Ohio Gas & Oil July 2020

July 2020

A Free Monthly Publication

OHIO NATURAL GAS AND OIL INDUSTRY AWARDS $54,000 IN HIGHER EDUCATION SCHOLARSHIPS IN THIS ISSUE: INTERVIEW: THE SUCCESSFUL PARTNERSHIP BETWEEN OHIO FARMING AND NATURAL GAS

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NEWS. BUSINESS. TECHNOLOGY. ALLIANCE Mindy Cannon 330.821.1200

CAMBRIDGE Mindy Cannon 330.821.1200

OHIO’S GAS & OIL INDUSTRY RAVENNA Bill Albrecht 330.996.3782

WOOSTER Aaron Bass 330.264.1125

CALL YOUR LOCAL OHIO GAS & OIL SALES REP. TODAY

Table of Contents JULY 2020 G ROUP PUBLISHER

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A Look Ahead Gas & Oil Events

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Ohio Natural Gas and Oil Industry Awards $54,000 in Higher Education Scholarships

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INTERVIEW: The Successful Partnership Between Ohio Farming and Natural Gas

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History - Guest Editorial

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U.S. natural gas production efficiency continued to improve in 2019

Bill Albrecht

EXECUTIVE EDITOR Beth Bailey bbailey@daily-jeff.com

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Latest Orphan Well Report Overestimates Number of Wells and Cost of Plugging

12

March saw Major Declines in U.S. Demand for Petroleum Products

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Ohio Well Activity

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Horizontal Drilling Activity Graph

JULY 2020 ADVER TISING Mindy Cannon Cambridge, Ohio Office mcannon@localiq.com 330-821-1200 Aaron Bass Wooster & Holmes, and Ashland, Ohio Offices abass@localiq.com 330-264-1125 419-281-0581 Mindy Cannon Alliance & Minerva, Ohio Offices mcannon@localiq.com 330-821-1200 Bill Albrecht Akron & Kent, Ohio Offices balbrecht@localiq.com

On The Cover:

The Ohio Oil and Gas Energy Education Program (OOGEEP) awarded scholarships to 54 students, representing 30 counties across Ohio, 20 different colleges, and more than a dozen energy-related majors.

“It’s encouraging to see so many talented young people excited to work in the energy industry,” said Greg Mason, OOGEEP’s interim executive director. “These students are our future leaders, and we are eager to see the innovative solutions and new perspectives they bring.”

JULY 2020

L AYOUT DESIG NER Phil Luks

pluks@recordpub.com

212 E. Liberty St. Wooster, OH 44691 330-264-1125 “Ohio Gas & Oil” is a monthly publication. © GANNETT Co. Inc. 2020

OhioGas&Oil

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A Look Ahead

Gas & Oil Events DUE TO THE COVID-19 PANDEMIC, MANY EVENTS HAVE BEEN CANCELED OR POSTPONED. PLEASE CHECK WITH THE EVENT COORDINATOR(S) FOR NEW DATES AND TIMES.

JULY 13-14, 2020

OOGEEP GEOLOGY TEACHER WORKSHOP

Broughton’s Community Building ton!

Registration includes 18 holes, golf Marietta, OH 45750 cart, driving range access, lunch and beverages (pop/water/domestic beer) OOGEEP RESPONDING TO OIL-

OCTOBER 3-4, 2020

JULY 27 – 29, 2020

OHIO ACTE’S 2020 CONNECTIONS TO EDUCATION CONFERSchoenbrunn Conference Center, ENCE New Philadelphia, Ohio This workshop is free for Ohio teachers, thanks to Ohio’s natural gas and oil producers! Early registration is encouraged because this workshop is limited to only 40 participants and will fill up quickly! No “walk-in” registrations are permitted. In the event you must cancel your registration, please let us know at least 14 days PRIOR to the workshop so that we can promptly fill your position with someone on the wait list. *An optional Ashland University graduate credit is available. The workshop is worth one graduate credit hour (14.5 contact hours) and the fee must be paid by credit card or check made out to Ashland University at the time of the workshop.

This graduate credit will be granted upon completion of all requirements. Additional information will be provided at the workshop.

Hilton Columbus at Easton 3900 Chagrin Drive, Columbus, Ohio 43219 The 2020 Connections to Education Conference is where careertechnical educators and partners gather to exchange time, resources, strategies, solutions and more. Over three days of learning, growing and finding inspiration, attendees are equipped with a year’s worth of support in their daily responsibilities as leaders in education.

SEPTEMBER 11, 2020 OOGA REGION I & II GOLF OUTING

Wooster Country Club 1251 Oak Hill Rd Wooster, Ohio 44691

SEPTEMBER 24, 2020 SOOGA ANNUAL TRADE SHOW

FIELD EMERGENCIES TRAINING

INSTRUCTORS Lead Fire Instructor: Chief Brent Gates, New Concord Fire Department – Ohio Certified Fire Instructor – Adjunct Instructor Ohio Fire Academy – Board of Directors, Ohio Fire Chiefs’ Association – President, Southeast Fire Chiefs’ Association – More than 40 years experience in emergency response and fire education Other Instructors: Includes a team of 15+ state certified fire instructors, emergency responders and industry experts with more than 500 years of combined experience in the oil and gas industry and/ or fire service.

TRAINING LOCATION Wayne County Fire & Rescue Regional Training Facility 2311 South Millborne Road, Apple Creek, OH 44606 www.oogeep.org

JULY 14, 2020

OOGA SUMMER MEETING

The Glenmoor Country Club 4191 Glenmoor Rd NW Canton, Ohio 44718 Due to uncertainty surrounding the Coronavirus pandemic, OOGA is hosting a modified Summer Meeting. Unlike previous years, this year’s Summer Meeting will be a one-day, golf-only event.

The annual Oilfield Patriot Award reception has been postponed.

We hope you will join us July 14th to enjoy a round of golf at the beautiful Glenmoor Country Club in Can-

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JULY 2020

Ohio Natural Gas and Oil Industry

Awards $54,000 in Higher Education Scholarships Ohio Oil and Gas Energy Education Program The Ohio Oil and Gas Energy Education Program (OOGEEP) awarded scholarships to 54 students, representing 30 counties across Ohio, 20 different colleges, and more than a dozen energy-related majors.

“It’s encouraging to see so many talented young people excited to work in the energy industry,” said Greg Mason, OOGEEP’s interim executive director.

“These students are our future leaders, and we are eager to see the innovative solutions and new perspectives they bring.”

OOGEEP’s scholarship awards are reserved for Ohio residents or students enrolled in a college or technical college program within the state. Recipient students maintain an above-average GPA, are actively involved in school and community extracurriculars and plan to pursue a career in the natural gas and oil industry.

Scholarship recipients in Southeast Ohio include students from the following counties: In Guernsey County, the 2020 recipients include Koby Berger, of Cambridge, who is a rising junior at Marietta College studying Petroleum Engineering; and Carter Streiff, of Salesville, a rising senior studying Mechanical Engineering at Ohio University.

In Harrison County, the 2020 recipients include Zachary Oboy, of Bowerston, who plans to attend Baldwin Wallace University in the fall and study Digital Marketing; and Payton Taylor, of Hopedale, a rising sophomore at the University of Akron studying Chemical Engineering.

In Jefferson County, the 2020 recipient is Sadie Carducci, of Steubenville, who plans to study Chemical and Petroleum Engineering in the fall at the University of Pittsburgh.

In Washington County, the 2020 recipients include Elizabeth Burdess, of Vincent, who plans to attend Marietta College and study Environmental Science; Olivia Schafer of Reno, a rising senior at Marietta College studying Petroleum Engineering; Caroline Stollar of Marietta, a rising sophomore studying Public Land Management, Leadership and Policy at The Ohio State University; and Taylor Vickers of Belpre, a rising Ohio University sophomore studying Political

JULY 2020

Science and Law. Students submitted multiple letters of recommendation and a written essay describing their personal career goals and particular interest in the field. Each $1,000 scholarship renews annually over a four-year period.

Since its inception in 2007, the OOGEEP scholarship program has provided more than 500 scholarships to students from more than 60 counties in the state and attending 52 different colleges and universities in Ohio.

A full list of 2020 scholarship winners is available at oogeep.org/teacher-students/scholarships/.

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INTERVIEW:

THE SUCCESSFUL PARTNERSHIP BETWEEN OHIO FARMING AND NATURAL GAS NICOLE JACOBS | EnergyInDepth

Energy In Depth recently sat down – virtually, of course – with Belmont County, Ohio farmer Larry Cain to discuss the natural gas development taking place in his county and on his family’s dairy farm.

Through the use of a landowner’s group, Cain and his neighbors developed a partnership with a local natural gas and oil operator that enabled them to have a say in the placement of wells, access roads and infrastructure and the environmental stewardship of these activities, and ensured fair compensation for everyone involved.

Perhaps more importantly, it allowed them to protect the legacies of the family farms in the community and give back to its residents in major ways. As Mr. Cain told us: I think this development happening in Appalachia, you know the places in Pennsylvania, West Virginia and Ohio that kind of feel ignored by the big cities, is an amazing story to tell. So, for this to come to us, it’s incomparable – I think to myself, “how great is this story – people like us who are able to share in this.”

Cain Family Farm How did the landowner’s group get started?

It’s kind of a very long story…The Cain Family Farm has been part of the “cooperative” way of marketing our milk and purchasing our feed for a long time, so whenever we got together as a landowner’s group it was basically just an extension of that – all of us

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coming together for the common good, whether you were big or small, had a large interest or not. And we put it together late 2010-2011 because we were nervous about the activity here, and activity that we didn’t really know anything about. So, we really just wanted to come together to educate ourselves.

And we invited a lot of different people to talk to our group that could help educate us.

Our group grew from 65 people in the first meeting to having about 2,000+ signatures signing the official lease agreement we sent in the end. We’d have maybe 600 people in a meeting, and while that may sound like a lot, it was mostly because people brought their entire family with them. That kind of shows how many people were involved and that it really required a lot of us.

Are the landowners in the group spread throughout different counties in Southeastern Ohio or is it only Belmont County?

We’re all in Belmont County. It originally started as just two townships, Goshen and Smith Townships, because that’s where the most interest was. Then as we had joining acreage and people who had acreage outside of those two townships, we decided to extend to Belmont County as a whole, but we limited it so parcels had to be within county lines.

It just evolved into a lot of people because we simply wanted to educate ourselves and understand the document we were signing. The financial side was definitely secondary. We thought that if we could educate ourselves first, then we could decide if it was a fair or reasonable amount. And we really wanted an operator to treat us like a partner. That was really key. We weren’t selling anything here, we were just leasing the mineral rights we owned that needed to be developed, and we needed an operator that was willing to do that in a responsible way. So that was key to us also – someone that would treat us as a partner because what we signed really was a business agreement.

What were some of the other things your group put into the lease agreement for protections for your land?

Interview continued on page 5

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Interview continued from page 4

Surface use and water quality primarily – we had language requiring water sampling and testing further away from the well sites than what the state’s standards were. We’re kind of proud of that, actually.

Later on, the state increased their testing distance also.

But a lot of it was just language that would enable us to work together. We wanted to be able to farm right up to where the well sites were, and some owners had acreage that was used for hunting that we wanted to maintain. So, for us, it was most important that production would fit in with our farms, homes and daily routines, and more broadly, fit in with the ways of life in southeastern Ohio.

How involved were you in deciding where the well was going to go on your property? And overall, did you feel like you were in the loop as different parts of the process were occurring?

Very much so. Our family and the others all felt very much a part of the process. We leased with Rice Energy, and they were very easy to work with. They were attentive, focused on being a good operator and included surface owners in every step of the decision making process. They spent a lot of time explaining the amount of ground they’d use, how they were going to cite the well sites, etc. And we

have a lot of underground coal mining in this region, so they also had to be careful and work with the mining operators to make sure their operations didn’t interfere.

Having the coal mines underneath took away a lot of our say in the decision as to where the drilling site would be, but once the well sites were determined, we had almost 100 percent say in where the roads and everything else was going to go.

Did production ever interfere with your day-today farming operations?

Well, my dad owned the farm and was in his 80’s. If we hadn’t been so involved in the process and in educating ourselves, he would have been just fine not leasing the property and going on with his normal life. He didn’t look at this as something we needed. I was very proud of him because he was very involved.

We have about 288 acres and I believe they used about 26 for the development, including two pads, access roads and pipelines. It took up about onetenth of our farm, and for dairy farming operations, that’s tough. We need to use every acre we have. But we also knew that the signing of the lease could lead to temporarily losing some of our property, but they worked close with us through all of that. We were Cain Family continued on page 6

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Cain Family continued from page 5

able to continue farming right up to the edge of the pad. In fact, you can sit right on the edge of our farm and basically put your toes on the pad.

We need to use every inch, every acre we can to continue to support the dairy farm, and Rice was very willing to do that. They understood that these two industries can coexist and had to work together to be able to do so. Both sides did the best they could to make this work, and I think that’s all we can really ask for.

Now, everything’s been totally reseeded and turned over back to us. The spots they aren’t using have all been grazed upon and are in the process of reclamation. The roads are still there, the pads are still there. But all the pipelines have been reseeded and in total, we only lost one years’ worth of crop production during pipeline construction and reclamation – so we were really pleased with that outcome. Of course, the pads and the roads are going to be there for quite some time, but everything else fits.

There are 11 wells in total, correct? How long did it take them to go from construction to production of those wells?

I think they started actual pad construction in March of 2014. They started drilling the first five wells on one of the pads as soon as the construction was complete, which was around June 2014. Those wells were drilled to the southeast and were in production for about three years before the next set of wells was developed. Then, they came back early 2018 and drilled the other six wells to the northwest and put those into production last year. So, really, the activity ebbs and flows. It was about a 9-month span of drilling and completions each time.

Once again for us – and I think this is how everyone kind of shares in the “disruption” – it’s kind of on the backside of the farm. We didn’t really hear the noise and didn’t see the traffic, but I know some other owners on the other side did. So everyone kind of shares a little bit of the burden. At first you see truck traffic, definitely, but then it’s just a few pickups here and there. But even the increased traffic benefited the communities – they came in and were taking care of the roads and helping out the communities. I know they’d sponsor firework shows, donate money for picnics, and help the fire and police departments. So yeah, everyone share’s a little bit of the burden but at the same time everyone gets a bit of the benefits, too. People tend to think of it as only the farmers benefiting from the agreement, but, in reality, it’s a whole lot more people than that.

Touching on the financial benefits – you have mentioned that the landowner’s group has been doing charitable donations. Could you talk a little bit more on how that came about? And what you have all been able to do since working with Rice?

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Yeah, that’s something we’re very proud of. In the beginning, there were about nine of us on a committee that worked countless hours to ensure every dollar that the company was willing to spend would go back to the landowner. We were very against the groups where the attorneys or leaders made a certain percentage – we didn’t want that.

The committee was volunteering, so they had no financial gain. We knew the [oil and natural gas] companies were willing to pay the attorney or agent fees, but we always said that if we ever did lease we’d like the company to give that commission to a charitable fund. So that’s what we did, and the landowners also contributed to it, which started a charitable fund in the area to benefit Belmont County.

Rice then partnered with us on starting the charitable fund to help the communities we lived in and they worked in by contributing the first $25,000. The landowners came up with an additional $100,000, and we’ve been off and running since. We’re in our fourth year of granting. We’ve raised about $600,000 and given about $400,000 of that to communities.

The way I’ve always looked at it is this area has always been a charitable area – even before oil and gas. We just didn’t have the money to give in the past, so we’d donate our time. But now that we have the money, we feel it is our responsibility. If we had the money, we should give. It’s an obligation. If you’re blessed, you have the opportunity to give back. So that’s what we’ve done. We’ve given it to the county to help people because we wanted everyone to benefit.

Another good thing to come out of all this is that this is going to go on for generations. My family doesn’t live any more extravagant than they did before, but we are providing more for the next generation. I think even after the wells run out, what drilling gave to my community is a better way of life for generations to come.

It’s changed the area in a way that you almost can’t see. I tell everyone that it’s really taken a burden off of us. Before, they were struggling to keep the farm going with aged equipment and unsafe working facilities. We now have a cushion, a safety net. It’s really relieved the stress from that day-today farming, and the highs and lows in milk prices, things like that. And I’ve seen that with other farmers, too. They enjoy farming now. People can farm the way they want to farm. It’s just taken a weight off of us. It’s really just been about providing happiness for future generations.

Even though we enjoyed life before all of this, it’s just made life more enjoyable – and that goes well beyond just farmers.

JULY 2020

History Guest Editorial

GREG KOZERA | Shale Crescent USA “A nation that forgets its past has no future.” – said Winston Churchill. To put it another way, “Doing the same thing and expecting a different result is insanity.” I have heard this many times. The message is, we need to learn from our history and not repeat past mistakes. This is true for us as individuals and for our nation.

We all should now understand the danger of depending on nations overseas like China for critical

We lost high wage manufacturing jobs when we lost our energy advantage.

APPROX.

products like PPE for healthcare workers (gowns, masks, gloves and face shields) and critical medical equipment like ventilators. I still visualize nurses wearing black trash bags for protection against CIVID-19 because they couldn’t get gowns. I’m sensitive to this because my wife is a nurse. How many frontline doctors and nurses lost their lives because we didn’t have sufficient PPE? The movement of manufacturing out of the USA

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began in the 1970s when we lost our energy and feedstock advantage to OPEC. Our Region was the manufacturing and petrochemical hub of the USA. We were in the petrochemical business when the Gulf Coast was still running cattle. The Shale Crescent USA had water, workforce, proximity to most of the US market and economic energy and feedstock.

The first ethane cracker was built by Union Carbide in Clendenin, West Virginia in 1920. Charleston became the Chemical Valley and a target during the Cold War. A number of companies had their Tech Centers in the Charleston area. I have been told over 400 chemical industry PhDs have retired there. I was at a wedding recently and got to talking to a former Union Carbide PhD. I asked a few questions and then listened to him for over 30 minutes. He was fascinating even if I didn’t understand all the chemical engiHistory continued on page 8

neering.

The Gulf Coast petrochemical industry began to expand in the 1960s. They were closer to the Texas oil fields and offshore Gulf Coast production. They were also closer to OPEC oil than the Ohio Valley. Companies began to leave the Ohio and Kanawha Valley for the Gulf Coast or other parts of the world like Asia where there was cheap labor. With Asian and US Thousands of Seals companies, both getting oil from OPEC, Asia’s cheap and packing in Stock! labor became a reason for US companies to move manufacturing to Asia.

We convinced ourselves being an information or service economy would replace manufacturing. We let the rest of the world do the “dirty” manufacturing. We bought the cheap products made by American companies overseas. The manufacturing jobs to make those products and their wages stayed overWE ALSO REPAIR seas. China became a manufacturing powerhouse.

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History continued from page 7

Our advantage is back because of shale gas. We are beginning to see the reshoring of manufacturing. can’t make a ventilator or a mask. We need petrochemical feed stocks for that. If windmills and solar panels are going to create good jobs, we need to demand they be manufactured in the USA like other critical products. This requires fossil fuels and petrochemicals. We need gas and oil wells. They all require fracking. We need petrochemical plants and ethane crackers to turn oil and gas into the feed stocks to make PPE, medical equipment, components for renewable energy and many other household products.

Americans don’t want to be dependent on places like China for medical PPE and other critical items.

Independence requires a strong oil and gas industry and a strong petrochemical industry to provide feedstock for the hundreds of manufacturers already here making products. These same companies can expand to manufacture critical products currently being made in places like China. Plastic product manufacturers are already seeing cheap plastic feedstock prices. This will change as the economy recovers. We can’t allow our local manufacturers to be dependent on overseas ethane crackers.

We can create the world’s first sustainable petrochemical hub. Plants built here will be the cleanest and most efficient in the world. We are working with companies who want to come to Shale Crescent USA and turn plastic waste into feedstock. We can have high wage jobs, the critical products we need and a

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clean environment. The renewable solutions we hear about for Europe and the USA don’t do anything to stop increasing Chinese CO2 emissions, that undo all of these efforts. One solution is to manufacture in Shale Crescent USA. We will have one of the lowest carbon footprints in the world when crackers are built here on top of the feedstock and in the middle of their customers instead of shipping energy to China and sending Chinese products here.

We lost high wage manufacturing jobs when we lost our energy advantage. Our advantage is back because of shale gas. We are beginning to see the reshoring of manufacturing. We can’t allow history to repeat itself and drive manufacturing back to China.

When the next virus comes we can’t allow our frontline health care heroes to be defenseless hoping China will send us some PPE. Thoughts to ponder. © 2020 Shale Crescent USA Greg Kozera, gkozera@shalecrescentusa.com is the Director of Marketing and Sales for Shale Crescent USA. He is a professional engineer with a Masters in Environmental Engineering who has over 40 years’ experience in the energy industry. Greg is a leadership expert and the author of four books and numerous published articles.

WO-10738505

abundant natural gas combined with advanced manufacturing methods make the Shale Crescent USA one of the most profitable places on earth for companies selling into the large US market.

Environmental groups and even some political candidates promote keeping fossil fuels in the ground and using renewables. We have been told this will create a lot of jobs. Most of those jobs are installation type jobs. Renewables make one product, electricity and can’t guarantee to do that 24/7. Renewables

JULY 2020

U.S. Natural Gas

Production Efficiency Continued to Improve in 2019 U.S. Energy Information Administration More effective drilling techniques, including the increasing prevalence of hydraulic fracturing and horizontal drilling, have increased initial production rates.

In particular, the injection of more proppant—sand or similar particulate material suspended in water or other fluid—during the hydraulic fracturing process and the ability to drill longer horizontal well components (also known as laterals) have improved well productivity.

Source: U.S. Energy Information Administration, Drilling Productivity Report

The U.S. Energy Information Administration’s (EIA) latest Drilling Productivity Report (DPR) was updated on Monday, June 15. Analysis of underlying data on natural gas well efficiency shows how U.S. natural gas production increased in 2019 because, in part, of greater productivity of new wells drilled in shale and tight formations. Initial production rates for natural gas production from new wells in the DPR’s seven regions have generally increased since at least 2007.

The average new well in the Haynesville, Permian, Eagle Ford, Niobrara, and Bakken regions in 2019 produced more natural gas than wells drilled in previous years in those same regions. This trend has persisted for 13 consecutive years in all DPR regions except the Haynesville region, which had a brief productivity decline between 2013 and 2015.

Source: U.S. Energy Information Administration, Drilling Productivity Report

Since 2007, gross natural gas production from the Appalachia and Haynesville DPR natural gas regions has grown at an average annual rate of 20%. In addition to rapid growth of natural gas production from these natural gas regions, production of associated natural gas in the Permian, Eagle Ford, Bakken, Niobrara, and Anadarko oil regions remains significant, accounting for 46% of the natural gas production from all DPR regions. Overall,associated gas production accounted for 37% of U.S. natural gas gross withdrawals in 2018.

Principal contributors: Richard Yan, Jozef Lieskovsky, Jack Perrin

Source: U.S. Energy Information Administration, Drilling Productivity Report

JULY 2020

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Latest Orphan Well Report Overestimates Number of Wells and Cost of Plugging NICOLE JACOBS | EnergyInDepth Orphaned wells have been making headlines recently as a potential source of methane emissions. The oil and natural gas industry and regulatory agencies have collaborated on identifying the number of these wells and finding solutions to the unique challenges they present, particularly since most of them were drilled in the 1800s and early 1900s.

Most recently, Reuters published an article claiming “more than 3.2 million abandoned oil and gas wells together emitted 281 kilotons of methane in 2018” in the United States with a price tag to properly plug them ranging from a whopping $60 billion to $435 billion. And while no one is disputing that orphaned wells are an issue that needs to be addressed, recent surveys and reports put those numbers far lower.

Definitions Are Important One of the key issues with reports like Reuters’ recent article is that industry terms are often confused and interchanged, despite being unique and having somewhat separate challenges. The Interstate Oil & Gas Compact Commission (IOGCC) defines an idle well as an oil or natural gas well that is not currently in production and is also not yet plugged. The future outcome for an idled well could be that it is brought into production, plugged and abandoned, or even used for disposal. Most regulatory agencies set a timeline for how long a well may remain idled before it must be plugged.

IOGCC defines orphaned wells as idled wells where the owner or operator is unknown. State agencies have varying definitions for orphaned wells and may call them abandoned wells, but it should be noted that the oil and gas industry often refers to any well that has been properly plugged as “abandoned and plugged.”

While there are rare instances of modern cases of idle wells entering an orphaned status, by and large the vast majority of these are from development dating back to the 1800s and early 1900s. For instance in Pennsylvania, which is estimated to have the largest number of orphaned wells in the country, the Department of Environmental Protection explains: “Since the first commercial oil well was drilled in Pennsylvania in 1859, it is estimated that 300,000 oil and gas wells have been drilled in the state. Only since 10 OhioGas&Oil

1956 has Pennsylvania been permitting new drilling operations, and not until 1985 were oil and gas operators required to register old wells.” (emphasis added) Thanks to modern record-keeping and regulation it is uncommon to be unable to identify the owner or operator a well.

Regulations Are In Place Due to the site-specific history of each historical well, oversight is state-specific depending on their local regulatory programs, this includes requirements for wells to remain idle and prioritizations for plugging known orphaned wells. Most states have established funding mechanisms that are dedicated to plugging orphan wells, mostly supported by the natural gas and oil industry taxes and fees. BLM also has the ability to claw back to previous operators to P&A wells on federal lands, even if those wells were sold to other parties years ago.

Existing federal regulations require that companies are under obligation for the full cost of plugging and abandoning wells and reclaiming well sites and are not released from liability until BLM has determined they have properly done so. These actions are also subject to regulation by the jurisdiction in which the wells are located and numerous related topics such as safe conduct of drilling operations, standards for equipment and materials used during drilling and completion are addressed by industry standards and recommended practices.

Industry recommended practices and regulations address the aspects of well planning that should be considered for safe and successful well execution, which includes a recommendation to perform a risk assessment to evaluate potential impacts on other wells in the area of execution.

In addition to recommended practices and industry standards, the industry works closely with the Groundwater Protection Council (GWPC) and state regulators to ensure environmental protections.

What’s In A Number: Well Count Latest continued on page 11

JULY 2020

Latest continued from page 10

Reuters reports there are more than 3.2 million “abandoned” wells in the United States based on the 2020 U.S. Environmental Protection Agency greenhouse gas inventory(GHGI). EPA says there are roughly 2.6 million oil and 0.6 million gas “abandoned” wells. But, EPA’s definition of “abandoned” – much like the industry’s – includes all wells that are no longer in production: • “Wells with no recent production, and not plugged. Common terms (such as those used in state databases) might include: inactive, temporarily abandoned, shut-in, dormant, and idle.”

• “Wells with no recent production and no responsible operator. Common terms might include: orphaned, deserted, long-term idle, and abandoned.”

• “Wells that have been plugged to prevent migration of gas or fluids.” (emphasis added) And while Reuters does include an explainer sentence, it is buried below a graphic showing more than 3 million wells. EPA actually puts the number of orphaned wells – the ones it attributes the vast majority of the emissions to – at around 2 million.

Similarly, IOGCC conducted a survey in 2019 that asked states to respond with their numbers for documented and undocumented orphaned wells. IOGCC’s survey found that the total number of estimated orphaned wells in the United States ranged from 266,000 and 802,000, with 56,000 of those being documented. The total number of idled wells was 294,743, representing about 15.6 percent of the roughly 1.8 million wells that IOGCC estimates had been drilled and not plugged in 2018.

That would put the range for orphaned and idled wells, according to the IOGCC survey, at 560,743 to 1.1 million.

What’s In A Number: Cost to Plug Depending on where a well is located, how old it is and a host of other factors, the cost to plug a well can vary greatly. Reuters cites a 2019 Government Accountability Office report estimating that the cost to for reclamation (plugging wells) on federal lands ranged from $20,000 to $145,000. IOGCC’s survey found that the

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average cost per well for those plugged in 2018 ranged from $3,700 to $97,626, putting the overall average at $18,940.

Environmental think-tank Resources for the Futures’ Daniel Raimi recently testified before the Subcommittee on Energy and Mineral Resources of the U.S. House Committee on Natural Resources on this topic. Using the IOGCC’s documented orphaned well number of 56,000 – because those are the wells where locations are known – Raimi estimated a national average cost of $24,000 which would work out to a $1.4 billion price tag to reclaim and plug those wells.

Using Raimi’s national average, IOGCC’s high estimate including idled wells, and EPA’s orphaned well estimate, that would put the range to fix all estimated orphaned and idled wells between $26 billion to $48 billion. And while that certainly is not a small dollar amount, it’s much more attainable than the $60 billion to $435 billion estimate Reuters presented.

Conclusion If estimating the number of orphaned wells is difficult, it goes without saying that calculating the emissions of these wells is also challenging. And while Reuters makes the argument that recent market conditions could result in more orphaned wells, EPA also explains in the GHGI that emissions from abandoned oil and natural gas wells declined from 2017 to 2018 “as a result of well plugging activities.”

There is still a long way to go in addressing the challenges of identifying and properly plugging historic orphaned wells, and it likely will be something that requires long-term solutions in individual states. But the fact that these emissions have been declining, even as more wells are retired, demonstrates that as the industry eventually abandons and plugs wells that are no longer profitable, they are doing it in a manner that is protective of the environment. According to IOGCC, 28 states reported plugging a total of 16,153 wells, including 2,372 orphaned wells, in 2018.

Importantly, that means that the modern U.S. oil and natural gas industry is using best practices to prevent further adding to a long-existing issue.

OhioGas&Oil 11

March saw Major Declines

in U.S. Demand for Petroleum Products U.S. Energy Information Administration On March 13, 2020, the President declared a national emergency in the United States in response to concerns regarding the 2019 novel coronavirus disease (COVID-19) outbreak. Reduced economic activity and stay-at-home orders aimed at slowing the spread of COVID-19 led to a sharp decrease in demand for petroleum products. Because refiners responded faster to reduced demand than crude oil producers, crude oil inventories increased as refinery runs fell. Despite reflecting only one-half of a month under the declared national emergency, the U.S. Energy Information Administration’s (EIA) March Petroleum Supply Monthly(PSM) data show the early effects of the COVID-19 mitigation efforts.

U.S. gross inputs into refineries fell by 670,000 barrels per day (b/d) (4.1%) from February to March to average 15.8 million b/d, the lowest monthly level since October 2015 (Figure 1). However, the refinery input decreases were not the same in every region of the United States. Gross inputs in the U.S. Gulf Coast (Petroleum Administration for Defense District, or PADD, 3), home to more than half of U.S. refining capacity, increased by 43,000 b/d (0.5%) from February to March, likely as a result of increased runs after maintenance in February. However, the year-over-year change also indicates relatively strong refinery runs in the Gulf Coast, with March 2020 runs averaging 193,000 b/d more than 2019 levels. Gross inputs in the Gulf Coast may have remained elevated compared with the U.S. average because refiners in the Gulf Coast

produce petroleum products for consumption in other areas of the country and for export.

In contrast with Gulf Coast refiners, West Coast (PADD 5) refiners reacted quickly to reduce their runs. The first cases of COVID-19 in the United States were on the West Coast, which is comparatively isolated from the rest of the county’s peMarch continued on page 13

12 OhioGas&Oil

JULY 2020

March continued from page 12

troleum product markets and therefore lacks the capacity to move excess product to other regions.

West Coast gross inputs into refineries fell faster than the national average, dropping by 267,000 b/d (10.4%) from February to March.

U.S. crude oil production was nearly flat from February to March, falling 28,000 b/d (0.2%) to remain at 12.7 million b/d. In the wake of the COVID-19 outbreak, U.S. production remained nearly level as a result of several contributing factors, including the uncertainty about the duration and extent of reduced demand and the ability to store crude oil.

High crude oil production levels and low refinery runs forced market participants to store crude oil.

From February to March, U.S. crude oil inventories increased by 28.2 million barrels (6.2%) to reach 482.5 million barrels, the third-largest month-overmonth increase in EIA data going back to 1981, the beginning of the modern Petroleum Supply Reporting System. Weekly data indicate that U.S.crude oil stocks reached 52% of working capacity the last week of March. In the Midwest (PADD 2), where the crude oil storage hub of Cushing, Oklahoma, is located, crude oil inventories increased by 13.0

million barrels, the largest increase in EIA data going back to 1981, with weekly data indicating stock levels reached 52% of working capacity the last week of March. In the Gulf Coast, inventories increased by only 7.3 million barrels, likely a result of strong refinery runs, and weekly data indicate that stock levels reached 51% of working capacity the last week of March.

As stay-at-home orders and mitigation efforts took effect and limited travel in the United States, gasoline and jet fuel demand (as measured by product supplied) fell. From February to March, gasoline demand fell by 1.2 million b/d (13.2%) to 7.8 million b/d, the lowest level since January 2000 and the second-largest monthly decline on record.

Weekly data (four-week rolling average) indicate that gasoline demand continued to decline to 5.3 million b/d in late April, but it has since recovered to 7.2 million b/d for the week of May 29.

During the same period, jet fuel demand fell by 242,000 b/d (14.9%), the largest single monthly change in EIA’s data going back to 1965. Weekly data (four-week average) indicate that jet fuel demand fell to a recent low of 558,000 b/d the week Declines continued on page 14

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OhioGas&Oil 13

Declines continued from page 13

of May 29.

Distillate fuel demand remained near its January and February levels, falling only 98,000 b/d (2.4%) from February to March. Distillate fuel is used in many industrial and shipping activities, so distillate consumption is closely tied to economic activity, but gasoline and jet consumption are more heavily dependent on personal travel.

Because of its stronger ties to economic activity, distillate consumption was initially less affected by COVID-19 mitigation efforts than gasoline and jet fuel (Figure 2). However, the latest weekly data indicate that the downturn in economic production is beginning to also effect distillate consumption.

On a four-week rolling average, distillate consumption fell from 4.1 million b/d the week of March 13 (the day the national emergency was declared) to a low of 3.0 million b/d the week of May 1. Since then, demand appears to be recovering, and the four-week rolling average product supplied was 3.4 million b/d the week of May 29.

U.S. average regular gasoline prices rise, diesel prices fall The U.S. average regular gasoline retail price rose more than 1 cent per gallon from the previous week to $1.97 per gallon on June 1, 83 cents lower than the same time last year. The Rocky Mountain price rose more than 10 cents to $2.09 per gallon, the West Coast price rose nearly 3 cents to $2.58 per gallon, the Gulf Coast price rose more than 2 cents to $1.62 per gallon, and the East Coast and Midwest prices each rose nearly 1 cent, remaining virtually unchanged at $1.91 per gallon, and $1.89 per gallon, respectively.

The U.S. average diesel fuel price fell less than 1 cent, remaining virtually unchanged at $2.39 per gallon on June 1, 75 cents lower than a year ago.

The Rocky Mountain and East Coast prices each fell nearly 1 cent to $2.34 per gallon and $2.49 per gallon, respectively, the Gulf Coast price fell less than 1 cent to $2.17 per gallon, and the West Coast and Midwest prices also fell less than 1 cent, but remained virtually unchanged at $2.90 per gallon and $2.23 per gallon, respectively.

Propane/propylene inventories rise U.S. propane/propylene stocks increased by 3.1 million barrels last week to 67.3 million barrels as of May 29, 2020, 7.2 million barrels (12.0%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast, Midwest, and Rocky Mountain/West Coast inventories increased by 1.8 million barrels, 0.9 million barrels, and 0.3 million barrels, respectively. East coast inventories decreased slightly, remaining virtually unchanged.

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JULY 2020

OHIO WELL ACTIVITY by the numbers

UTICA SHALE

MARCELLUS SHALE 26 6 9 36

77

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

Data as of 6/6/20

507 96 168 2486

3257

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........ 699 2. Carroll County..........531 3. Harrison County........ 515 4. Monroe County........ 504 5. Guernsey County...... 280 6. Jefferson County...... 279 7. Noble County.......... 230 8. Columbiana County...163 9. Mahoning County....... 29 10. Washington County... 21 11. Tuscarawas County.... 20 12. Portage County........ 15 Trumbull County........ 15 13. Stark County............ 12 14. Coshocton County....... 5 15. Muskingum County...... 4 16. Holmes County........... 3 17. Morgan County........... 2 Knox County.............. 2 18. Ashland County.......... 1 Astabula County......... 1 Geauga County.......... 1 Medina County........... 1 Wayne County............ 1

WELL SITES IN VARIOUS STAGES: PERMITTED DRILLING, DRILLED, COMPLETED, PRODUCING, PLUGGED, , D SI S SOURCE: OHIO DEPARTMENT OF NATURAL RESOURCES AS OF 6/6/20 PLETED PRODUCING PLUGGED

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JULY 2020

The nation’s premier source of energy information

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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