Ohio Gas & Oil Magazine February 2018

February 2018

A Free Monthly Publication

Ohio EPA Letter Addresses Rover Pipeline Construction

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Table of Contents FEBRUARY 2018 G ROUP PUBLISHER Bill Albrecht

EXECUTIVE EDITORS Ray Booth rbooth@daily-jeff.com Rob Todor rtodor@the-review.com Ted Daniels tdaniels@the-daily-record.com

CONTENT CO ORDINATOR Emily Rumes

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A Look Ahead Gas & Oil Events

FEBRUARY 2018

4

Ohio EPA Letter Addresses Rover Pipeline Construction

ADVER TISING

5

Update: Feds Halt Rover Pipeline Work

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Ohio Appellate Court Adopts Texas Rule to Resolve Mineral Ownership Dispute

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Carroll County Energy Plant Making Power

Kelly Gearhart Wooster & Holmes, and Ashland, Ohio Offices kgearhart@the-daily-record.com 330-287-1653 419-281-0581

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Dominion Energy Proposes Sweden Valley Project For Natural Gas Transmission

Mindy Cannon Alliance & Minerva, Ohio Offices mcannon@the-review.com 330-821-1200

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Guernsey County Firefighters Trained in Oilfield Emergency Tactics

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Guest Column: Ohio’s Energy Infrastructure Essential During Frigid Temperatures

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Ohio Supreme Court Holds Lessors Adequately Protected

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U.S. Refiners Area Riding High With Strong Margins, Tax Boost

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Ohio Well Activity

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Horizontal Drilling Activity Graph

John Kridelbaugh Cambridge, Ohio Office jkridelbaugh@daily-jeff.com 740-439-3531

Kim Brenning Kent, Ohio Office kbrenning@recordpub.com 330-298-2012 Janice Wyatt National Major Accounts Sales Manager jwyatt@recordpub.com 330-541-9450

L AYOUT DESIG NER Kassandra Walter

kwalter@times-gazette.com

erumes@the-daily-record.com

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Ohio EPA Letter Addresses Rover Pipeline Construction

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Guernsey County Firefighters took part in an intensive field-training program that teaches local firefighters best practices and tactics for managing oilfield incidents.

The Ohio Oil and Gas Energy Education Program trained 95 firefighters from 29 counties in Ohio in 2017.

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

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A Look Ahead to 2018

Gas & Oil Events • February 13-15, 2018

Ohio Educational Technology Conference (OETC) OETC is the premier P-20 state educational technology conference. Designed to cultivate partnerships, promote collaboration, deliver high-quality information, and make technology accessible and enjoyable for educators, the OETC is the must-attend conference of the year.

For three full days, attendees learn what’s new and look towards the future by exploring new technologies in a interactive atmosphere, and learning how to integrate them into the learning environment. More info at OETC.Ohio.gov Greater Columbus Convention Center, 400 N High St, Columbus, Ohio

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Ohio EPA Letter Addresses Rover Pipeline Construction T

Shane Hoover • GateHouse Ohio Media he Ohio Environmental Protection Agency is again “Our overarching question is when this pilot hole, which is raising concerns over Rover Pipeline’s construction continually losing drilling fluids, will be abandoned … and a work under the Tuscarawas River and near the site new point of entry be considered,” the letter reads. of a drilling fluid spill in April.

The Federal Energy Regulatory Commission last month gave Rover permission to resume boring a path beneath the river for the pipeline.

Rover is an interstate natural gas pipeline project, and the portion that crosses Stark, Carroll and Tuscarawas counties consists of two 42-inch diameter pipelines. One of the two mainlines is finished and carrying natural gas.

Rover is flying drones to monitor for surface leaks and recovery equipment is currently staged in the event of a spill, the letter noted.

Agency spokesman James Lee said Ohio EPA remained No spills of drilling fluid have been reported since boring in “continuous communication” with FERC and Rover started for the second line under the river, but 146,000 gallons regarding the issues cited in the letter. of slurry have been lost down the pilot hole, according to the Rover spokeswoman Alexis Daniel didn’t address specific letter from Ohio EPA’s Division of Surface Water. questions about Ohio EPA’s letter, but said the company “We are deeply concerned this second drill under the continues to coordinate with FERC on the boring projects Tuscarawas River is heading towards a similar outcome and is following contingency plans approved by FERC and which resulted in the previous release to the environment,” Ohio EPA. according to the letter.

“Safety is our first priority – the safety of the community, the In April, 2 million gallons of drilling slurry pumped safety of the environment and the safety of our employees,” underground surfaced in a wetland next to the river and led Daniel wrote in an email.

FERC to suspend some boring work temporarily. Cleanup was complicated when inspectors discovered the clay- Texas-based Energy Transfer is building the $4.2 billion based slurry was tainted with diesel fuel. FERC continues to Rover Pipeline, which will carry 3.25 billion cubic feet of natural gas a day from the Utica and Marcellus shales to investigate how diesel fuel got into the slurry. markets in Canada and the United States.

According to Ohio EPA’s letter, Rover said the April spill “essentially occurred overnight where pressure built up The state is suing Rover in Stark County Common Pleas Court over multiple environmental violations during from the loss of drilling fluids over time.” pipeline construction.

On Wednesday, Ohio EPA inspected the boring operation under the river, and the letter requested daily updates on the amount of fluid lost, leak inspections and other technical data.

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GasandOilMag.com

Update: Feds Halt Rover Pipeline Work T he response below was issued on January 24, 2018 by the Ohio Environmental Council on the FERC’s Order to Cease Rover Pipeline Drilling Near the Tuscarawas River. The statement comes after the article on the previous page, which outlines a letter from the Ohio EPA Addressing Rover Pipeline Construction.

racked up millions of dollars in fines and disrespected Ohio’s environment.

“We commend the Ohio EPA for doing all in their power to hold Rover accountable, and encourage FERC to take a closer look at the future viability of this project. Ohioans can’t trust this company to construct a pipeline in a safe appropriate The following statement can be attributed in full, or in part, manner. How will they trust it to manage the pipe;ine once to Melanie Houston, Director of Climate Programs at the natural gas flows across the state?”

Ohio Environmental Council: “Today, FERC officially ordered Rover to cease current drilling operations near the Tuscarawas River, following the recent underground spill and loss of approximately 200,000 gallons of drilling fluid. FERC also requested that the company look into alternate river crossing locations.

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“This FERC action is a direct result of Ohio EPA’s repeated requests that Rover be ordered to stop drilling. FERC should go one step further and defer to Ohio EPA’s additional recommendations for the company to abandon the current site and propose an alternative route that keeps our waterways safe.

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Ohio Appellate Court

Adopts Texas Rule to Resolve Mineral Ownership Dispute

O

David J. Wigham • Attorney n December 18, 2017, the Ohio Court of Appeals for the Seventh Appellate District issued a decision in which the Court adopted a Texas rule known as the Duhig Rule to interpret conflicting mineral reservations in a chain of title and determine ownership of the minerals as between surface owners and mineral owners. The case is known as Talbot v. Ward, 2017-Ohio9213.

Lawsuits pitting surface owners against mineral owners over ownership of oil and gas rights are still commonplace. This is true even after the Supreme Court of Ohio issued its sweeping decision on September 15, 2016 in Corban v. Chesapeake Exploration, LLC, 2016-Ohio-5796, holding that the 1989 version of the Ohio Dormant Minerals Act (“1989 DMA”) cannot be used to automatically abandon mineral rights. After Corban, surface owners must follow the mandatory statutory notice procedure set forth in the 2006 version of the Ohio Dormant Minerals Act (“2006 DMA”) in order to abandon mineral rights.

The Talbot case was an appeal of a lawsuit involving both 1989 DMA and 2006 DMA claims between surface owners and mineral owners. The trial court had granted judgment in 6

OhioGas&Oil

favor of the surface owner prior to the Corban decision, so the Court of Appeals reversed this judgment on the authority of Corban. There were also 2006 DMA claims brought by the mineral owners. Ultimately, the Court of Appeals was asked to decide the outcome the following fact scenario, which is simplified in this article for ease of explanation: • A conveys property to B, and reserves 50% of the oil and gas.

• B then conveys the same property to C and also reserves 50% of the oil and gas.

• C then conveys the property to D, and reserves 50% of the oil and gas and 50% of the oil and gas already reserved by the formers owners.

The question ultimately confronting the Court was: what interest does B own? In other words, did B’s deed to C reserve the other 50% of the minerals that were not already reserved in A’s deed to B, or was B’s deed simply placing C on notice of the prior reservation in A’s deed to B? Although B only owned 50% of the minerals when B transferred the property to C, B’s deed to C only accounted for 50% of the minerals, not both halves (the 50% reserved by A and the 50% then owned by B). So who owns the second half?

The Talbot Court ruled that B’s deed to C was ambiguous because it could be read one of two ways: that B was either reserving the remaining 50% of the minerals or that B was giving notice of A’s prior 50% mineral reservation. To resolve this ambiguity, the Court first applied Ohio’s rules regarding contract interpretation, which allowed it to look at the other deeds in the chain of title before and after the B’s deed to C. The Court ruled, among other things, that C’s deed to D showed that C believed it owned 50% of the minerals because C specifically referred to both 50% mineral interests in its deed to D (the 50% owned by C and the prior reservation). Therefore, using this example, the Court ruled that B did not own any interest in the property, and that the minerals were owned by the successors of A and D (with each party owning a 50% interest).

Mindful that the surrounding deeds and other instruments of record may not always resolve a deed ambiguity, the Court then ruled that B was also prevented from claiming that it owned the 50% mineral interest, because doing so would cause B to breach the warranty of title in its deed to C. In other words, B’s deed to C contained a warranty of title (most deeds used to transfer real property between unrelated parties are warranty deeds). This warranty prevents B from later making a claim GasandOilMag.com

to the 50% of the minerals referred to in B’s deed, because B warranted (or promised) to C that it was transferring 50% of the minerals to C. The rule articulated by the Talbot Court was originally stated in a Texas case, Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503 (1940) and is known as the Duhig Rule. It is a rule of estoppel that is applied in the exact situation confronted by the Talbot Court.

The Court’s decision in Talbot was sorely needed because it addressed a situation that is repeating itself in lawsuits throughout the Utica Shale counties in Ohio; namely, court cases in which there are multiple deeds in the chain of title containing multiple (or possibly repeating prior) mineral reservations. Talbot will help Ohio courts determine whether repeating mineral reservations in a chain of title should be treated as actually reserving the mineral rights or merely putting the grantee on notice of the prior reservation. The Talbot decision will help bring clarity to the law and give guidance to trial courts faced with hundreds of lawsuits based on mineral reservations that occurred decades ago where most if not all the parties involved are now dead.

The legal issues in Ohio courts over valuable mineral rights are far from over. Surface owners still have an array of potential quiet title and declaratory judgment claims to assert when seeking to reclaim ownership of mineral rights. Surface owners are still able to assert claims under the 2006 DMA, the Marketable Title Act, and for common law abandonment. Now the Duhig Rule may help surface owners in certain situations claim title to mineral interests underlying their properties as well. Nevertheless, surface owners and mineral owners in Ohio continue to face significant legal hurdles over the ownership of valuable oil and gas rights and royalties. The Talbot case illustrates the complexity of the legal issues and highlights the importance of retaining experienced oil and gas counsel to advise clients as to title to and ownership of severed mineral interests.

David J. Wigham is a second-generation Ohio oil and gas attorney with more than 25 years of experience in the industry.

He practices at the law firm of Roetzel & Andress and maintains offices in Akron and Wooster, Ohio. He can be reached at 330762-7969.

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Carroll County Energy Plant Making Power A

Staff Report • GateHouse Ohio Media

fter more than four years of planning and construction, the Carroll County Energy plant is making electricity.

The power plant on state Route 9 about a mile north of the village limit started commercial operations last month, owner Advanced Power announced Wednesday in a news release.

The power plant burns natural gas and can power approximately 750,000 homes. It is is equipped with two GE gas turbines and a steam turbine.

EthosEnergy, of Houston, Texas, operates the power plant, which employs 22 workers, according to the company.

and school officials worked on a tax abatement plan and created an enterprise zone that includes the facility. The end result will be a new school for students in grades six to Advanced Power announced its plan 12 in Carrollton Exempted Village to build the power plant in July 2013. Schools.

The Carroll County site offered access to cheap Utica and Marcellus natural “I’m just thrilled that we’re getting gas, Kinder Morgan’s Tennessee Gas a new school built,” said Jeffrey Pipeline system and AEP’s electric L. Ohler, the Carroll County transmission lines. commissioner who served as a community liaison with the Carroll The decision to build the power County Energy. plant north of Carrollton has helped the community’s tax base. County Bechtel, a San Francisco-based global construction firm, started building the plant in 2015, which created hundreds of temporary construction jobs.

TIAA Investments, JERA, Ullico, Prudential Capital Group and Advanced Power financed the $899 million project.

Advanced Power is a private company that develops, owns and manages power plants in Europe and North America.

A new water tower and twin exhaust stacks rise above the hills surrounding the Carroll County Energy plant. The plant, a mile north of Carrollton, burns natural gas to power up to 750,000 homes with electricity. Shane Hoover, GateHouse Media Ohio 8

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Dominion Energy Proposes Sweden Valley Project For Natural Gas Transmission Nancy Molnar • GateHouse Ohio Media

D

ominion Energy Transmission, Inc., is seeking federal approval for a natural gas transmission project, the Sweden Valley Project, that would include installation of 1.7 miles of 20-inch pipeline in southern Tuscarawas County. The pipeline would run parallel to, and in the same right-of-way as, the existing Blue Racer Midstream pipeline.

Energy Transmission’s existing Gilmore Metering and Regulation Station. The Gilmore Metering and Regulation Station is about half a mile northeast of Gilmore Compressor Station, which is at 656 Gravel Lick Road in Port Washington.

The company’s application for the Sweden Valley Project asks the Federal Energy Regulatory Commission for authorization to build, install, own, operate and maintain natural gas transmission facilities in Tuscarawas and Licking counties, as well as three counties in Pennsylvania.

Dominion Energy would need an additional 25 feet of permanent right-of-way, and in most cases, an additional 25 feet of temporary right-of-way for construction of the pipeline.

The pipeline would run to the new Port Washington Metering and Regulation Station, which would be built about half a mile southwest of Pleasant Valley Road and Gilmore Road The Sweden Valley Project would move natural gas from SE. The gas would be would be delivered to Tennessee Gas Pipeline Company, L.L.C. northern Pennsylvania for delivery in Ohio.

Mack said the company has started negotiations for right“There continues to be a growing need for cleaner-burning of-way lease agreements with eight property owners. All natural gas to heat homes, run businesses and power of them already lease land to Dominion for the Blue Racer generation for electricity,” said Frank Mack, communications pipeline. projects manager, Dominion Energy Transmission.

Based on timing of project approval, Dominion Energy In Tuscarawas County, upon project approval, Dominion Transmission anticipates construction will take place would install 1.7 miles of 20-inch pipeline south of Dominion between January and November 2019, Mack said. The lines are expected to be in service in late 2019.

The total cost of the project is about $48 million, according to Dominion’s website.

The project would supply enough natural gas for a single winter day to about 110,000 households. It would include modifications at an existing compressor station, new metering and regulation facilities, as well as a 1.75-mile interconnect and three miles of parallel pipe to Dominion Energy’s existing natural gas transmission system.

“We anticipate about 225 total construction jobs would be needed for this project, including about 125 in Ohio,” Mack said.

“Construction work will spur economic activity for several months supporting local establishments, such as hotels, restaurants and gas stations.

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“In addition, Dominion Energy Transmission has a commitment to community involvement and has a long-standing tradition of supporting nonprofit causes in area where it does business.”

toll free at 866-208-3676.

A separate notice concerning the project is being mailed to each affected landowner and to each government agency involved in the project. A copy of the application can be viewed locally The details of the project are in the at the Gnadenhutten Library, 160 N. application that was filed with FERC. Walnut St. The application is open to public inspection.

Additional information, including a copy of the application and a publication The project name and docket number called “An Interstate Natural Gas are important to know for anyone Facility on My Land? What Do I Need wanting to contact Dominion or to Know?” is available through the FERC with questions concerning this FERC’s website www.ferc.gov. FERC’s project. The name of this project is the Office of External Affairs may be called Sweden Valley Project and the docket toll-free at 866-208-3372. DETI may be number is CP18-45-000. Using the called toll-free at 866-319-3382. docket number, the public can view most of the application information Dominion Energy Transmission, Inc., is online at http://www.ferc.gov using an interstate gas transmission business the “eLibrary” link. For assistance, unit and wholly-owned subsidiary contact FERC Online Support at of Dominion Gas Holdings, LLC, a FERCOnlineSupport@ferc.gov or call wholly-owned subsidiary of Dominion

Energy Resources, Inc. Headquartered in Richmond, Va., DETI is engaged primarily in the business of storing and transporting natural gas in interstate commerce for customers principally in West Virginia, Ohio, Pennsylvania, New York, Virginia, Maryland and other states in the Northeast and MidAtlantic regions of our country.

Information about the project is on the company’s website at https:// www.dominionenergy.com/about-us/ natural-gas-projects/sweden-valley.

Nancy Molnar is a staff writer for The Times-Reporter.

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Guernsey County Firefighters Trained in Oilfield Emergency Tactics Ninety-five Ohio firefighters receive oil and gas incident response training

T

he Ohio Oil and Gas Energy Education Program today announced it has trained 95 firefighters from 29 Ohio counties during its 2017 Oilfield Emergency Response Training Program. The intensive field-training program teaches local firefighters best practices and tactics for managing oilfield incidents.

“Providing firefighters with the latest information and tactics for dealing with oil field emergencies is one of the most important things we do,” said OOGEEP Executive Director Rhonda Reda. “Our stat-certified instructors, many of whom are current or retired firefighters themselves, take pride in providing fellow emergency responders with this valuable safety information. It is because of our instructors Liberty Community Volunteer Fire Department Firefighters that firefighters from across the nation look to OOGEEP’s Dalton Hanes and Dallas Waggoner attended the training training program as a highly regarded model.” and learned how to safely respond to potential, but rare, oil and natural gas emergency incidents.

The first day of the program focuses on distinguishing between normal operations and true oil field emergencies.

The two-day training program teaches firefighters field- Classroom presentations provide an overview of Ohio’s oil tested tactics and procedures for combating potential and gas industry, including the processes and procedures drilling and production site incidents. Firefighters also used to develop these energy sources. learn how to evaluate oil and natural gas emergencies, and obtain valuable site-specific information during an On day two, firefighters receive hands-on training utilizing emergency. the OOGEEP outdoor fire-behavior lab at the Wayne 12 OhioGas&Oil

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County Regional Fire Rescue Training Facility.

The training site includes several pieces of oilfield equipment designed to allow firefighters to experience and respond to potential oilfield incidents.

The OOGEEP training program and curriculum was developed as a collaborative effort between Ohio’s oil and gas industry, government regulators, firefighters and emergency response experts. The course meets national and state fire safety standards, and attending firefighters can earn required CEU credits as well as an optional graduate credit.

Since 2001, more than 1, 500 firefighters from Ohio and seven other states have successfully completed the program.

The Oilfield Emergency Response Training Program is endorsed by the Ohio Fire Chief’s Association, Ohio Society of Fire Service Instructors and Ohio Fire and Emergency Services Foundation, and funded entirely by Ohio’s oil and natural gas producers.

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Ohio’s Energy Infrastructure Essential

During Frigid Temperatures

A

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Vanessa Hamilton • Vice President of Utility Pipeline severe dozens of other essential c o l d daily needs. Natural gas s n a p supplies all this, all year, w i l l at affordable rates and remind us how with dependable delivery much we appreciate warmth. systems.

For a majority of Ohioans, natural gas is making a Our use of natural gas is comfortable ‘welcome home’ significant and so is Ohio’s possible. In fact, nearly 7 production and transport of out of every 10 Ohio homes natural gas. In 2016, Ohio utilize natural gas as a produced enough natural gas to heat and cool more primary source for heat. than one million homes and We should also consider that businesses. natural gas not only powers a cozy home, but also a hot Nearly 100 percent of Ohiomeal, warm showers and produced natural gas stays

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Guest Column

right here in our state, coming to us through safe, underground infrastructure systems.

According to the U.S. Department of Transportation, pipelines are the safest, most environmentally-friendly way to transfer natural gas to our homes, businesses, hospitals and manufacturing plants.

Consider that by moving gas underground, we are able to decrease use of fuel and our highways, in truck transport.

Underground systems are safer and much more reliable.

Contributing to pipeline safety and dependability is the increased use of modern materials, such as protected steel and plastic piping, in new installations or in replacement and maintenance of older systems. As new pipelines are constructed in Ohio, and existing lines are updated, new technologies and advancements in energy engineering are applied.

As Ohio’s natural gas production and usage have increased in recent years, so has the necessity to safely transport it. Our gas infrastructure is made possible by natural gas producers and suppliers, public utilities, and pipeline companies that In the short-term, weather serve interstate and local experts are predicting community needs. continued frigid temperatures. Ohioans can be Our company owns and thankful we have abundant, operates natural gas home-grown energy to keep distribution systems us warm. for subdivisions, rural communities, federal and In the long-term, our state state facilities, industrial will continue growing our sites and lake communities energy economy and the in Ohio and throughout the infrastructure to support it.

Midwest. I know first-hand Ohioans can be assured that the extensive oversight and those of us in the energy regulation that goes into industry are doing all we building and maintaining can to power their homes quality pipelines. and businesses reliably and safely.

State and local elected officials and regulators, as well as Ms. Hamilton is Executive other key stakeholders, work Vice President for Business with gas industry engineers Development at Utility Pipeline and builders to ensure Ltd. and serves on the board safety, as well as system of trustees for the Ohio Gas integrity and reliability. Association.

GasandOilMag.com

Ohio Supreme Court Holds

Lessors Adequately Protected

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The Court did note that the implied covenant of reasonable development would focus on all facts and circumstances relevant to development, having due consideration for the interest of both the lessor and lessee, including what is known about the market, the geology and adjoining activity.

individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

Gregory W. Watts is an attorney with the law firm of Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. in Canton, Ohio.

NOTE: This general summary of the law should not be used to solve

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By Implied Covenant of Reasonable Development

Gregory W. Watts • Esq. Attorney n a decision issued from Texas and Oklahoma, January 3, 2018, in the Court agreed with the Alford v.

Collins- lessee, that although the McGregor Operating lessors have an interest in Co., Slip Opinion No. 2018- development of the land, Ohio-8, the Ohio Supreme that interest is sufficiently Court held that Ohio does protected by the implied not recognize an implied covenant of reasonable covenant to explore further development, and therefore separate and apart from rejected any implied the implied covenant of covenant to explore further. reasonable development.

Although the Court rejected In this case, one well the implied covenant was drilled in 1981 and to explore further (and producing from the Gordon therefore lessors’ effort at Sand formation. The lessor horizontally forfeiture of sought to cancel the lease the lease in this case), the to depths below the Gordon Court specifically left open Sand (including the Utica the possibility of horizontal and Marcellus formations) forfeiture under the implied due to the lessee’s failure covenant of reasonable to explore those deeper development. In fact, the formations.

Court noted that implied covenant was well suited to The Court acknowledged address the primary driver that oil and gas leases of the lessors’ interests, are ordinarily subject to namely the emergence of an implied covenant to new drilling technologies reasonably develop the permitting production from land (unless the parties deep strata that could not be contract otherwise or waive obtained before. However, the implied covenant). In because the lessor raised following prior precedent only the implied covenant of further development on appeal, the Ohio Supreme Court did not express any opinion as to how a prudent operator would or would not employ new deep-drilling technologies.

330-488-2000 1-888-488-2009 Located on Rts. 30 & 44 • 383 East Walnut • East Canton OhioGas&Oil 15

U.S. Refiners Are Riding

High With Strong Margins, Tax Boost

Laura Blewitt • Bloomberg Contributed: David Wethe • Bloomberg

U

.S. refiners are off to a strong start in 2018, even as competitors elsewhere are hitting harder times.

Analysts are bullish with good reason.

While some Mediterranean refiners are taking losses on each barrel of crude they process and Asian fuel makers face more competition from China, margins at some Midwest plants reached $40 a barrel in late December. Gasoline and diesel are leaving Valero Energy Corp. and Marathon Petroleum Corp.’s Gulf Coast plants at a record pace as Mexico and Brazil seek increasing amounts of fuel.

Independent refiners are poised to cash in on President Donald Trump’s U.S. tax reform. Oil market fundamentals are also looking bright. Gulf Coast refiners ran at record-high levels in the last week of December. The party is set to continue as planned shutdowns will be 45 percent lower this quarter from a year ago, according to data “Refiners have a few factors working in their favor right now,” said Sam compiled by Bloomberg.

Margolin, lead analyst at Cowen &

Co. “Economic indicators point to strong gasoline and diesel demand in 2018. Secondly, the rally in oil prices could be helpful to U.S. refiners.”

“Unlike other areas of energy, refiners not only have U.S.-centric operations but are largely in the black and cash tax payers,” which will strengthen earnings once policy changes, said Blake Fernandez, an analyst at Scotia Howard Weil.

U.S. refiners have the advantage of not only close proximity to abundant crude supply from Texas, North Dakota and Alberta, but cheaper supplies of natural gas and hydrogen that are vital to running their plants.

“If you wrap that together, you get a margin in the U.S. which is quite a bit better than almost all the other large manufacturing centers in the world,” Dan Romasko, chief executive officer of Motiva Enterprises, said Thursday at the Argus Americas Crude Summit in Houston.

U.S. crude approached $65 a barrel this month for the first time in more than three years, and the government increased its estimate for oil output to more than 11 million barrels a day in late 2019.

Higher prices “could lead to accelerated U.S. crude production growth, which gives domestic refiners access to lower cost feedstock,” Margolin said from New York.

16 OhioGas&Oil

GasandOilMag.com

in line to purchase American-made diesel, helping boost July exports to a record-high 1.7 million barrels a day.

Petroleos Mexicanos, or Pemex, is counting on buying less diesel in 2018. It plans to run its accidentprone refining complexes 27 percent harder this year. But Brazil’s appetite is only growing, according to Sam Alderson, an oil analyst at Energy Aspects.

Refiners’ margins for producing diesel are now outperforming gasoline by more than $10 a barrel, reviving a typical seasonal pattern that didn’t show up the past two winters, Bank of America Merrill Lynch said in a research note. Refiners maximized their diesel production at the end of last year, boosting output of the heavy-duty distillate fuels to a record 5.6 million barrels a day.

The backwardation in the forward curve, in which near-term delivery of diesel is at a premium to later contracts, points to continued record refinery rates. The longer-term price outlook points to continued low inventories and higher volatility, Bank of America Merrill Lynch said Jan. 5 in a note led by Sabine Schels.

“Low inventories mean the diesel market could be posed for a lot more volatility ahead, as any supply disruptions will reverberate through the market more quickly than previously,” she said.

Still, today’s high times for refiners may be hiding tougher days ahead.

Greater competition from refiners from China to Saudi Arabia threatens U.S. hegemony in the Latin American GasandOilMag.com

fuel market. Record U.S. operating rates may result in a fresh glut of products, as biggest customer, Mexico, produces more of its own fuel.

“We expect margins to remain relatively healthy through the first half of the year,” he said from London. “We’re far from short of diesel demand given the current cold snap, robust freight market and strengthening external demand in places such as Brazil.”

Margins in Europe have drooped, and even turned negative at some lesssophisticated plants in the Mediterranean, according to Oil Analytics data. In Asia, China’s fuel exports are set to soar this year, according to the nation’s biggest energy producer.

U.S. refiners’ opportunity to keep expanding production d e p e n d s largely on Latin American demand.

In 2017, Brazil and Mexico were first OhioGas&Oil 17

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TOP COUNTIES WITH HORIZONTAL DRILLING ACTIVITY

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1. Belmont County 554 2. Carroll County 526 3. Monroe County 419 4. Harrison County 408 5. Noble County 221 5. Guernsey County 221 7. Columbiana County 151 8. Jefferson County 155 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 WE L SIT WELL SITES ITES IIN N VAR V VARIOUS A OU AR US SS STA STAGES: T GES GES: PERMITTED, PERMITTED E M T ED D, D DRILLING DRILLING, LLING, DRILLED, D I LE LED, ED D, COM COMPLETED, PLETED PL LET ETED PRODU PRODUCING PRODUCING, PR RODUCING O UCING I G PLUGGED LUGG SOUR SOURCE: S OUR RCEE O OHIO H O DEP DEPARTMENT RTMENT O OF NA NATURAL URAL RESOURCES S U E A AS SO OF 1 1/13/18 1/1

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