions Chief Executive Officer Dr. James Vaughn led two businesses with Omnova that have $200 million to $250 million in sales annually. Philpott Solutions, which has local facilities in Aurora and Brunswick, plans to turn the 45,000-square-foot Aurora facility into a hub of manufacturing and operations. With the recently announced move of Philpott Energy from West Virginia to Aurora, the facility is set add several jobs, according to Dr. James Vaughn, the company’s new chief executive officer who took the reins in January. “Our company’s energy and transportation was centric to West Virginia,” Vaughn said. “We were leasing property in West Virginia. After looking at what’s going on with the marketplace, looking at where fracking is really happening, we found it’s really in Ohio and Pennsylvania.” The heart of fracking country includes areas in Ohio and Pennsylvania, extending east to Scranton, he explained. “When we were in West Virginia, we were so far away,”

he said. “We can take advantage of our existing site here. We save some costs getting out of our lease in West Virginia.” Vaughn said the company sells an environmentally friendly polymer fluid that serves as a lubricant during the fracking process. During the drilling process, he said the fluid prevents the drilling from seizing up, and, after the drilling is completed, serves as a wash, suspending plug remnants, and sand and chemicals used in the drilling process. “Because our polymer is near food grade, we render the well green at the end of our process,” he explained. Bringing Philpott’s Energy and Transportation division to town will bring with it three or four jobs, which will Philpott continued on page 16

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From left, Philpott Solutions Chief Executive Officer Dr. James Vaughn, has been with the company since January. He, along with Philpott Solutions Director of Operations Ron Strayer are two of the key leaders in the company. Photo by Bob Gaetjens, Record-Courier

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Philpott continued from page 15

Rorell Dickerson, who was hired in March, works on a piece of rubber. He chose working at Philpott over looking for a job as a police officer. Photo by Bob Gaetjens, Record-Courier add the company’s current 15 positions associated with the rubber and plastic business, according to Vaughn. “We’re about two to three months from putting a second shift in here,” he said of the Gentry Drive facility in Aurora. About 20 percent of the West Virginia energy and transportation operation was moved to Aurora as of last Thursday, and Vaughn said the move will be complete by the end of August. “There’s plenty of room to build out,” he said of the Aurora building. “We’re going to build out our industrial lines, as well.” Philpott Solutions is an umbrella organization for Philpott Rubber and Plastic, Philpott Energy and Transportation, Philpott Specialty Products and a Beijing operation, said Vaughn. The Brunswick facility serves as the company’s headquarters, “but I like spending time here,” said Vaughn of the Aurora location. The company produces a wide range or rubber and

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plastic products, from chutes for bowling ball returns to gaskets of varying sizes and shapes. “We do have retail, and we’re actually expanding our retail a little bit,” he said, adding the company’s retail includes parts for hand and power tools, gaskets for lighting, running boards for class cars and more. “Eighty to 90 percent is in industrial markets — pumps, machinery, gaskets, seals, diaphragms, check balls, valves.” Jim Miller, technical director at the Aurora facility, said there are three basic types of production that are set up there. The first, thermoplastic injection molding, involves melting down plastic and “shooting it into a mold,” he said. The second is thermoset elastomer work, which uses a delicately set combination of pressure, heat and time to create rubber parts. “It’s basically the same process that creates diamonds,” said Miller. The third type of rubber and plastic production at the Aurora facility is cast urethane, which Miller said involves a polymer “setting up under heat.” In his short time with the company, Vaughn said the biggest challenge has been finding reliable employees, adding that his first hire, Rorell Dickerson who had recently graduated from the police academy when he was hired in March, was a “great find.” “We have a trial for our labor of six months while they’re working as temps,” he said, explaining if workers proves themselves in that period, they may be offered a full-time position. Philpott Director of Operations Ron Strayer said Dickerson will be a key employee as it moves it’s China rubber and plastics business back to the U.S. “Rorell will play a key role in helping us continue to fulfill our customer promise to deliver parts of the highest quality, on time and of a remarkable value,” said Vaughn. “Rorell’s position is one of the many that will be created as a result of our reshoring program.” Vaughn himself is new the company, as well. He came on board as the chief operating officer in January and was promoted in June to chief executive officer. “We were most fortunate to attract Dr. Vaughn, who is one of the most professional, energetic corporate leaders that I have ever met,” said former CEO Mike Beach. Vaughn, who has a variety of industry experience with General Electric Co. and Omnova, said he felt like the new position seemed like a culminating position in his career. “It seemed to me that all those things that I had experience in in past were all coming together at one time,” he said. “Right now, it seems to be working out alright.” He’s worked in the past as a chemist, has overseen quality control, helped develop new plants, done project design, worked in sales and “ran two businesses for Omnova with $200 million to $250 million in business.” Reporter Bob Gaetjens can be reached at 330-5419440, bgaetjens@recordpub.com or @bobgaetjens_rpc. SEPTEMBER 2018

REPORT: Shale Saved Ohio Natural Gas Consumers More Than $40 Billion Over 10 Years Jackie Stewart | Energy In Depth A new Consumer Energy Alliance (CEA) report highlights how domestic shale development saved Ohio consumers more than $40 billion from 2006 to 2016 by driving down natural gas prices. Thanks to prolific natural gas production in the Appalachian Basin, the region now boasts the lowest natural gas prices in the world — and at the end of the day, that means billions in savings to natural gas consumers. The report echoes a similar 2017 University of Pennsylvania Appalachian Basin study that credited the abundance of Marcellus Shale natural gas for a 40 percent reduction in Pennsylvania natural gas bills over the last decade. Nationally, the 2017 Sustainable Energy in America Factbook found that record-low natural gas prices enabled consumers to devote “less than 4% of their total annual household spending to energy in 2016, the smallest share ever recorded by the US government.” The CEA report breaks down Ohio’s cost savings, showing that Ohio residential customers saved close to $15 billion during the 10-year period, while commercial and industrial consumers saved more than $25 billion. What’s even more staggering is the downward trajectory in the price of natural gas before and after domestic shale development took off in earnest. Before shale, natural gas prices peaked at $10.66, while these prices decreased to just under $4 in 2016 – a 62 percent drop – after the shale revolution took hold in Ohio. The shale-driven savings for Ohio consumers did not stop there. The CEA report also explains that Ohio gasoline prices have plummeted since 2011. The price at the pump for the Buckeye State was about $4.15 per gallon in 2011, with no end in sight. Domestic oil production from shale has helped to lower gasoline prices, saving drivers an estimated $115 billion or $1,100 per household in one year alone, according to AAA. According to the report, there are 1.7 million Ohioans — 14.6 percent of the state’s population — living below the poverty line. For those that fall into this demographic, energy expenditures require a quarter of their take-home pay. As Action For Boston CommuSEPTEMBER 2018

nity Development’s John Wells told National Journal in 2013, “Low natural-gas prices have been a godsend to low-income families.” And as CEA’s Midwest Executive Director Chris Ventura stated, “Lower fuel prices have helped Ohioans save over $40 billion in the past decade. This means families have more money to pay for school clothes, grocery bills, and perhaps even to take a vacation that has been put off for far too long.” EID‘s 2014 video on consumer savings also explained the importance of these lower energy costs for lowincome families and American consumers.

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Schools, Local Governments to Share $31 Million From Cadiz Power Plant Developer Nicholas A. Homrighausen | Executive Director of Community & Economic Development, Harrison County, Ohio The Harrison Hills City School District, as well as Harrison County and its villages and townships, will share $31 million over 15 years as a result of a donation agreement reached with the developer of a $1 billion power plant to be constructed in Cadiz. An announcement of the agreement was made by Nick Homrighausen, Harrison County’s Executive Director of Community & Economic Development. The agreement is commonly called a PILOT agreement – Payment in Lieu Of Taxes – whereby the developer agrees to make contributions to local political subdivisions while receiving an exemption from paying property taxes on the plant. In this case, Harrison County provided a 15 year tax exemption as an incentive to attract this billion dollar investment into the county. According to the agreement, payments are to be $2.5 million in each of the first two years, and then $2 million each in the third through 15th years. Construc-

tion of the plant is to begin this fall, beginning operation in 2021. Under that schedule, payments would also begin in 2021. Of the $31 million, 45 percent – a total of almost $14 million – will go to the Harrison Hills City School District, which by law, agreed to the tax abatement. Dana Snider, Superintendent of the Harrison Hills City School District, stated that “The Harrison Hills City Schools are pleased to help make this great opportunity for our county become a reality. It’s another small way that we can express our appreciation for our residents’ support for our new school facilities.” Forty-four percent of the money – over $13 million – will be divided among all of the villages and townships in Harrison County, to be used for the purchase of equipment or for other capital expenses. The remaining 11 percent of the payment will go to the county, in part to help support further economic and community development activities.

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SEPTEMBER 2018

OHIO WELL ACTIVITY by the numbers

UTICA SHALE

MARCELLUS SHALE 16 6 7 23

Wells Permitted Wells Drilling Wells Drilled Not Drilled Wells Producing Inactive Plugged Total Horizontal Permits

Data as of 8/11/18

472 150 296 1945

2863

Wells Permitted Wells Drilling Wells Drilled Not Drilled Wells Producing Inactive Plugged Total Horizontal Permits

Source: Ohio Department of Natural Resources

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TOP COUNTIES WITH HORIZONTAL DRILLING ACTIVITY BY NUMBER OF SITES

1. Belmont County........ 590 2. Carroll County......... 526 3. Monroe County........ 445 4. Harrison County........421 5. Guernsey County...... 233 6. Noble County.......... 222 7. Jefferson County........188 8. Columbiana County...154 9. Mahoning County....... 30 10. Washington County... 22 11. Tuscarawas County.... 20 12. Portage County........ 15 Trumbull County........ 15 13. Stark County............ 13 14. Coshocton County....... 5 15. Morgan County.......... 3 Muskingum County...... 3 Holmes County........... 3 16. Knox County.............. 2 17. Ashland County.......... 1 Astabula County......... 1 Geauga County.......... 1 Medina County........... 1 Wayne County............ 1 I VARIOUS SSTAGES: PERMITTED DRILLING, ,D WELL SITESS IN PLETED PRODUCING, PRODUCINGPLUGGED, PLUGGED DRILLED, COMPLETED, SOURCE: OHIO DEPARTMENT OF NATURAL RESOURCES AS OF D L A 8/11/18

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The U.S. Energy Information Administration collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment. www.eia.gov

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