Dix Communications - Gas & Oil
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May 2013 Edition
1
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May 2013 Edition - Dix Communications
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Table of Contents 5
Fracking a safer choice
G.C. Dix II Southern Zone GCDixII@dixcom.com
7
Get ready for the next tax year
David Dix Northern Zone DEDix@dixcom.com
8
A history in the oil business
10
Opinion: Severance tax excessive
13
What to expect in 2013
14
Bakerwell has ‘upped the ante’
16
No longer ‘business as usual’
19
Infrastructure: Moving gas
20
Open houses showcase building availability
21
Caldwell lake property leased
David Dix / Dix Communications
Bobby Warren / Dix Communications Thomas E. Stewart / Gas & Oil Association
Rob Todor / Dix Communications Kelley Mohr / Dix Communications
Steven F. Huszai / Dix Communications Norm Shade / President, ACI Services Kelley Mohr / Dix Communications Lisa Loos / Dix Communications
OTTAWA
C
MARION
YNE WAYNE
ARE UNION DELAWARE GN
KNOX
COSHOCTON
LICKING FRANKLIN LIN
FAIRFIELD
PERRY
PIKE
VINTON
MEIGS JACKSON
HARRISON
MONROE
WASHINGTON ATHENS
Roger DiPaolo Northern Zone RDipaolo@dixcom.com Ray Booth Southern Zone RBooth@dixcom.com Rob Todor Southern Zone RTodor@dixcom.com
REGIONAL EDITORS Kimberly Lewis Northern Zone KLewis@dixcom.com
Niki Wolfe Southern Zone NWolfe@dixcom.com
MORGAN
HOCKING ROSS
COLUMBIANA
CARROLL
BELMONT
NOBLE
PICKAWAY AY
MAHONING
GUERNSEY
G
IN
K
US
M
UM
Lance White Northern Zone LWhite@dixcom.com
Cathryn Stanley Southern Zone CStanley@dixcom.com
PORTAGE
STARK
HOLMES
MORROW ORROW
FAYETTE
SUMMIT
MEDINA
JEFFERSON
RD FO W RA
GEAUGA
TUSCARAWAS
WYANDOT DIN
HURON
SENECA
EXECUTIVE EDITORS
Erica Peterson Northern Zone EPeterson@dixcom.com TRUMBULL
LORAIN
ASHLAND
COCK
CUYAHOGA
ERIE
SANDUSKY
HLAND
Andrew S. Dix Northern/ Southern Zone ASDix@dixcom.com
Boom means expansion for Kent Company
Coverage Area OD
PUBLISHERS
4
RICHLAND
Gas & Oil
MADISON
2
Northern Zone Southern Zone
Judie Perkowski Southern Zone Jperkowski@dixcom.com
Dix Communications - Gas & Oil
www.OhioGO.com
May 2013 Edition
ADVERTISING DIRECTORS Rhonda Geer Northern Zone Sales Wooster & Holmes, Ohio Offices RGeer@dixcom.com 330-287-1653 Harry Newman Northern Zone Sales Kent, Ohio Offices HNewman@dixcom.com 330-298-2002 Kim Brenning Southern Zone Sales Cambridge, Ohio Office KBrenning@dixcom.com 740-439-3531 Peggy Murgatroyd Southern Zone Sales Barnesville and Newcomerstown, Ohio Offices PMurgatroyd@dixcom.com 740-425-1912 Barnesville 740-498-7117 Newcomerstown Jeff Kaplan Southern Zone Sales Alliance & Minerva, Ohio Office JKaplan@dixcom.com 330-821-1200 Janice Wyatt National Major Accounts Sales Manager JWyatt@dixcom.com 330-541-9450
Ohio octobER 2012 • www.ohiogo.com
A FREE monthly PublicAtion
Welcome to the inaugural northern zone edition of “Ohio Gas & Oil,” a monthly magazine delivered throughout 18 Ohio counties in the heart of the Utica shale play. “Ohio Gas and Oil” takes a monthly look at news, opinions and analysis of the Utica Shale play and the impacts of the emerging industry. The burgeoning gas and oil industry has become one of the most important new sources of economic growth in Ohio. “Ohio Gas & Oil” has been created to provide a niche for area residents, development leaders, businesses and industries to learn more about the industry and to participate in its development, as well. Readers look to Ohio “Gas & Oi” l for expert insights and columns that focus on energy related news including topics like: job opportunities and training, land leasing and legal perspectives for property owners, drilling techniques and practices, Ohio regulations, local business expansions happening in Ohio, community outlooks, and industry developments. The magazine, and associated website - Ohiogo.com - are trusted sources for quality news on this vital and growing segment of Ohio’s economy. We’ll also include columns, opinions and opportunities for businesses and industries to promote and showcase their products and services. We would love to hear from you. Please give us your thoughts, suggest topics for future articles or let us know if you are interested in participating in this venture. Send your input to asdix@dixcom.com and dedix@dixcom.com. We look forward to being your source for gas and oil news.
David E. Dix Co-Publisher
Jeff Pezzano VP Advertising Sales & Marketing Kent Ohio Office JPezzano@dixcom.com 330-541-9455
LAYOUT DESIGNER Kelsie Davis
Ohio m m .ohiogo.co .ohiogo.co • www • www bER 2012 MAY octo2013
on icAtiION PublICAT hlyPUBL THLY mont MON A FREE A FREE
ect What to exp in 2013 excessive? Severance tax er choice Fracking a saf
“Gas & Oil” is a monthly publication jointly produced by Dix Communication newspapers across Ohio. Copyright 2013.
Andrew S. Dix Co-Publisher
gas re: Moving Infrastructu
Cover Photo: Noble County #33 well site after dark by Christy Penland/Dix Communications
3
4
Gas & Oil
May 2013 Edition - Dix Communications
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Boom means expansion for Kent company
W
ith so many job seekers living in northeastern Ohio, people looking for work may need to be extra vigilant to find that open position. That’s one of the lessons from MAC LTT’s recent expansion into Kent in Portage County. MAC LTT president Jim Maiorana said the firm, which manufactures liquid tank trailers mainly for use in the oil and gas industries, said he’s barely needed to advertise his open positions. A boom in oil and gas drilling has meant steady work for the company, Maiorana said. He said publicity from newspaper articles about the company’s expansion and Ohio Gov. John Kasich have drawn potential workers to the firm. The company has added 65 jobs since it opened in October 2011 and has consistently added more workers, with welders being the company’s highest need. Maiorana said the easiest way for potential employees to get a foot in the door is show up at MAC LTT, located at 1400 Fairchild Ave., and fill out an application. “If they’re a welder they get seen immediately,” Maiorana said, adding that applicants will likely be given a weld test that day. Job seekers can also look for businesses, such as MAC LTT, which received government grant funding and financing.
Continued on pg. 15
Lisa Scalfaro/Dix Communications An employee of MAC LTT in Kent welds a liquid tank trailer. The firm makes liquid tank trailers mainly for use in the booming oil and gas industry.
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Dix Communications - Gas & Oil
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May 2013 Edition
5
‘Fracking safer than conventional drilling’
F
or Hiram Township Trustee Jack Groselle, a former Portage County Commissioner, the debate over fracking’s safety overlooks it’s being much safer environmentally than the conventional drilling for oil and natural gas that occurred in the 1970s in the county. “Drilling and disposal techniques have improved in recent decades,” he said. “Forty years ago, drillers in Portage County sought to find oil and natural gas in the Clinton layer 5,000 feet below the surface. Disposal of brine and other wastes occurred in open pits. One well was permitted for every 40 acres. “The new regulations specify one pad with up to six wells, each allotted for 200 acres, or five times the old number,” he said. “The water used in fracturing Utica Shale can be used 10 times. After that, the waste is transported in specially built trucks to be injected into wells set up in earthen layers that it is believed will not leak.” Jack Groselle Groselle farms nearly 1,000 acres in the Hiram and Nelson Township areas. None of that acreage, much of it owned and some rented, is being drilled presently, he said, but he does not rule it out leasing land for fracking should the opportunity arise. He said Hiram trustees sponsored a public forum at which Mountaineer Resources appeared. It is the company that has signed up the leasing rights for much of Hiram and Nelson Township. When some residents in the township voice concerns over potential damage to local water sources, Mountaineer said they were content to let the Portage County Health Department test anyone’s water, Groselle said. Mountaineer, he said, continually tests drinking water sources when requested by area residents. Besides increasing the wealth of the community, Groselle said
that fracking can help the United State return to energy independence, something that has not occurred for decades. “Wouldn’t that be a tremendous advantage for Americans,” he said, “and not having to be dependent on energy from countries that are too often unfriendly to American interests.”
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May 2013 Edition - Dix Communications
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TOP COUNTIES WITH HORIZONTAL DRILLING ACTIVITY BY NUMBER OF SITES
1. Carroll County 245 2. Harrison County 80 3. Columbiana County 67 4. Jefferson County 35 Monroe County 35 5. Guernsey County 34 6. Noble County 32 7. Belmont County 29 8. Mahoning County 17 9. Portage County 14 10. Stark County 13 10. Tuscarawas County 13 11. Coshocton County 5 12. Trumbull County 4 13. Holmes County 3 Muskingum County 3 14. Knox County 2 15. Ashland County 1 Geauga County 1 Medina County 1 Wayne County 1 WELL SITES IN VARIOUS STAGES: PERMITTED, DRILLING, DRILLED, COMPLETED, PRODUCING, PLUGGED SOURCE: OHIO DEPARTMENT OF NATURAL RESOURCES AS OF 4/25/13
25
50
75
100
125
150
245
Dix Communications - Gas & Oil
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May 2013 Edition
7
Get ready for the next tax year
W
hile taxtime has just passed, the IRS is offering tips residents should keep in mind this year in anticipation of paying 2013 taxes. Marcellus and Utica shale lie underground much of eastern Ohio. New technology and techniques provide the potential to extract oil and gas from the shale. Taxpayers who own land that contains valuable natural resources should be aware that arranging for the development of the resources by means of a lease creates tax consequences. Landowners may make complex financial agreements to receive royalty, bonus or other income in exchange for access to the resources on their land, such as natural gas and oil from shale deposits. Here are some important facts from the Internal Revenue Service about these transactions. Lease Agreements Natural resource extraction agreements involve payments for extracting resources such as oil and gas. Payments can include delay rental, royalty and lease bonus payments. Taxpayers who receive these payments are royalty owners who do not have a working interest in extraction operations. Taxpayers should normally report these payments as income on Part I of Schedule E(Form 1040), Supplemental Income and Loss. Income reported on Schedule E is usually not subject to self-employment tax. Taxpayers who do have a working interest in the extraction opera-
tions are subject to self-employment tax, and must file Schedule C (Form 1040), Profit or Loss from Business. Leases and Lease Bonuses Taxpayers/lessors typically receive a lease bonus from a lessee — the party that extracts the natural resource — in consideration for granting the lease. A lease bonus may be paid in a lump-sum or multi-year payments. The lessee should provide the taxpayer with a Form 1099-MISC , Miscellaneous Income, listing the amount of bonus payments as “Rents” in Box 1. Taxpayers usually report their lease bonus income as rent on Schedule E. Royalty Payments Taxpayers/lessors may receive periodic payments for their share of the natural resource. These payments are commonly known as royalty payments. They must be based on natural resource production on a recurring or intermittent basis, per the terms of the lease. The lessee should provide the taxpayer with a Form 1099-MISC reporting the payments as “Royalties” in Box 2. Most taxpayers report royalty payments received as royalty income on Schedule E. Depletion Deduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. The depletion deduction allows a taxpayer who owns an economic interest in a mineral deposit or
Continued on pg. 12
SUPPORT FROM:
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ARE WE READY?
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alliance between local governments, chambers of commerce, labor groups, educational institutions, development groups and employment organizations. We promote understanding of the oil and gas industry, the implementation of oil and gas extraction efforts that are environmentally responsible, and the use of Stark County labor in the development, extraction and processing of oil and natural gas. We assist companies moving to Stark County and direct them to local services, organizations and businesses that can help make their move as seamless as possible.
JOIN THE MOVEMENT TODAY! For more information on how you can join the Stark County Oil and Gas Partnership call: 330.451.6207, email: info@ChooseStark.com or visit www.ChooseStark.com
STARK COUNTY
OIL AND GAS
PARTNERSHIP
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A history in the oil business
A
Bobby Warren Dix Communications
lmost six decades ago, a company came in and drilled two wells on the farm owned by Jim Smail’s father north of Shreve, and he has been intrigued and involved in the industry ever since. From his days as a youth, Smail wanted to do two things: Be a banker and be in the oil and gas business. He wanted to be a banker because he was the person in town people would turn to for advice. (Smail is a majority owner in Monitor Bank in Big Prairie and chairman of the board for First Na-
tional Bank in Orrville.) As for oil and gas, “I loved the sights, sounds and smell of searching for oil; it was always intriguing to me,” he said. “I hung out by the drilling rigs, and they took me under their wings.” He was about 8 or 9 years old at the time, and he would eat his dinners out there. “They gave me a hard hat and a job,” Smail said. “I was raised in a strict Christian home, and I learned a whole vocabulary out there.” Bobby Warren/Dix Communications The first three wells he drilled “were just monsters,” says Wayne County oil man, banker and all around businessman. Jim Smail owns or has interests in a diverse group of companies covering nearly all aspects of the gas and oil industry.
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In 1975, Smail got a taste of the gas and oil business when he started leasing land as a lease agent. He would sell the land and keep an interest in the well. By 1978, he drilled his first well near Shreve. “One of the proudest moments of my life was drilling that well,” Smail said. “After 35 years, it doesn’t pay the operating costs, but I still keep it active.” While the well is not paying the freight these days, it was very productive and profitable in those early years. “Luckily, the first three wells I drilled were just monsters,” Smail said. Today, Smail owns or has interests in a diverse group of companies covering nearly all aspects of the gas and oil industry. J.R. Smail Inc. is on the production side of the business, and it has interests in Ohio, New York, Pennsylvania, West Virginia, Kansas, Texas, Louisiana, Illinois and Montana. He owns Poulson Drilling Co., which owns a drilling rig that is hired out on contract. Hagen Well Service LLC is a service company. He also has a trucking company, DTS Inc. Smail is a past president of the Ohio Oil and Gas Association, and in 2009 he was awarded the organization’s Patriot Oilfield Award.
Dix Communications - Gas & Oil
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OPINION: Severance tax excessive
T
wenty cents for a barrel of oil. That’s the mantra proponents of the severancetax increase on oil and gas production have been repeating throughout the state since it was proposed in 2012. While it’s a catchy phrase, it’s not an accurate depiction of the tax reality facing Ohio’s oil and gas producers. In addition to the severance tax, Thomas E. Stewart which was increased only three Ohio Gas & Oil Asso. years ago, oil and gas producers also pay income, sales, ad valorem (a property tax exclusive to oil and gas) and the commercial activities tax or CAT. The administration’s proposed tax increase of four percent on oil amounts to a 1,500-percent tax increase. I believe you would be hard pressed to find a taxpayer who believes that’s a “modest” increase. Furthermore, the severance tax would also be collected whether or not a well was profitable, which means it equates to a 4-percent gross-receipts tax on oil. Proponents of the severance tax increase often point to tax rates in other oil-and-gas-producing states to justify increasing the tax in Ohio. But once again, they often fail to take into account the fine
print. For example, Texas has a seven percent severance tax rate, but it offers very generous abatements to oil and gas companies to offset the tax. There is also no income tax in Texas. Then there’s Pennsylvania, home of the most active shale play east of the Mississippi. Pennsylvania debated a severance tax for several years, but decided against the move because of concerns that it could curtail investment and development. Conversely, West Virginia, which has a five percent severance tax rate, has seen drilling activity decline in recent years. Oil and gas exploration is an incredibly expensive and risky endeavor. Companies could spend upward of $12 million per well with no guaranteed return on investment. Despite the risks, the companies drilling in Ohio’s Utica shale are not asking for tax incentives or corporate welfare, just a competitive tax structure that will allow them to reinvest their profits back into the ground and, subsequently, into workers, businesses and communities throughout the state. The benefits from shale-energy development are already being experienced in towns and cities throughout eastern Ohio, many of which have struggled for decades. Today, unemployment rates are decreasing and sales-tax revenue is skyrocketing in communities with active drilling. Some municipalities have seen sales-tax revenue increase more than 20 percent in recent years.
Continued on pg. 11
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May 2013 Edition
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According to a recent study conducted by the respected analytic firm IHS, Ohio currently has more than 38,000 good-paying jobs related to energy development within the state’s Utica shale formation — a number that is expected to grow to more than 140,000 by 2020. Now, with job numbers like those, one would think that the administration would put out the welcome mat for the energy companies that have invested billions to explore the Utica shale play. Instead the administration labeled those out-of-state businesses as “foreigners” and introduced the severance-tax increase on oil and gas production to keep said “foreigners” from taking profits made from Ohio’s natural resources out of the state. This is a ridiculous notion. First of all, many out-of-state companies have partnered with independent, Ohio-based oil and gas producers on exploration and drilling activity who are sharing in the risks and profits. Secondly, a lot of the oil and gas produced in Ohio will stay in the state. Manufacturers throughout Ohio depend on oil and gas to fuel their operations and having a steady supply will help them grow, which means more jobs and economic opportunities for Ohioans. With a diverse manufacturing base, Ohio will not fall prey to what some pro-tax advocates have called the “natural-resources curse,” where resource-based economies are doomed to a cycle of boom and bust. Thirdly, despite widely held public opinion, oil and gas production has a fairly low profit margin of approximately 7 percent. But even when a profit is made, the majority of oil and gas producers reinvest it right back into the next well. It should also be noted that
Ohio land and royalty owners, many of whom are farmers, would also be burdened with the increased severance tax. While Ohio has a long heritage of oil and gas production, the fact is that we’re still in the research-and-development phase of Utica shale development. Though the Utica holds great potential, we may not know its real value or viability for months or even years to come. If the severance-tax increase is enacted and the Utica fails to live up to expectations, the math may not make sense for some companies and they might choose to invest in one of the other promising shale plays in the U.S. or abroad. Already some companies have left Ohio or have substantially curtailed drilling activity. While Ohio’s oil and gas producers support the governor’s efforts to reduce the income tax for hardworking Ohioans, if Utica development is diminished, how will the administration fund its income-tax reduction? Is increasing the severance tax a good idea? No. It’s an ill-conceived, unsustainable tax proposal based on inaccurate information that could endanger the state’s growing shale industry and place job creation and Ohio’s economic future at risk.
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Gas & Oil
May 2013 Edition - Dix Communications
“NEXT TAX YEAR’” from pg. 7 standing timber to reduce their taxable income and account for the reduction of reserves. There are two ways of figuring the depletion deduction: cost depletion and percentage depletion. A taxpayer who owns an interest in a mineral deposit must use the method that yields the greater deduction. The percentage depletion rate for federal tax purposes varies depending on the mineral being produced. A taxpayer must be an independent producer or royalty owner to use percentage depletion for oil and gas. A taxpayer who owns an interest in standing timber can only use cost depletion. Taxpayers claim depletion and other allowable deductions in the “Expenses” section in Part I of Schedule E. See IRS Publication 535, Business Expenses , for more information. Additional Expenses Taxpayers who own working interests may be able to deduct expenses to reduce their natural resource income. This applies to taxpayers who have working interests in extraction operations. Expenses may include overhead, dry holes, certain legal and administrative fees and county health department water testing fees. Severance tax and operation expenses should be detailed on an Authorization for Expenditures (AFE) statement provided by the exploration company. Only taxpayers who have a working interest in the extraction operations may deduct business expenses such as depreciation, tangible or intangible costs, utilities, car and truck and travel from
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their natural resource extraction income. Free Natural Gas Taxpayers may receive natural gas from a lessee oil and gas company. The receipt of gas may be taxable income if the gas is not from the taxpayer/lessor’s retained ownership interest. In general, the ownership of raw gas extracted by a lessee is based on the lease terms and state law. Reporting Rental and Royalty Income Rental and royalty income or loss is calculated on Schedule E. That amount is then transferred to Line 17 on Form 1040 to be combined with income received from other sources such as wages, dividends and interest to determine total income. Net income from royalty and lease payments is not considered passive income. Estimated Tax Since federal income tax is not typically withheld from these payments, taxpayers may want to consider making estimated tax payments on their natural resource income. See Publication 505, Tax Withholding and Estimated Tax, for more information. Income from leasing mineral property and royalty payments for the extraction of natural resources can be significant. Taxpayers who receive this type of income should familiarize themselves with the tax rules to avoid an unexpected bill at tax time. More information is available in Publication 525, Taxable and Nontaxable Income, and the Instructions for Form 1040, Schedule E and Form 1040, Schedule C.
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What to expect for 2013 E jobs and our future. “I can’t think of any other time or any other issue where we’ve able to bring these groups together to stand side by side and fight together that’s for the good of all us. There’s something in this for all of us. This is one of those rising tides that rise all boats.” Healy said his office has tracked the oil and gas business, and “… we’re at 40 new businesses [in Stark County] directly related to the oil and gas industry.” Linda Woggon, representing the Ohio Chamber of Commerce, implored those in attendance that “… as a state we cannot afford to let the benefits of shale energy pass us by.” She said the Ohio Chamber commissioned a study, conducted by Cleveland State University, Ohio State University and Marietta College, that “conservatively” estimated shale energy will add $5 billion in added value to our economy by 2014. She said that study estimated 66,000 new jobs in the state, $3.3 billion in increased wages and benefits, and $10 billion in economic impact. “We are going to see a rebirth of the chemical industry [and] we are going to see a growth in our manufacturing industry that we haven’t seen for a long, long time,” said Woggon.
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xcitement is building in Eastern Ohio for what the remainder of 2013 means in terms of jobs and civic expansion in the Utica Shale. At a recent forum in Canton, Shawn Bennett, the director of Corporate and Community Affairs for Energy in Depth (EID) Ohio, said 2013 is going to be “… the year of industry” in the Utica Shale play. Rob Todor “In 2011 and 2012 it was all Dix Communications about proving the play,” said Bennett to a group of government, business, labor and industry leaders at the Canton Memorial Civic Center on April 15. “In 2013 it’s going to be the year of industry and the year of midstream.” Bennett pointed to two processing plants in Eastern Ohio currently being built or producing, and the planned construction of two more. “This is how we make sure we get the true vast potential of the Utica Shale,” said Bennett, “and this is by taking out the liquids. With these processing plants we’re able to unlock the key to what makes this Utica Shale so important.” Bennett said there are 581 total Utica Shale permits. “We have 281 wells drilled, 77 wells producing and about 33 drilling rigs operating in [Ohio],” he said. “Two years ago we had one [rig]. “This play is going to be beneficial to all of us, not necessarily [just] in Eastern Ohio but throughout all Ohio, because it means jobs, it means energy and that’s what we thrive upon.” Bennett said the development that will be seen is not just above the ground on drill pads. “Unemployment has been dropping all up and down Eastern Ohio,” he said, mentioning a 4 percent drop in Carroll County, 2 percent in Harrison County and 1 ½ percent in Guernsey County. “These are people going into the workforce because we did not have anything prior to this. We did not have the opportunities. “It’s not just the jobs on the rigs, not just the jobs that we’re seeing in the industry, but [also] the sales tax revenues that are going back into our counties, providing new projects for the counties,” said Bennett. “In Carroll County sales tax has risen by 25 percent, [in] Harrison County 22 percent. These are phenomenal numbers. As we see the Utica Shale progress over the next year we’re going to see more jobs happening, we’re going to see more wells coming on line and we’re going to see more opportunity for those of us in Ohio.” Canton mayor William J. Healy II applauded business, labor, government and industry coming together, “…collaborating to benefit our community and our region for the betterment of our
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Gas & Oil
May 2013 Edition - Dix Communications
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Bakerwell says play has ‘upped the ante’
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n the words of Bakerwell Holdings Auditor Mitch Baker, recent exploration in Ohio’s Utica Shale has changed the oil and gas industry tremendously. Established in 1981, Killbuckbased Bakerwell owns and operates natural gas wells throughout Ohio. “Bakerwell has always been an Kelley Mohr oil and gas exploration oriented Dix Communications company, investing in seismic and other technologies to find new fields to develop,” said Baker. “We always knew the Utica was there, but the technology hadn’t been developed to the point we could harvest the hydrocarbons that we found in the Utica.” Before, the company had no way to economically produce Utica Shale wells. That has changed. “Horizontal drilling was a game-changer. It opens up a tremendous amount of formation to a single hole, saving costs across the board. Instead of having to drill multiple wells, we can just drill one horizontally and expose the same amount of formation,” said Baker. “We’ve been fracking since day one. Hydraulic fracturing has been around for decades and it is much safer now. Here at
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Bakerwell Holdings, Killbuck, Ohio Bakerwell we take strident measures to be environmentally conscious — it’s in nobody’s best interest to hurt the environment or injure anyone.” This has allowed Bakerwell to continue to pioneer emerging technologies in the oil and gas industry. “We’ve always been oriented toward exploration and production —
Continued on pg. 15
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“BOOM MEANS EXPANSION’” from pg. 4
May 2013 Edition
in November 2011. Maiorana said the company will also need to fill open mechanic positions throughout the year “We are looking for hardworking guys who are willing to show up to work (every day),” Maiorana said. “Or even guys who are willing to come in and learn a new trade and make a career out of this.” Within the next few years, MAC LTT plans to expand to a total of 230 employees. All of MAC’s employees work day shift hours at the Kent plant, the former home of manufacturer Fontaine Trailer. MAC LTT is the biggest manufacturer to arrive in the city of Kent since Land O’Lakes located in the city in 1983.
Those businesses are good bets for continued growth and expansion, as the Ohio Department of Development does thorough research into the future viability of companies before lending or granting money. The Ohio Controlling Board approved around $6 million in funding and financing for the MAC LTT expansion in Kent. MAC LTT is a division of MAC Trailer, an Alliance-based trailer manufacturer that employed more than 550 people in its Alliance and Salem locations. Kasich said he expected to see a return on the states investment in the company within a year when he visited Kent for MAC LTT’s grand opening
the well. We refocused, and part of the focus was on acquisitions and farm-outs.” For Baker, it is an exciting time to be involved with the industry. “It’s essentially treasure hunting,” he said. “Everybody wins when you strike an oil and gas well. The landowners profits, the company profits, the surrounding community is provided with local cheap energy and employment.” Baker expects the activity to last decades, if not longer. “Bakerwell has been going strong for 30 years — through the booms and busts of the oil and gas industry, Bakerwell will continued to grow,” he said.
“BAKERWELL ‘UPPED THE ANTE’’” from pg. 14 this play has upped the ante,” Baker explained. As a result, Bakerwell continues to expand, hiring additional employees to organize acquisitions and farm-outs as the Utica Shale Play progresses. Coming on the heels of the recent boom in oil and gas activity are several challenges. “Land costs and drilling costs have skyrocketed, steel costs have increased, as have drilling and water services,” said Baker. At the same time, natural gas prices have dropped, making it more difficult to make a profit with the high expense of drilling
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No longer ‘business as usual’
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DM Equipment has been around the drilling scene since 1966 after its founding by Robert D. Miller. But new oil and gas exploration around the state, as well as new owners are changing “business as usual” at the Woosterbased distributor. “I had no idea (RDM) even existed,” said new president Dee Vaidya, who purchased the company, located on Steven F. Huszai Mechanicsburg Road, with his wife Dix Communications Mary in June 2012 from previous owners Stan and Brenda Garrison. RDM distributes top line products from industry leaders such as Forum, Oteco, Flomore and Tulsa Valve, among others, with a 10-state area around Ohio. Vaidya said he was attracted to the company as drilling in Ohio and other states has picked up on advancements made in horizontal drilling techniques. With his background in chemical engineering, Vaidya is finding he knows many of the players in today’s drilling industry. One of the biggest changes to the drilling industry though in-
Dan Starcher/Dix Communications Check valves, which allow for oil, gas, or other fluids on drilling sites, are just one of numerous products sold by Wooster-based RDM Equipment.
“The entire oil and gas industry is definitely transitioning..”
-Mary Vaidya
Continued on pg. 18
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17
OHIO WELL ACTIVITY
by the numbers
MARCELLUS SHALE
10 0 4 0 6 0 0 20
Wells Permitted Wells Drilling Wells Drilled Not Drilled Wells Producing Inactive Plugged Total Horizontal Permits
UTICA SHALE
311 Wells Permitted 14 Wells Drilling 202 Wells Drilled 0 Not Drilled 89 Wells Producing 0 Inactive 0 Plugged 616 Total Horizontal Permits
Data as of 4/25/13 Source: Ohio Department of Natural Resources
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“NO LONGER ‘BUSINESS AS USUAL’’” from pg. 16 volves techniques and tools used in hydraulic fracturing, for oil and natural gas have helped change RDM, Vaidya explained. For instance, in the 1970s and 1980s, Vaidya said most land wells only went down 500-600 feet under the ground. But drilling advancements into shale requires going to 5,000 to 6,000 feet under ground, and possibly double that horizontally. “Going down that far ... requires a far thicker gauge of pipes and valves must withstand higher pressures,” Vaidya said, admitting he is still learning the industry from long-time RDM employees. Mary Vaidya recalled growing up in Wooster in the 1970s many friends had fathers in oil and gas work. “The entire oil and gas industry is definitely transitioning,” Mary Vaidya said. “We need to do the things that are going on so that we will be eventually self-sustainable in the future.” Despite being at the helm of the company for less than a year, Dee Vaidya said the company is currently exploring ways to treat water on-site using mobile units. Vaidya said in rural areas where drillers are leasing, trucks are required to haul water on back roads into sites to be used for the drilling process, then out of the site to treat the water as required by law. With horizontal drilling, the trucking on back roads is increased, as a single well pad can allow for multiple wells extending out in all directions. One single fracking well, for instance can require 5-6 million gallons of water. One pad with 10 wells fracking in all directions and searching for what’s underground would then equal 50-60
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million gallons of water at one single site. “Equipment is our middle name,” Vaidya quipped, as he predicted the first mobile field treatment unit would launch later in 2013. “If we can treat even 15-20 percent (of the horizontal fracturing water) at a site, that could be 10 million gallons of water… that’s a huge savings, to drillers and local communities.
Dan Starcher/Dix Communications RDM Equipment, 1141 Mechanicsburg Road, Wooster, was founded in 1966 by Robert D. Miller, who relocated it to Wooster in 1974. Dee and Mary Vaidya purchased the distributing company of oil and gas parts in the summer of 2012.
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Extensive pipeline infrastructure moves states are almost totally dependent upon the interstate pipeline for their supplies of natural gas. natural gas to market system Today, almost every major metropolitan area in the U.S. is
N
atural gas is moved throughout the U.S. in a highly integrated pipeline network that can transport the gas to and from nearly any location in the lower 48 states. The U.S. Energy Information Administration reports more than 210 natural gas pipeline systems and 305,000 miles of transmission pipelines in the lower 48 states. More than 1400 compressor stations maintain pressure on the natural gas pipeline network to assure continuous forward movement of Norm Shade supplies. There are also 400 underground President, gas storage facilities that provide a supply ACI Services cushion for periods of peak demand. The interstate pipeline grid is the long distance, wide diameter (20 to 42 inch), high capacity underground trunkline system that transports most of the natural gas throughout the nation. The interstate portion of the national pipeline network is about 71% of all natural gas mainline transmission mileage installed in the U.S. Some of the largest pipeline capacity exists on those systems that link the natural gas production areas of the U.S. Southwest with other regions of the country. Sixteen of the thirty largest U.S. natural gas pipeline systems originate in the Southwest Region, with four additional ones depending heavily upon supplies from that region. Two-thirds of the
supplied by, or is the final destination of, one or more of the major interstate pipeline companies or their affiliates. New York City, for example, is a major delivery point on several of the largest pipeline systems, including Texas Eastern Transmission, Transcontinental Gas, Tennessee Gas Pipeline, and Iroquois Gas Transmission. Intrastate natural gas pipelines operate completely within individual state borders and link natural gas producers to local markets and to the interstate pipeline network. Unlike interstate pipelines, intrastate pipelines are not under the jurisdiction of the Federal Energy Regulatory Commission (FERC). About half of the intrastate pipelines are in the state of Texas, where much of the traditional gas supply exists. This efficient pipeline grid has served the Northeast market for many decades, but with the Marcellus Shale gas production increasing rapidly in the past two years and the Utica Shale coming on as well, many changes are looming for the interstate system. This major new Northeast supply is rapidly reducing the demand for gas deliveries from the Southwest via the traditional long-haul lines. Many industry experts predict that by 2015 most of the cross-country lines will actually reverse their flows, moving natural gas from the Northeast to other parts of the country and into Canada.
Continued on pg. 22
Source: US EIA
Interstate Pipeline Grey States Highly Dependent on Interstate Network
Over 300,000 miles of transmission pipelines move natural gas throughout the U.S.
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Gas & Oil
May 2013 Edition - Dix Communications
www.OhioGO.com
Open houses to showcase site, building availability
I
n an effort to provide an opportunity for representatives of 16 counties in Eastern Ohio to network with commercial real estate professionals, several broker open houses will be held in strategic locations across Ohio. Kelley Mohr The point, said Mike Jacoby, Dix Communications executive director of the Zanesville-Muskingum County Port Authority, is to discuss Ohio’s Utica Shale play. “Our goal is to expose real estate professionals who serve oil and gas service companies and suppliers to premier sites and buildings across Eastern Ohio,” Jacoby said. The second open house is planned for May 1 at Due Amici in downtown Columbus. Commercial real estate brokers in the Columbus market are invited to attend to gather information on available real estate and buildings in the counties served by the Eastern Ohio Development
P y o n int o t S
Alliance. Traditionally, rural Ohioans have had little contact with brokers who specialize in selling commercial and industrial properties. The first open house held in Pittsburgh in February brought these people together. “We’ve closed that gap,” said Jacoby. “We also want to educate these professionals on the type of intense development and investment expected in the region.” The open houses also serve to encourage relationships between the brokerage community and upstream, midstream and downstream development, hopefully for the long term, he said. Jacoby encourages everyone in the Eastern Ohio region to work together for shared success. “We are all competitors — but we can be much more successful on a regional basis. If the region wins, we all win,” he said. A new web-based search process — OhioOne/Ohio InSite — also is changing the way site selectors look for locations in the state. On OhioOne, local organizations can list available development properties online for free. Ohio InSite is the portal selectors use to
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find the sites listed. The site can also be linked to local websites that display community properties. Currently, the Appalachian counties of Ohio have about 400 sites listed in the system, and only 10 percent are complete listings. In comparison, Northeast Ohio has 10,000 complete listings. “We aren’t getting the looks we could be getting if we had more inventory on our sites,” said Eastern Ohio Project manager for APEG Ed Looman. “We want to promote our region to the shale supply chain.” Work also has begun to develop Ohio River ports and industrial sites. “It’s the state’s most under-utilized natural resource,” said Looman.
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Caldwell Lake property leased for oil and gas exploration
T
he Village of Caldwell has accepted a lease agreement for gas and oil development on approximately 338 acres of property near Caldwell Lake. Pioneer Land and Mineral Resource LLC, Marietta, is offering the village $4,500 an acre and 19 percent of royalties. It is also a non-drill lease contract, said Mayor Larry Harless. Council signed the agreement at a Lisa Loos special meeting April 18. Dix Communications “We rejected Consol (Energy) because they did not turn the bid in until Thursday night, which was illegal. They had to have it in by April 8 by 7 p.m.,” he said. That’s when bids were due. Consol’s terms were better than Pioneer’s, said Harless, but the village could not accept that contract legally. “We’re going to have open bids for the other 88 acres of village property that both Consol and Pioneer are interested in,” he said. Council in May is expected to give the third and final reading to a proposed ordinance authorizing the administration to advertise for bids for oil and gas development on the other property, which is non-contiguous acreage.
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May 2013 Edition - Dix Communications
“EXTENSIVE PIPLINE’’” from pg. 17 But to get the new shale gas supplies to market, a number of regional pipeline expansions are required. First, new gathering pipelines are needed to collect the gas from the many producing wells and transport it to processing plants. Then, from these plants, transmission pipelines must be built or expanded to connect with the existing interstate pipeline system. Building or expanding an interstate pipeline takes an average of about three years from the time it is first announced until the new pipe is placed in service. It can take longer if it encounters major environmental obstacles or public opposition. It starts with an “open season” for one to two months, giving potential customers an opportunity to enter into nonbinding agreements to use portions of the proposed pipeline capacity. If enough interest is shown during the open season, the sponsors develop a preliminary project design and move forward. Additional pipeline capacity may be added by building an entirely new pipeline, adding a parallel pipeline along a segment of existing pipeline (called looping), installing a lateral or extension off an existing pipeline, or upgrading and expanding compressor stations along an existing route. For reaching the Marcellus and Utica Shale gas, installing laterals and expanding compressor stations are the prevalent options, since an extensive interstate pipeline grid already exists in much of the region. Completing the final project design and solidifying financial commitments from customers may take from three to six months. Then, the project specifications are filed with the appropriate regu-
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latory agencies. If the proposal involves an interstate pipeline, the project sponsor has the option of either requesting that a National Environmental Policy Act (NEPA) pre-filing review be initiated during the early stages of project design, or waiting until later and filing with FERC under the traditional application review process. The pre-filing process may facilitate and expedite the review of pipeline projects that would normally require FERC to prepare an environmental assessment, an environmental impact statement, or a historic preservation review as part of the traditional review process. A FERC review takes an average time of fifteen months. Usually, approval by the regulating authority is conditional, and the project sponsor must then either accept the conditions or reject them and reapply with an alternative plan. After FERC approval, pipeline construction is typically completed in six to as many as eighteen months, depending on the complexity and distance to be covered. Construction can be delayed if additional time is needed to acquire local permits from towns and land-use agencies located along the proposed construction route. Of course, right of ways must also be worked out with property owners along the way. Commissioning and testing of the completed pipeline project typically takes another couple of weeks. This involves subjecting the new segments of the pipeline to hydrostatic testing with high-pressure water or other tests in-place. Finally, the line must be “packed”, which involves filling the line with the initial base volume of natural gas, making it ready for commercial use. Once the necessary pipeline network is in place, development of the Northeast U.S. shale gas resources will accelerate even more.
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