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Dix Communications - Gas & Oil

July 2012 Edition

Ohio JULY 2012 • www.ohiogo.com

A FREE MONTHLY PUBLICATION

Table of Contents ◆ FAQ: What is Natural Gas? ............................ pg. 3

◆ Building a pipeline to the Future .................. pg. 24

◆ A Closer Look

◆ ’Don’t be Greedy’

ODNR field inspection staff to triple .............. pg. 4 ◆ LEASING TIPS

Everyone’s better off with common sense ............................................ pg. 26

‘Dormant Mineral Act’ May Impact You .......... pg. 6 ◆ Ohio regulations earn national praise ............ pg. 8 ◆ ‘Things have been improving’

◆ Need Information? Here’s Help ................... pg. 30 ◆ MAC Trailer adds 400 Jobs with Gas and Oil Growth ..................................... pg. 32

Industry revitalizes economies .................... pg. 10 ◆ Natural Gas to drive Ohio? .......................... pg. 11 ◆ Taxes: Who pays what & and when ............. pg. 12 ◆ Gas and oil development

◆ Can Farm and Lease Coexist? .................... pg. 34 ◆ Museum among nation’s largest for oil and gas tools........................................... pg. 36 ◆ ‘Organized chaos’: Gas and oil surge busy for

a fast-moving phenomenon ......................... pg. 16

county recorders .......................................... pg. 38

◆ ‘Take the money and run’............................. pg. 18

◆ Knowledge to fuel the future ........................ pg. 42

◆ WIDE range of job opportunities ................. pg. 21

◆ Farm Bureau looks at severance tax ........... pg. 45

◆ Minimize the ‘footprint’ of development ........ pg. 22

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

Ray Booth Executive Editor RBooth@dixcom.com

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

Cathryn Stanley Regional Editor CStanley@dixcom.com Niki Wolfe Regional Editor NWolfe@dixcom.com

Ohio .com

www.ohiogo JULY 2012 •

A FREE MON

THLY PUBLICA

TION

What is Natural Gas?e

Ed Archibald SE Ohio Sales Cambridge, Ohio Office EArchibald@dixcom.com 740-439-3531

See insid

“Gas & Oil” is a monthly publication jointly produced by Dix Communication newspapers across Ohio. Copyright 2012. act You eral Act” May Imp S: “Dormant Min Natural Gas? LEASING TIP io be Driving on Oh ll Wi : NG DRIVI

Janice Wyatt National Major Accounts Sales Manager jwyatt@dixcom.com 330-677-7180 Peggy Murgatroyd SE Ohio Sales Barnesville and Newcomerstown, Ohio Offices PMurgatroyd@dixcom.com 740-425-1912 Barnesville 740-498-7117 Newcomerstown Jeff Kaplan NE Ohio Sales Alliance & Minerva, Ohio Office JKaplan@dixcom.com 330-821-1200 Owen Williams Layout Designer

Cover Photo by: Michael Neilson, The Daily Jeffersonian Crews work on the horizontal hydraulic fracturing phase of a well in Seneca Township, Noble County

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Gas & Oil

July 2012 Edition - Dix Communications

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Dix Communications - Gas & Oil

July 2012 Edition

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FAQ: What is Natural Gas? N

Norm Shade President, ACI Services

WhAT IS NATuRAl GAS? It’s primarily methane, a nonreactive hydrocarbon that is an environmentally friendly fuel compared to oil and coal. After processing to remove impurities, natural gas is nontoxic, noncarcinogenic and noncorrosive. It is lighter than air, making it a safe fuel for many applications. As long as it is not allowed to accumulate in a confined space, any leakage will quickly dissipate into the atmosphere, reducing the risk of an explosion as compared to liquid fuels, which pool on the ground or pollute ground water. WhERE DOES NATuRAl GAS COME fROM? It’s found in large underground fields, much like crude oil. The natural gas we use today began as microscopic plants and animals living in the ocean millions of years ago. As they thrived, they absorbed energy from the sun, which was stored as carbon molecules in their bodies. When they died, they sank to the bottom of the sea and were covered by many layers of

atural gas currently supplies 25% of U.S. energy needs. Cleanest burning of all fossil fuels, natural gas is used for electric power generation, heating, and feed stock for plastic, fertilizer and other important chemicals. It is also growing as transportation fuel. Industry experts estimate that there are enough developable natural gas reserves to supply the country’s needs for more than 100 years at current rates of use. Here are some frequently asked questions:

Continued on pg. 13

Vertical Well

Surface

Conventional Non-Associated Gas

Coal Seam typically much less than 1 mile below the surface

Conventional Associated Gas (over oil)

typically 1 to 2 miles below the surface

Horizontal Well

Seal (impervious cap)

Oil

Sandstone Tight Sand Gas

hale Gas Rich S

Conventional & Shale Gas Deposits


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Gas & Oil

July 2012 Edition - Dix Communications

ODNR field inspection staff to triple

T

he Ohio Department of Natural Resources’ Division of Oil and Gas Resource Management staff is expected to triple in the coming months as the agency prepares for the anticipated boom in the oil and gas industry statewide. “We are in the midst of tripling our field inspection staff,” said Heidi Hetzel-Evans, media relations manager with the Rick Stillion Dix Communications ODNR Office of Communications. “With the increased drilling, we want to stay ahead of the game by bringing in inspectors and training them prior to the height of the growth, which we believe is still several years away. We are hiring batches of inspectors ... 12 to 15 at a time ... and pairing them with experienced inspectors for training.” Hetzel-Evans said the agency currently has approximately 40 inspectors. “We expect to have 80 to 90 inspectors hired by the end of the year,” said Hetzel-Evans. The growth will also create the need for more administrators in the Division of Oil and Gas. “We are hiring in phases, but right now we are focusing on the field staff,” said Hetzel-Evans. Oil and gas programs were incorporated into the Ohio Department of Natural Resources in 1965. On Oct. 1, 2011, the Oil and Gas program separated from the Division of Mineral Resources Management and became the Division of Oil and Gas Resources Management. The Division of Oil and Gas responsibilities include regulation of Ohio’s oil and gas drilling operations, oil and gas production operations, brine disposal operations, solution mining

operations and underground injection operations. The staff inspects the drilling, restoration, and plugging of all oil and gas wells in the state, as well as issuing permits for all oil and gas, injection and solution mining wells. “On May 24, the Ohio Legislature approved landmark oil and gas regulatory legislation that establishes one of the nation’s toughest regulatory frameworks for overseeing the new technologies that allow for the exploration of natural gas in deep shale rock formations,” said ODNR Director Jim Zehringer. “This landmark legislation sends a strong and positive message to those with concerns about Ohio’s ability to regulate the shale industry. We have learned from the shortcomings of other states, and we will safeguard our people and environment by providing this expanding industry with strong and clear rules for conducting business in Ohio. “I can assure Ohioans that our regulators will demand strict compliance with all aspects of this tough new law,” added Zehringer. The new law builds on recently approved well construction standards, which are extremely protective of groundwater and the environment. Through the “Oil and Gas Well Search” on ODNR’s Oil and Gas website, individuals can track information on oil and gas well permitting, project completion and production reports. The online emergency “Oil and Gas Well Locator” also provides well locations, contact names, facility information and the location of nearby schools, hospitals, roads and bodies of water in the event of an emergency. The Oil and Gas Resources Management office is located at 2045 Morse Road, Building F-2, in Columbus. Call the Oil and Gas Resources Management office, 614265-6922, for additional information.

“I can assure Ohioans that our regulators will demand strict compliance with all aspects of this tough new law”

rstillion@daily-jeff.com


Dix Communications - Gas & Oil

July 2012 Edition

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Gas & Oil

July 2012 Edition - Dix Communications

LEASING TIPS

‘Dormant Mineral Act’ May Impact You

O

hio’s eastern counties, due to the improved horizontal drilling oil production techniques developed in Texas, are now experiencing unprecedented interest in the Marcellus and Utica Shale formations. While historically Ohio landowners received lease bonus payments of $10 per acre and a 12 ½ percent royalty for their Bruce Smith oil and gas leases, it is now comGeiger, Teeple, Smith mon for landowners to receive & Hahn LLP lease bonus payments of $3,000 to $6,000 per acre and royalty payments of 15 to 20 percent depending upon the amount of land leased and its location.  However, not every cloud has a silver lining.  Landowners should keep in mind that the lease offered to them by the lease agent was drafted by attorneys for the lessee (gas and oil companies). In almost every case, it is not landowner friendly. Before executing an oil and gas lease, it is imperative that a landowner consult with an experienced oil and gas attorney in an effort to balance the playing field. Land owners who have the potential for more lucrative outcomes may also want to consult a tax professional and an estate planning attorney. Limited space will not allow a comprehensive discussion, but let’s explore some key provisions a landowner should consider when negotiating their lease: lOCATION APPROvAl The landowner should have the right to approve in advance the location of equipment and facilities on their property. Some landowners may wish to seek a “no surface” lease, which does not permit the lessee to install any equipment or facilities on the land. This may be acceptable to the lessee, particularly where a smaller number of acres is involved. GROSS ROYAlTY Many leases offered contain clauses permitting the lessee to deduct from the landowner royalty payment costs incurred for marketing, transportation, and compression.  The landowner should insist on a clause that only permits deductions from royalty payments for severance and ad valorem taxes and no other deductions. STORAGE RIGhTS AND DISPOSAl WEllS The landowner should insist on language providing that the lessee will have no right to use the leased premises for gas storage purposes, and will not be permitted to construct, operate or convert an existing well for use as a disposal well.

WATER TESTING The Ohio Revised Code, specifically Section 1509.22, does provide some protection for the landowner’s domestic water supply. However, the landowner should insist on lease provisions providing for testing of water wells both before and after the drilling operation at lessee’s expense. SET-BACKS A clause should be included in the lease providing that no drilling operations shall be conducted any closer than 500 feet to any house or structure on the surface of the land. DOMESTIC GAS Detailed provisions should be included in the lease that spell out the landowner’s right to free gas for domestic use on an annual basis. I also personally prefer a clause that allows the landowner to waive the right to domestic gas on an annual basis and take a cash consideration in lieu thereof. uSE Of WATER A clause should be inserted in the lease indicating that lessee has no right to use water from any ponds, springs, or creeks located upon the land. PIPElINES A clause should be included detailing the depth to which pipelines will be buried, particularly if the land is used in farming operations. fENCES AND GATES The landowner should consider a requirement that the lessee shall install a fence around any well site on the property. The landowner should also have the right to request that a locked gate be installed on any lease access roads with a key provided to the landowner. TIMBER The landowner should consider a provision requiring the lessee to obtain a professional appraisal and pay damages prior to removal of any timber from the property. COMPRESSION fACIlITIES The landowner should consider a clause that no compression facilities will be installed on the property. WARRANTY Of TITlE The lease should include a clause that the landowner warrants title only with respect to the best of his or her knowledge and that no claims will be made against the landowner pertaining to the quality of title. Landowners may find that old oil and gas leases encumber their land or that a previous landowner in the chain of title reserved the oil and gas underlying the property. Certain statutes in Ohio may afford potential relief to the landowner in these situations. The forfeiture statute (R.C. 5301.332) offers a method for removing old oil and gas leases from the public record when there are no Continued on pg. 19


Dix Communications - Gas & Oil

July 2012 Edition

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Gas & Oil

July 2012 Edition - Dix Communications

Ohio regulations earn national praise

I

n 2010, in an effort to provide an Ohio response to present day health, safety, and environmental issues being debated nationally, the state legislature passed Senate Bill 165 with bi-partisan support. The measure was quickly approved by then Governor Ted Strickland. It was the largest update of Ohio’s oil and gas Tom Stewart law since its inception. Ohio Oil & Gas Assn. The structure put in place with Senate Bill 165 was considered to be one of the nation’s most rigorous and stringent in the nation. The bill, among other provisions, required that operators submit to the Ohio Department of Natural Resources (ODNR) the “frac ticket” – a log of everything that went into the well during a hydraulic fracturing job. It also required that a well be properly constructed with sufficient steel casing and cement under Ohio law. To this end, a recent rules package further clarified the bill’s provisions on well construction by creating a set of industry standards required to construct a well in Ohio. Finally, Senate Bill 165 created a provision called “material and substantial violation.” In short, if an oil or gas producer improperly constructs a well (or violates other major provisions of Ohio oil and gas law), they may be placed in “material and substantial violation” of Ohio oil and gas law by the ODNR. Environmental groups and peer-review organizations praised the measures that effectively put into place the necessary protections that would meet the high standard of the industry’s best practices. The legislation was praised by STRONGER, a national state review process comprised of environmental, regulatory, and industry interests. STRONGER commended the ODNR for its role in revising Ohio oil and gas law. The report also stated that the Ohio hydraulic fracturing program was, “well-managed, professional, and meeting its program objectives.” In June, working with input from various parties including the oil and gas industry, Governor Kasich signed into law Senate Bill 315. The legislation is balanced and will help provide the public with the information that they require, while protecting the competitiveness of the state’s oil and gas industry. With the enactment of Senate Bill 315, Ohio now unarguably has the most robust and transparent set of oil and gas regulations in the country. This is something Ohioan’s can be proud of. They can also have the piece of mind that the industry is properly regulated by state experts. Ohio is the verge of an energy-driven economy fueled by oil and gas exploration and production in the Utica shale formation. The measures put into effect with the passage of Senate

Bill 165 and Senate Bill 315 go a long way to assure the public is aware of the high standards of safety and protection held by both the state and the industry. While we continue to support the legislature in ensuring proper protections of human health, safety, and the environment are put into law, the high standard put forward by Ohio’s oil and gas producers supersedes any law passed by any branch of government, including our own.   Ohio has a bright future ahead. The development of our state’s vast, abundant energy resources have proven to be the driving force in our economic recovery – and it will continue to serve as such. As Ohio reemerges as a leader in domestic energy production, we will also emerge as a leader in job creation and economic revival, all the while remaining good stewards of the environment we call home. Tom Stewart is Executive Vice President of the Ohio Oil and Gas Association, stewart@ooga.org

Photo/Kevin Graff A drilling rig at work in Beloit on a new oil well in Mahoning County.


Dix Communications - Gas & Oil

July 2012 Edition

9

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Gas & Oil

July 2012 Edition - Dix Communications

‘Things have been improving’ N Industry revitalizes economies

C

arroll County is in the heart of hydraulic fracturing activities. This activity has resulted in five new businesses in a sixmile stretch on state Route 43 and another three located at Area 330 MX Track, a motocross track that canceled its 2012 season. New businesses are cropping up throughout Ohio as the oil Kimberly Lewis and gas boom builds. Dix Communications Amy Rutledge, director of the Carroll County Chamber of Commerce, counted 15 new businesses in Carroll County, but not all are contacting the chamber or the county’s economic-development office. “People assume new businesses contact the county chamber or the county, but the truth is — they don’t,” she said. What Rutledge can quantify is the increase of chamber memberships. Since April 1, 2011, the chamber has added 55 new members, 75 percent of those are new businesses to the area. She noted some of those new businesses included Kelchner Construction, Lindy Paving, Premier Services and Grady Rentals, as well as three or four pipeline companies. “Most of the growth has been in the oil and gas industry,” Rutledge said. West of Carroll County, Gary Little, executive director of Tuscarawas County’s Community Improvement Commission, agrees. He noted Schlumberger Well Services is constructing a new facility in Strasburg near Interstate 77, while Tremcar USA, also in Strasburg, has seen an expansion with its semi-trailer tank business. “We have another business, Kimble Manufacturing, which builds specialty vehicles, that has picked up contracts for fracking trucks,” Little said.

Other trucking companies, such as Infinity Oil Field Services, have located operations in Tuscarawas County. Little reports various service companies have moved to the county or local businesses have expanded operations. “I know some (oil and gas industries) are starting to use local help,” Rutledge said. “Some of the existing businesses are seeing an influx of business. Ace Hardware in Carrollton is starting construction on a new addition.”

“Tuscarawas County’s sales-tax receipts “are at the highest levels in history”

Both Little and Rutledge point out the oil and gas boom has touched many local businesses, especially what the industry refers to as secondary businesses. Both county courthouses have been busy with lease agents, who are living in area hotels, and renting additional office space. As well, both counties’ industrial parks have seen interest from new businesses wanting to locate there. Rutledge noted Carroll County restaurants are busier than they were last year and the county’s only hotel is running at 95 to 100 percent capacity. Tuscarawas County’s sales-tax receipts “are at the highest levels in history,” Little said. The increase in hotel and motel usage is a contributing factor. “There is a lot of excitement,” he said. “Local property owners have benefitted from the oil and gas leases and deposited their money in local banks, who have seen increases in deposits. Manufacturers in the county saw a decrease in 2008 and 2009. A lot of businesses have come back. Some in relation to the oil and gas industry, some not. Things have been improving.”


Dix Communications - Gas & Oil

July 2012 Edition

Natural Gas to drive Ohio?

W

ith the summer driving season in full swing, gas prices will remain a key factor in determining whether many Ohio drivers take to the road or stay at home. As prices for gasoline continue to hover around $4 per gallon, people are looking for alternatives. State Rep. Brian Hill And here in Ohio, we have House District 94 an option that is not only affordable, but also cleaner and more efficient than gasoline or diesel. Thanks to our abundance of natural gas, we can save money and protect the environment in making transportation choices. Natural gas vehicles (NGVs) have tailpipe emissions that are 25 percent cleaner than gasoline or diesel fuel and emit less carbon monoxide, nitrogen oxide and particulate matter than vehicles fueled by other sources. Thanks to natural gas powered vehicles, drivers across the Buckeye state can meet their transportation needs and protect the environment. In addition to the environmental benefits, using NGVs to power large city or state vehicle fleets generate significant savings over

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the life of the vehicle. Many fleet managers report savings between 15 percent and 28 percent by powering their fleets with natural gas. And in some of Ohio’s largest cities, where air quality can be a concern, fleets powered on natural gas are helping to clear the air. As community and state governments work to be good stewards of taxpayer funds during tight economic conditions, powering fleets with natural gas vehicles offers a cost-effective solution for transportation priorities. And while many fleet managers are enjoying the benefits of greater NGV use, many companies are also investing in NGVs. Here in Ohio, Waste Management Columbus has converted its fleet to run on natural gas trucks and stands to gain substantially from this decision. This conversion is part of a company-wide plan to lower emissions by 15 percent and increase the fuel efficiency of its fleet by 15 percent by the year 2020. The benefits of natural gas have already been recognized by fleet managers and private companies as a way to save money while also improving our environmental quality. With our abundance of supply, natural gas vehicles can put all Ohioans on the express lane to a cleaner, affordable transportation future.

“Powering fleets with natural gas vehicles offers a cost-effective solution for transportation priorities�

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Gas & Oil

July 2012 Edition - Dix Communications

Taxes: Who pays what & and when

S

ince the shale development phenomena emerged publicly about a year ago in eastern Ohio, news spread quickly. Landowners and oil producers began calculating their share of the tax liability relative to oil and gas production, royalties and property taxes. During an interview with Guernsey County Auditor Tony Judie Perkowski Dix Communications Brown and Deputy Auditor Bobbi Art, information about the Ohio Dept. of Taxation’s formula for determining the value of a well was explained. WhAT IS TAxED? “The state of Ohio has a formula that uses the average daily production of oil and gas for each producing well,” Brown said. “That gives us a value for each well in production. The value of the well is taxed, not the production.” He said the oil and gas tax is actually an ad valorem tax. Ad valorem taxes are incurred through ownership of an asset. Property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax (ad valorem tax) which is levied similar to local real estate taxes. “Gas and oil reserves are taxed only for the year in which, during any part of the preceding year, the well was in production. The surface is not taxed, meaning the actual well on the property is not taxed, additionally, no value may be added to

“We are still in the exploration phase ... It’s a long process that will not fix short-term funding” the surface (land) because of income generated by a lease or purchase of the oil and gas mineral rights. “And, no tax may be assessed against non-producing oil and gas reserve,” he said. “Oil and gas are not taxed until it comes out of the ground,” he said.

Oil and gas-related taxes are computed and assessed the same as local real estate taxes, ending the year on December 31. The landowner pays taxes only on the income generated from actual production. OIl AND GAS REvENuE Oil and gas revenue is considered to be ordinary income and is subject to federal, state, and local income tax. Cash bonuses, or upfront lease bonus payments, are considered rent and are taxed as ordinary income, usually in the year received. The one-time payment may place a landowner in the top income tax bracket for that year (35% in 2011). However, the deduction of expenses such as attorney’s fees, deed/title searches, surveys, some surface damage payments, and property taxes is possible. Also, if the landowner has a working interest in the production of the gas, additional expenses such as intangible drilling costs, development costs, operational costs, equipment depreciation, and production tax credits might be deducted. ROYAlTIES Royalty payments are considered ordinary in income for the landowner. Again, if there is no production, there are no taxes. When the well is producing, the oil and gas are subject to state and federal income taxes. How However, because oil and gas is a natural resource and can be “used up” as it is produced and sold, most landowners will have the ability to deduct a “depletion” allowance. This is similar to depreciating a rental property or the purchase of capital equipment over time. For natural gas, 15 percent of the landowner’s gross income from the average daily production up to the total quantity of the gas is considered the depletion allowance. The depletion allowance is then limited to the smaller of either 100 percent of the landowner’s taxable income from the property (without depletion allowance factored), or 65 percent of the landowner’s taxable income from all sources (without depletion allowance factored in). Something to think about: Selling mineral rights rather than leasing could offer the landowner significant tax advantages since selling can generate long-term capital gains. Long-term capital gains are taxed at 15 percent in 2011. “We are still in the exploration phase ... It’s a long process that will not fix short-term funding,” said Brown. “It’s approximately 32 months from drilling to initial revenue production. This estimate is the longest period between production start and property taxes received by jurisdictions (counties and states). People have to be patient.” jperkowski@daily-jeff.com


Dix Communications - Gas & Oil

“What is Natural Gas” from pg. 3 sediment. As the plants and animals became buried deeper in the earth, heat and pressure began to rise. The pressure combined with the heat inside the earth, compressed the biomatter and produced natural gas. After natural gas was formed, it tended to migrate upward through tiny pores in the surrounding rock. Over the ages some natural gas seeped to the surface, while other deposits traveled until they were trapped under impermeable layers of rock, shale or clay. These trapped deposits are where we find natural gas today. hOW IS NATuRAl GAS PRODuCED? Natural gas can be extracted through either vertical or horizontal wells drilled into the trapped deposits underground. Recent technological advances in horizontal drilling and fracturing enable the extraction of natural gas from shale and deep rock (tight gas) formations. The horizontal drilling method uses vertical drilling from the surface down to a desired level, often a mile or two deep. Then, the drill is turned in a sweeping right angle and bores into a gas reservoir horizontally, directed by GPS. The wellbore is encased by a steel pipe cemented in place to prevent any leakage of gas or fracturing fluids. Hydraulic fracturing is an innovative technique that involves pumping mostly water into the wellbore with enough pressure to create fractures in the rock formation. It is these fractures through which natural gas moves into the wellbore and up to the surface.

July 2012 Edition

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hOW IS NATuRAl GAS TRANSPORTED? Gathering pipelines and compressors transport the natural gas to processing facilities to remove water, heavy hydrocarbons such as ethane, propane and butane for sale, and any undesirable gases such as carbon dioxide and hydrogen sulfide. An extensive underground pipeline network carries the processed gas from the wellhead to customers throughout most of the country. Natural gas can also be converted to a liquid state (LNG) for storage and for land or sea transport over long distances and to high-pressure compressed natural gas (CNG) for vehicle fuel. Not only does the production of natural gas create wealth for producers and lease holders, it creates thousands of jobs and reduces our dependence on imported energy. W. Norm Shade is the president of ACI Services Inc., headquartered in Cambridge, OH. ACI is a leader in the manufacture of custom engineered gas compressor products used throughout the world. Before heading ACI in 2004, he spent 32 years in various engineering and management roles with Cooper Cameron Corporation (now Cameron International) and 2 years developing his own Houston, TX based consulting company that continues to provide market research and technical services to major companies in the oil and gas industry.

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14

Gas & Oil

July 2012 Edition - Dix Communications

Lori Durant, Broker

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Dix Communications - Gas & Oil

REAL ESTATE

Lori Durant, Broker

“We Always Have Time For You”

July 2012 Edition

15

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16

Gas & Oil

July 2012 Edition - Dix Communications

Gas and oil development a fast-moving phenomenon

W

Mike Chadsey Energy in Depth, Campaign Director

hat a difference a year makes. Last year, most Ohioans had not heard of the Utica Shale, today it is responsible for the creation of over 10,000 jobs (http://bit.ly/gasandoil)   and the revitalization of the Buckeye State’s economy.  It’s easy to understand why Ohioans are catching on.  A recent New York Times (http:// nyti.ms/nytimesutica)  report shows over $4 billion has been pumped into the state’s economy on leasing activities alone

“Our state’s economic recovery has been, and will continue to be, tied directly to Utica Shale development.”

with an additional $3 billion invested in the production and transportation sectors. We have also seen significant economic progress in Ohio’s long dormant manufacturing sector – including the return of the steel industry (http://on.wsj.com/wsjsteel).  These developments alone make it clear that our state’s economic recovery has been, and will continue to be, Areas of tied directly to Utica Shale development.  As governor John Kasich pointed out during Ashtabula the State of the State Address, the Utica has had Lake Potential in Ohio cas a major hand in reducing Ohio’s unemployment Ottawa rate from 10.6 percent in December 2009 to toGeauga Trumbull day’s 7.5 percent rate. Cuyahoga Wood Erie Sandusky Lorain Of course, this is just the beginning. Some Portage studies estimate Utica development will create Huron Summit Seneca Medina 205,000 jobs over the next four years.  At the Mahoning ancock same time,  additional reports (http://bit.ly/eidohio)   show Ohio consumers are already saving Ashland Crawford Wyandot Stark Wayne Columbiana over $1.5 billion due to lower utility prices from Richland rdin increased shale development. Carroll But this progress wouldn’t mean much if we Marion Holmes Morrow couldn’t develop this resource safely.  So far Jefferson Tuscarawas Knox over 60 Utica wells have been developed withUnion Harrison Coshocton out a single environmental violation (http://bit.ly/ Delaware MoNGnc). Governor Kasich also just signed SenLicking aign Guernsey ate Bill 315 (http://bit.ly/O14txV)  — bipartisan Belmont Franklin Muskingum legislation that builds on Ohio’s already strong regulatory program. Even before the revised rules, Madison Monroe Ohio’s shale development regulations were hailed Noble Fairfield Pickaway Morgan as being “well managed” and “meeting their obPerry Fayette jectives” by an  EPA supported panel (http://bit. Washington ly/O5mInk).  Hocking on Ross With the tools, institutions, workforce and a Athens strong regulatory system in place, Ohio is poised Vinton Highland for continued revitalization – in large part thanks Meigs to the development of the Utica Shale. Pike Jackson

n

Utica and Marcellus

Adams

Gallia Scioto

Potential Marcellus in Ohio Potential Utica in Ohio

Lawrence

Mike Chadsey is Campaign Director for Energy in Depth, Ohio, www.eidohio.org


Dix Communications - Gas & Oil

July 2012 Edition

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18

Gas & Oil

July 2012 Edition - Dix Communications

‘Take the money and run’

A

bird in hand is worth two in the bush. Something your parents and grandparents always told you as you looked for more. Never is that saying more relevant than now in the midst of this oil and gas gold rush. Over the past three or four years I have had several friends and people who know me from the oil and gas business call Donald J. Gadd and ask about leases. Being a Independent public official, I refrained from Landman, 39 years doing any business in my home county, but that didn’t stop me from giving out free advice. I hope it was all good, but in some cases it was ignored anyway. The main questions were: What should I do and is this lease for real? The last question was the most pressing as the “new” leases are up to 18 pages in length and can perplex even the most seasoned oil and gas man in this Appalachian region. It would seem every attorney who has had his objections to leases over the last 100 years or so put in his two cents and every word was notated. But, as I would tell the landowner, they are paying the big bucks and expect certain things. It’s not like the old days when eight hundred dollars for a lease was big money to all. Today money is changing hands in amounts never dreamed by me or those I have associated with. So, what is a person to do? My advice has been to take the money and run. A nice new Ford pick-up in the drive sure beats waiting things out until the price goes up or that piece of paper promising you soooo much money really does pay off. Truth is, if they haven’t paid you, that’s just what it is, a promise to pay. What has been created is what the oil and gas guys call “flip-

pers.” They are generally oil and gas people that have gotten in on the ground floor of an area, promoted what they had and sold it to a willing buyer. Some have been good, some bad. Some really don’t know what the devil they are doing. I have seen them all over the last several years. It’s almost like an upscale version of the boom in the 80s, and like that time period when things were economically slow, there are those that have joined the oil and gas ranks that don’t understand the business or just don’t care about anything more than the money. But that’s not to say everyone is painted with the same brush. I have met some decent people over these past several months that I genuinely like and are out there working hard to make the American dream come true. That spirit of getting things accomplished and the drive to make things happen is still there. That’s what makes this business so much fun. That’s not to say everything can be laid at the feet of the person writing your lease. This area is fast approaching that time when the money is due for the lease. When it isn’t paid on time or at all it leaves a very nasty taste in one’s mouth. It’s not just the local guys who invite you down to set in their parlor and negotiate a deal, the big boys are just as guilty. Running down to sign up your property at the local hotel may or may not have paid off. Title problems, old leases, or just plain not having enough acreage in an area to form a unit may have convinced the leasing company not to hold on to the leases in your area. Additionally, as the wells start to get drilled in this area, the drilling company may decide that they want to concentrate all or most of their efforts in one particular area. Why keep $50 million in leases in an area where the likelihood of drilling is extremely small or non-existent? Like I said, this day has already arrived for some and as this boom and drilling gets fleshed out more the more likely it will happen again. So, is a bird in hand worth two in the bush? I had a friend who asked me and then did sign a lease for $250 an acre. He built a new barn with his money. Another held out and held out. Last time I talked to him; he had leased for the big bucks and said he had received his check. He is in a hot area and the gamble worked out. Yet, some more friends leased with local guys they have known for years. Their gamble didn’t pay off as none were paid. I have since directed them to companies I know are working in their area and are paying their leases. I guess the most direct answer would be to ask around about who your neighbors are with. Whether they are drilled or not, someone owns the deep rights. Companies are constantly making alliances or buying out acreage. Get with someone who is interested in your area. The likelihood of getting paid should go up dramatically. But, I would suggest to do it now before the rollercoaster starts going down.

“Today money is changing hands in amounts never dreamed by me, or those I have associated with.”


Dix Communications - Gas & Oil

“Leasing Tips” from pg. 6 producing wells or the term of the lease has expired. The Ohio Marketable Title Act (R.C. 5301.47, et seq.) and the Ohio Dormant Mineral Act (R.C. 5301.56) may also be of assistance in attempting to reunite severed oil and gas interests with the surface ownership of the land. However, these statutes are somewhat complex and the requirements specified therein must be followed strictly in order to achieve the desired result. Another problem is that there is almost no case law in Ohio to provide guidance on how the courts will construe these statutes.  Again, professional legal advice is highly recommended. Bruce has been a member of the firm since 1976 and is the Managing Partner. He maintains a general practice with an emphasis on oil and gas law and civil litigation.

July 2012 Edition

19

Bruce has represented clients throughout the State of Ohio and has briefed and argued cases in five of Ohio’s appellate districts. He served for five years as an Acting Judge of the Alliance Municipal Court.

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Gas & Oil

July 2012 Edition - Dix Communications

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Dix Communications - Gas & Oil

July 2012 Edition

21

WIDE range of job opportunities

about (unskilled tasks); supervisor at workover rigs; truck drivers; welders. Some of these positions require a high school diploma or GED, while others require technical schooling. Degree and higher education positions include: Attorney; business analysis or development; unit vice president; community relations; completions engineer or superintendent; construction; controller; development; division order analyst or coordinator; drilling engineer, superintendent, or technician; environmental advisor or field coordinator; electrical and instrumental technician; electronics technician; engineering technician; facilities or field engineer; drilling engineer; field operations; financial, fundamentals or gas balancing analyst; natural gas controller or marketing; geologist; geophysicist; geoscience technician; government affairs; human resources; accountant; land coordinator; land mapping; land negotiator; landowner relations; lease analyst; lease records; mechanic; diesel mechanic; mud engineer; office services; petroleum engineer; plant coordinator; procurement; production coordinator, services or technician; regulatory or rental analyst; reservoir engineer; revenue accountant; technical services; transaction analyst; water systems engineer; welder. For job descriptions, locations, and education required, visit www.oogeep.org.

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ne of the positive outcomes related to Ohio’s natural gas and crude oil industry is the fact that it provides at least 15 different entry-level jobs and 59 degree positions. These positions represent opportunities in a wide range of work environments for people with differing abilities. Information provided by Ohio Laurie Huffman Oil and Gas Energy Education Dix Communicaitons Program indicates field positions may require either technical studies related to petroleum geology, or petroleum, mechanical, or electrical engineering, etc., or a two- or four-year or higher degree that is industry specific. Entry-level jobs include: automation technician, derrickhands (three- to five-person person drilling or well servicing crew); equipment operator in cementing, coiled tubing, fracking and acidization, logging, and service tools; facilities operator; floorhands (three- to five-person workover rig crew); lease operator (well tender/pumper); records coordinator; roust-


22

Gas & Oil

July 2012 Edition - Dix Communications

Minimize the ‘footprint’ of development

D

rilling for gas and oil is not something new in the Beloit/Sebring area in Mahoning County. Neither are the names Greg New or Dorfman Productions. New, who is vice president of Dorfman Productions, has been in the gas and oil business for more than 30 years. With the recent upsurge in drilling in Ohio, hyGayle Agnew Dix Communications draulic fracturing (fracking), once a somewhat obscure term, has become a hot topic. However, according to New, hydraulic fracturing is a part of the drilling process; a part of the process that started in the 1950s. New explained some oil field terminology, which he said is very basic. “When a derrick is standing up on a site, that is called a “drilling rig” on a drilling location or site, not a station or oil drilling station,” he said. “Drilling and fracking are two completely different operations. Drilling operations use a drilling rig to drill the hole and run production casing. It then is disassembled and removed from the site. The fracking process, which usually occurs weeks later, does not involve any drilling equipment or rig. Fracking equipment or “frack” trucks are trucks that have pumps mounted on them that pump water. There is no such thing as a horizontal fracking rig.” During a recent visit to a drilling site just north of Beloit, New explained the components and procedure of drilling an oil and gas well. In this application, a portable drilling rig that was approximately 100 feet high was set up. Two drilling pits were constructed and lined with plastic to ensure no leaks. The pits are used to hold and circulate water that carries cuttings from the well bore. At this particular site, there are 13 water wells within the area. In the drilling process, the pipe or casing is surrounded by concrete to protect the fresh water supply. “The process of fracking makes cracks in rocks underground that creates avenues for oil and gas to return to the pipe,” New said. New stressed that the fracking process does not have an adverse affect on the environment. Common materials are used, including guar, a friction reducer and jelling agent when mixed with the water and pumped down the well. Guar is a

common ingredient found in foods such as chewing gum and is used as a thickening agent in foods. Play sand and surfactant, which is similar to dishwashing soap, are added to it. Also, New’s type of well minimizes the impact on the environment. “The footprint is a lot smaller,” New said. When the drilling and fracking process are done, natural gas and oil are produced from that well. The gas can be used to heat a home and the oil produced from the well is sold by the drilling company. “This is Penn 10 grade crude oil, which is high in lubricating value and refined in Pennsylvania and West Virginia,” New said. Anyone who has leased their land to a gas and oil company will also receive royalties from the sale of the oil. Many landowners have been approached by gas and oil companies that want to purchase drilling rights. However, the landowner must understand that the lease should specify depth. The type of wells that New’s company drills would be stipulated in the lease as shallow-well drilling rights. Up to three layers can be specified for drilling. In any case, the landowner would receive a signing bonus and a stipulated dollar amount per acre. Due to state and federal laws that drilling companies must adhere to, if a landowner has the option to lease land to a drilling company, it can be a good situation for both parties. Land owners are encouraged to seek professional advice.

“This is Penn 10 grade crude oil, which is high in lubricating value and refined in Pennsylvania and West Virginia,”

Photo/Kevin Graff Workers in Mahoning County pour concrete around the sheath at a new well in Beloit to help protect the local water.


Dix Communications - Gas & Oil

July 2012 Edition

23

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24

Gas & Oil

July 2012 Edition - Dix Communications

Building a pipeline to the Future

M

arkWest Energy will be building up to 140 miles of pipeline in three eastern Ohio counties during the next two years to transport natural gas to its processing facility being built in a Cadiz industrial park. Denver-based MarkWest announced earlier this month that it has reached a definitive agreement with Gulfport Energy of Oklahoma City to provide gathering, processing, fractionation and marketing services in the Utica shale area of eastern Ohio. The project will be handled by MarkWest Utica EMG, a joint venture between MarkWest Energy Partners and the Energy and Minerals Group, a management company for a series of private equity funds. Under the agreement, MarkWest will develop natural gasgathering infrastructure primarily in Harrison, Guernsey and Belmont counties beginning this year. The company hopes to have 60 miles of pipeline completed by the end of this year and up to 140 miles by the first quarter of 2014. MarkWest will process Gulfport’s natural gas at its complex under construction in Cadiz. Gulfport has concentrated its leasing efforts obtaining at least one Utica permit filed in Guernsey County, two in Belmont County and two in Harrison County. According to a “meet and greet,” Gulfport said its focus would be in these three counties with 30 wells drilled this year and 50 in 2013 and 70 in 2014. The company has already reportedly drilled two wells in Harrison, two in Belmont and one in northwestern Guernsey County. For an in-depth look at drill sites/permits in the Marcellus

and Utica Shales, visit the ODNR Division of Oil and Gas Resources Management’s Shale Development Resources page. In addition, MarkWest also is going to build a fractionator in Harrison County, but the site has not been disclosed yet, nor has the site of a similar facility in Noble County. The company is reportedly continuing to look at privatelyowned sites in both counties. Natural gas liquids will be extracted from the natural gas at the processing plant, using a cryogenic process, and then the natural gas liquids will be broken down into their base components so they will be commercially useful through a process called fractionation at the fractionators. A pipeline will also reportedly be constructed to connect the Harrison and Noble facilities. The company is also reportedly purchasing office space in Harrison County. In addition to construction jobs and then jobs when the facilities are brought online, taxes generated off these facilities should help the schools and townships in counties where activity takes place, officials said. That’s good news for counties with high unemployment rates. Noble County’s jobless rate in April was 10.4 percent, compared to 8.5 percent in Harrison County, 8.4 percent in Guernsey County, and 7.1 percent in Belmont County. By comparison among the state’s 88 counties, the April 2012 unemployment rates ranged from a low of 4.5 percent in Mercer County to a high of 13.5 percent in Pike County For updated statewide historical jobless data visit http://ohiolmi.com/asp/laus/vbLaus.htm

MarkWest will develop natural gas-gathering infrastructure primarily in Harrison, Guernsey and Belmont counties beginning this year.


Dix Communications - Gas & Oil

July 2012 Edition

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26

Gas & Oil

July 2012 Edition - Dix Communications

‘Don’t be Greedy’

Everyone’s better off with common sense Judie Perkowski Dix Communications

W

hen it comes to advice about questions related to the oil and gas industry, Gerald Benson, owner of Mattmark Drilling Co., has been in the business for 40 years and knows from whence he speaks. “My interest is oil and gas leasing, and with drillers,” Benson said. “Landowners need a lease they are comfortable with. And they need to know that not one word can be changed without the landowner’s consent. Every lease is 20-plus pages, it spells out the commitment of the oil company. But we don’t want to make it too difficult for them to operate within the agreement. “Don’t be greedy.” “In order for this (drilling) to flourish, we need model terms and conditions in the lease, which refers to the operation. We don’t want to re-write the original lease. Royalties can be changed because they are unique to each property, but the language relating to the operation should be standardized. If we use common sense, everyone will be better off. “The Utica Shale Play is being compared — by geologists and other industry gurus — to the three other major plays in the U.S: The Barnett and Eagle Ford in Texas and the Bakken in North Dakota, which has just surpassed Alaska as the second largest oil producing state. Texas is numero uno. They believe that the Utica has that same potential, and could be the biggest shale play in the world!” said Benson. “People are very excited to receive their bonus money and royalties. But, remember, bonus money is taxed between 35 and 40 percent. As an example: If you are paid $4,000 an acre for 50 acres, that’s $200,000, of which $80,000 will go to the federal government. You are better off to pay it up front,” he said. “Landowners should also be aware of the oil and gas byproducts that are stripped from the gas, right on their property. So, make sure you get your share when production begins.” And, he said repeatedly, talk to an accountant, financial advisor, banker ... Just make sure they are someone familiar with the oil and gas industry. “Before you talk to anyone make sure the person(s) is a member of two or three of the following organizations: American Association of Petroleum Landmen, Society of Petroleum Engineers, Independent Petroleum Association of America, American Association of Petroleum Geologists, Ohio Oil and Gas Association, or the International Association of Drilling Contractors,” he said. “Ask a lot of questions. If the people you talk to — legal advisors, accountants or investment bankers — are not card-carrying members, don’t waste your time talking

to them. “We must also remember that the Utica Play is the focal point of the world. We must be responsible in all we do and whatever we say. And, don’t worry so much about the license plate on their vehicle, be more cautious of their credentials. “The bottom line is, we are in Gerald Benson for one heck of an economic stimulus.” Owner, Mattmark In reference to the proposed inDrilling Co. crease in the severance tax, Benson said, “With the stroke of a pen in Columbus, it could be over.” Benson was born in Manchester, England, and has been a resident of Guernsey County for 42 years. He became a naturalized citizen in 1977. He emigrated to the U.S. in 1971; his first employer was the Gossett Oil Co. in Texas. In 1972, together with a group of investors he formed the Benatty Corp. and drilled the company’s first well, the E.K. Reed No. 1, in Renrock, south of Cumberland, which has produced in excess of one billion cubic feet of gas, and is still producing today. The Reed well and 146 acres was purchased from the East Ohio Gas Co. for $3 per acre. In 1989 Benson purchased two drilling rigs and equipment and formed Mattmark Drilling, named after his two sons. As a contract driller, Mattmark drilled 252 wells for other oil and gas producers in Ohio. “Throughout the years, the Benatty Co. drilled and completed 452 wells as an oil and gas producer before the partnership wells were sold to the Belden and Blake Corp. in 1998. At this time, Mattmark sold its drilling equipment and acquired the remaining assets of the Benatty Corp. Since then Mattmark Drilling has been active in maintaining its oil and gas assets, primarily mineral leases, oil and gas royalties and working interest production. The company continues with its 40-plus years of experience by actively acquiring oil and gas leases in the Utica Shale Formation,” said Benson. “Mattmark Drilling, a division of Mattmark Partners, Inc., is a 100 percent family-owned business. The Benatty Corp. was founded and located in Cambridge, and Mattmark runs its business through offices in Byesville.” Mattmark, Gerald Benson and Mark Benson are current members of the SouthEast Ohio Oil and Gas Association and the Independent Petroleum Association of America.

“Ask a lot of questions. If the people you talk to legal advisors, accountants or investment bankers - are not card-carrying members, don’t waste your time talking to them.”


Dix Communications - Gas & Oil

July 2012 Edition

OhiO Well Activity

by the numbers

MArcellus shAle 8 Wells Permitted 0 Wells Drilling 3 Wells Drilled 4 Wells Producing 15 total horizontal Permits

uticA shAle

146 Wells Permitted 39 Wells Drilling 49 Wells Drilled 16 Wells completed 10 Wells Producing 1 Well Plugged 261 total horizontal Permits

Data as of 6/18/12 Source: Ohio Department of Natural resources

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Gas & Oil

July 2012 Edition - Dix Communications

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Dix Communications - Gas & Oil

July 2012 Edition

Quaker City (740) 679-2141 Zanesville (740) 455-2141 St. Clairsville (740) 695-2141

29

10045045 10025917


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Gas & Oil

July 2012 Edition - Dix Communications

Need Information? Here’s

S

earching for information on the oil and natural gas industry in Ohio? There are a number of professional groups and government agencies that can assist: OhIO OIl & GAS ASSOCIATION The Ohio Oil & Gas Association (OOGA) is a trade asDan Davis sociation boasting a memDix Communications bership of more than 2,600 involved in all aspects of the exploration, production and development of crude oil and natural gas resources within Ohio. The group’s website at www.ooga.org/ includes information regarding the oil and natural gas industry, market information and job postings and opportunities within the industry. OOGA offices are located at 1718 Columbus Road SW, Granville. The mailing address is P.O. Box 535, Granville, OH 43023-0535. Telephone number is 740-587-0444. OhIO OIl & GAS ENERGY EDuCATION PROGRAM The Ohio Oil & Gas Energy Education Program, formed in 1998, provides a number of programs throughout the state focusing primarily on teacher workshops, scholarships, education, firefighter training, industry and workforce training, research, landowner and guest speaker programs. The group’s website at www.oogeep.org/ includes information regarding the oil and natural gas industry, job postings, educational programs, land leasing and firefighter training programs. OOGA offices are located at 1718 Columbus Road SW, Granville. The mailing address is P.O. Box 187, Granville, OH 43023-0535. Telephone number is 740-587-0410. Fax number is 740-587-0446. SOuThEAST OhIO OIl AND GAS ASSOCIATION The Southeastern Ohio Oil and Gas Association is a nonprofit organization of local producers and businesses involved in the natural gas and oil industry. Formed in 1978 by local gas/oil producers, SOOGA addresses issues unique to the mid-Ohio river valley. Membership has steadily grown from the 64 companies participating in the inaugural organizational meeting.

Help

The website at www.sooga.org/ lists information about upcoming events and services offered through SOOGA. The mailing address for the SOOGA office is P.O. Box 136, Reno, OH 45773. Telephone number is 740-3743203. Fax number is 740-374-2840 OhIO fARM BuREAu fEDERATION Among the stated goals of the Ohio Farm Bureau Federation is to protect property rights of owners and to assist property owners with gas and oil issues. The website at www.ofbf.org/ lists resources and news items. The Ohio Farm Bureau Federation office is located on the sixth floor at 280 N. High St., Columbus, OH 43215. Telephone number is 614-249-2400. Fax number is 614249-2200. OhIO ShAlE ENERGY Ohio Shale Energy is an online database of businesses offering goods and services critical to the natural gas and oil industry. The website at www.ohioshaleenergy.com/ includes a searchable map listing such businesses and information regarding upcoming industry conferences and other events. Email address is info@ohioshaleenergy.com. ENERGY IN DEPTh, ThE OhIO PROJECT Formed by the Independent Petroleum Association of America (IPAA) three years ago, Energy In Depth (EID) is a “research, education and public outreach campaign focused on getting the facts out about the promise and potential of responsibly developing America’s onshore energy resource base — especially abundant sources of oil and natural gas from shale and other “tight” reservoirs across the country. It’s an effort that benefits directly from the support, guidance and technical insight of a broad segment of America’s oil and natural gas industry, led in Washington by IPAA, but directed on the ground by our many affiliates — and IPAA’s more than 6,000 members — in the states,” reads the group’s website at www.energyindepth.org/. The local contact is Shawn Bennett, email is shawn@eidohio.org. The local office is located at 1919 Maple Road, Cambridge. Telephone number is 614-738-6220. AMERICA’S NATuRAl GAS AllIANCE America’s Natural Gas Alliance is an alliance of nearly three dozen natural gas and oil producers. The ANGA website at www.anga.us/ provides industry information, both technical as well as market and finan-


Dix Communications - Gas & Oil

cial. The ANGA office is located at 701 Eighth Street, NW, Suite 800, Washington, DC 20001. Telephone number is 202-789-2642. Email address is info@anga.us. OhIO DEPARTMENT Of NATuRAl RESOuRCES The homepage of the Ohio Department of Natural Resources website at www.dnr.state.oh.us/ has a link to “Shale Development.” The website provides information on several relevant natural gas/oil industry topics, including hydraulic fracturing, waste water injection wells, leasing and environmental issues. Contact information for regional offices is also available on the website. The gas and oil offices of the ODNR are located at 2045 Morse Road, Building F, Columbus OH 43229-6693. Telephone number is 614-265-6922. OffICE Of ThE OhIO CONSuMER’S COuNSEl The Office of the Ohio Consumer’s Counsel is a residential utility consumer advocate that serves as a resource for residential consumers with questions, concerns or complaints regarding their utility services, including natural gas providers. Among the categories under the “Natural Gas” menu on the website homepage at www.pickocc.org/ is a list of several natural gas companies operating in Ohio. Several have links to company websites are listed. The office is located at 10 W. Broad St., Columbus. The mailing address is 10 W. Broad St., Columbus, OH 43215. Telephone numbers are 614-466-8574 or 877-742-5622 toll free. Photo/Kevin Graff A tri-cone dril bit with tungsten carbide inserts used for drilling oil wells in the area.

July 2012 Edition

31

“Aqua Done Wright”

Wright’s Bottled Water DISPENSER UNITS FOR SALE OR RENT TO INDUSTRY AND RESIDENTIAL DISTILLED OR ARTESIAN SPRING WATER 100 West St. - P.O. Box 67 Newcomerstown, OH 43832

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32

Gas & Oil

July 2012 Edition - Dix Communications

MAC Trailer adds 400 Jobs with Gas and Oil Growth 40% Growth in business due to Gas and Oil Laurie Huffman Dix Communications

A

fter struggling with sales when hard economic times hit in 2008 and 2009, Mike Conny, owner of MAC Trailer Manufacturing, of Alliance, scaled back and held on. One has to act quickly to capitalize on the oil and gas industry as it sets up in the state of Ohio, and through pure perseverence, Conny was poised to do exactly that. As a result, he grew his business by 40 percent. “In 2008, no part of my business was in oil and gas. Now, a big part of my business is serving the oil and gas industry,” Conny said. Conny and one of his executives, Jim Maiorana, flew to Germany to look at designs for a pneumatic tank because with sales sagging, he wanted to infuse their trailer line with a new product. The pneumatic tank was a good choice, he said, because of the market it served in sugar, flour, cement — and sand for horizontal well drilling (fracking). “In 2008, I had no idea the oil and gas business was going to take off like it did across the country,” Conny said. “In the beginning of 2010, we saw a huge demand for a pneumatic tank to haul fracking sand, and the market has been wide open since then. They want as many as we can build, as fast as we can build them.” Conny partnered with Maiorana to buy an existing 200,000-square-foot facility in Kent for an expansion in January. MAC also has a facility in Salem and is now making a tank to haul crude oil and is moving into trailer repair. Governor John Kasich visited the Kent and Salem plants, and U.S. Secretary of the Interior Ken Salazar toured the Kent plant as well, citing it as proof of the fact that industry is making a comeback. “MAC grosses $250 million per year (sales), with about one half of that (and 400 new employees) being due to oil and gas,” Conny reported. He added he believes the future in the area looks good because, “The oil and gas reserves in Columbiana and Carroll counties are some of the best in the world.”

Photo/Gayle Agnew Michael A. Conny, president and owner of MAC Trailer, stands beside a trailer built at the facility that is used for hauling fracking sand. MAC manufactures many types of trailers used in the oil and gas drilling business.

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Dix Communications - Gas & Oil

Welcome to...

July 2012 Edition

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Gas & Oil

July 2012 Edition - Dix Communications

Can Farm and Lease Coexist?

A

n oil and gas lease can change the life of a farmer, but for many in the agriculture business, ensuring the productivity of farmland is a priority. Craig Sweger a landowner, consultant and farmer from Avella, PA has been helping farmers and landowners in Ohio and West Virginia. Pennsylvania preceded Ohio in hydraulic Malory Evans Dix Communications facturing activity and Sweger learned first hand about the impact and mineral leases. Sweger now helps lessors protect their land while embracing the drilling opportunities at hand. Sweger encourages all landowners to take their time with the lease and ask questions. “Don’t feel obligated to sign, and only sign when you have a good understanding of what is in that lease,” Sweger said. “Take as much time as you need until you’re comfortable.” Leases detail the parties involved, a description of the land being leased, the duration of the lease, activities the company is allowed to perform in the lease, the amount of the compensa-

“Originally, I thought that gas could be the end of agriculture as we know it… But I’m seeing people invest in milking parlors and newer farm equipment. It seems to be having a positive impact on the farming community.”

tion and an addendum section. “A lease is a contract; you’re pretty much bound by it. You want to make sure you can live with it,” Sweger said. The lessor can specify the provisions he or she is insisting upon in the addendum. Sweger recommends giving the addendum section authority over the rest of the lease in case any conflicts are found later. During lease negotiations, Sweger advises that farmers make sure the lease permits the activity at hand and leaves no room for additional projects. In the addendum, landowners can specify that they are not signing a lease for pipelines, compression stations or frack ponds. Sweger also suggests that lessors sign leases with limited time frames and no “held by production” clauses to avoid surprises. “If the company wants to, they can come back and talk to you in five years,” Sweger said. Any provisions on the reclamation process should be included in the addendum as well. Reclamation is the conversion of leased land back into productive, arable land. Farmers may want to consider the size and scope of the drilling impact. A typical well site and road take about 10 acres of land. After reclamation, a farmer can expect the disturbances to be smaller, but there will still be a presence of tanks and wellheads on the property. Continued on pg. 44

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Dix Communications - Gas & Oil

July 2012 Edition

4 Great Office Locations Zanesville (740) 455-3730 - Dresden (740) 754-1162 Cambridge (740) 439-6666 - Somerset (740) 743-0127

Housing Solutions

The Lepi Team of Professionals Bobbi Lepi - (740) 891-1068 Rick Bland - (740) 624-0115 Sandra Booth - (740) 704-2118 Katrina Cornell - (740) 819-7260 Connie Crum - (740) 581-0089 Jennilee Dusenberry (740) 319-0972 Marcy Frederick - (740) 584-7331 Paul Frederick - (740) 680-3261 Tom French - (740) 319-7569 Joyce Haddox - (740) 683-7300 Dean Harper - (740) 607-2969 Stacy Howard - (614) 302-0242 Cindy Jacobs - (740) 408-0018 Carol Kaido - (740) 683-7942

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Jeff Koehler - (740) 819-8441 Amy Lepi - (740) 221-2277 Terry Ludman - (740) 819-3000 Patricia Lyall - (740) 607-1422 Ruth Ann Lynn - (740) 607-6721 Gary Lyons - (740) 432-7585 Nikki Morris - (740) 680-0190 Connie Null - (740) 819-2099 Freda Pennybaker - (740) 297-0692 Jay Phillis - (740) 319-1818 Amy J. Pieper - (740) 819-6928 Randy Pollock - (740) 801-1252 Candy Reardon - (740) 584-7214 Dan Robison - (740) 221-3749 Bob Sharp - (740) 819-8748

We have several great centrally located properties with buildings, acreage and easy access to the major highways.

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Gas & Oil

July 2012 Edition - Dix Communications

Museum among nation’s largest for oil and gas tools Judie Perkowski Dix Communications

F

ifty-three years after the late Ken Miller opened his first shop in Wooster, Ken Miller Supply, Inc. has evolved into a multi-million dollar operation by maintaining a strong foundation supported by dedicated family members and employees. Ken Miller grew up learning about the oil and gas industry from his father who worked for the Ohio Fuel Co. “swabbing” wells and working on a casing gang. Swabbing is another word for cleaning out the steel casing in a well. Casing is large diameter pipe that is assembled and inserted into a recently drilled section of a borehole and typically held into place with concrete. Ken and Lois Miller founded the business in 1959 when they began renting “frac tanks” — a generic term for mobile steel storage tanks used to hold liquids — and buying and selling used pipe and production equipment. Today, the business has solidified the legacy of its founders as a “hands on” supplier of quality tubular products and services for the oil and gas industry: equipment for well, rotary, portable well, soil and hole drilling, and as a threader and hydrotester of oil country tubular goods. Ken Miller Supply employs 150 people, including 15 family

Ken Miller Supply, Inc. Wooster, Ohio members in office, yard, field, and part-time positions. Since the second generation of the Miller family assumed leadership roles, with current CEO, Jack Miller, at the helm, and Max Miller as treasurer and credit manager, the business has expanded to 11 supply stores and pipe yards located throughout

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Dix Communications - Gas & Oil

Ken Miller Supply Museum Wooster, Ohio Ohio, Pennsylvania, West Virginia, Virginia and Kentucky. Several members of the third generation of Millers have already made their mark in the business: Kirk Miller, vice president; Brooks Miller, sales; Lindy Chandler, human resources; Brandon Grosjean, field operations; and Cole Miller, field operations. Vice President Kirk Miller said the recent influx of oil and gas companies into the region has been a boon to the business. “It has had a very big impact, and is responsible for the majority of business at the various locations,” he said. “The longer I am in this industry the more I realize how huge this is for our state and the job market in general.” Ken Miller Supply, Inc. is at 1537 Blachleyville Road, Wooster. The family’s heritage is showcased at the Ken Miller Supply Museum, a private oil, gas, car and truck museum in Shreve. Ken Miller began collecting old equipment and storing it in barns until the mid-1980s when he built a structure large enough to accommodate his acquisitions. He continually added to his collection until his death in 2006. The museum has grown to be among the largest U.S. collections of oil field tools, machinery and photos on display. One of most interesting pieces is a car with four engines, at one time considered to be the fastest in the world. The Shreve Historical Society is the museum’s curator. Admission is free on the Saturdays the museum is open. The museum is north of Shreve, 15 minutes south of Wooster on State Route 226 (7920 Shreve Road). For more information, call (330) 496-4024 or (330) 378-2121.

Floorhand Floor•hand noun : Laborer responsible for the overall maintenance of the rig.

July 2012 Edition

37

“You can’t go wrong with the WRIGHT fuel.” ~ Full Service Bulk Plants ~ 100 West St. - P.O. Box 67 Newcomerstown, OH 43832 (740) 498-6236 1-800-BPFUELS 130 Tenth St. SW New Philadelphia, OH 44663 (330) 339-7131 1-800-295-7200

Owner/Operators Ben and Rick Wright 10045348


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Gas & Oil

July 2012 Edition - Dix Communications

‘Organized

chaos’

Gas and oil surge busy for county recorders Judie Perkowski Dix Communications

Faced with the arduous task of researching deeds for oil and gas companies, abstractors armed with laptops and surge protectors have been lining the hallway leading to County Recorders’ offices almost daily, said Guernsey County Recorder Colleen Wheatley. But, in spite of this organized chaos, Wheatley said she and her staff of four have garnered kudos for their efficient and prompt handling of the sought-after documents by landowners and by people associated with the oil and gas industry. “It’s been a continuous flow of activity and excitement about what’s going on in Guernsey County,” Wheatley said. “And there seems to be to no end.” What has become a familiar topic of discussion in eastern Ohio is still somewhat of a mystery to many counties not immersed in the Marcellus/Utica Shale conversation. Wheatley said this was evident at the biannual Ohio Recorders’ Association Seminar held recently at the Salt Fork Lodge and Convention Center. “When I told some of the recorders how crowded we have been at the courthouse since last November, they get this quizzical look on their face. It wasn’t until after the seminar was over and I took them to my office that they understood what I was talking about,” said Wheatley. “Approximately 50 people a day, on average, visit the recorder’s office.”

Recorders from several counties in the region offered insight into their role of providing information to landowners and oil and gas company workers at their respective offices. Carroll County Recorder Patti Oyer said her offices serves between 30-35 people a day; Paul McKeegan of Jefferson County, Lori Smith of Tuscawaras County and Ann Block of Monroe County all said they are “very busy” attending to 50 to 75 people a day. Tracey Wright of Washington County said she is hoping for a resurgence because activity at her office has actually dropped off dramatically in the past couple of months. The county recorder and staff has the tremendous responsibility of keeping, recording and organizing all documents pertaining to real estate ownership, and any encumbrances or liens on the property. Each document must be indexed for easy access so persons searching land records can find necessary documents to establish a history of ownership, and ensures any debts or encumbrances against the property are evident. “The process begins when the land owner hires an attorney to first do a mineral search,” Wheatley said. “The attorney prepares the abandonment document that is filed and indexed in the present surface owner’s name, and against the person that reserved the minerals years ago. The attorney places the ad in the newspaper for public notice for the prior heirs or compaContinued on pg. 44

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Dix Communications - Gas & Oil

July 2012 Edition

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County recorders and guest speakers at the Ohio Recorders Association Seminar at Salt Fork Lodge & Conference Center June 11-12. Back row, l to r, guest speaker Dale Arnold, Ohio Farm Bureau; Washington County Recorder Tracey Wright, guest speakers David Hill, of David R. Hill, Inc. and Rhonda Reda of the Ohio Oil & Gas Energy Education Program; ORA President Rick Campbell, Jefferson County Recorder Paul McKeegan; seated, Monroe County Recorder Ann Block, Tuscawaras County Recorder Lori Smith, Guernsey County Recorder Colleen Wheatley and Carroll County Recorder Patti Oyer.

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July 2012 Edition - Dix Communications

Connolly, Hillyer, Lindsay & Ong, Inc.

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July 2012 Edition

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Gas & Oil

July 2012 Edition - Dix Communications

Knowledge to FuEL the future Recognizing the need to prepare for the influx of workers in the oil and gas industry, several local colleges and universities offer a number of programs and courses: YOuNGSTOWN STATE uNIvERSITY (YOuNGSTOWN) The university has announced it is opening a Natural Gas and Water Resources Institute, to be lead by Martin Abraham, dean of the College of Science, Technology, Engineering and Mathematics. The institute provide undergraduate courses and a gas technologies minor. For program information, call 330-941-2314 or visit www.ysu.edu

STARK STATE TEChNICAl COllEGE (NORTh CANTON) Stark State Technical College offers an Applied Industrial Technology Program that specializes in the oil and gas industry as a degree program. It also offers a two-week Welding Program, corporate services training specializing in the oil and gas industry, and an Engineering, Industrial, and Emerging Technologies Division for students majoring in the oil and gas industry. For more information, call the college at 330-494-6170 or visit www. starkstate.edu

ZANE STATE COllEGE (ZANESvIllE) The Natural Gas Engineering Technology associate degree program includes classroom, laboratory and field experiences. A sample course curriculum covers: Natural gas distribution and compression; petroleum geology; oil and gas reservoirs; formation evaluation; industrial mechanics; drilling methods/ operations; field services; natural gas production; mineral rights and leases; world regional geography; physics; introduction to mechanical modeling; and general chemistry. Curriculum also includes an internship. For program information contact Engineering and Energy Science Professor Daniel Durfee, 740-588-1282 or ddurfee@zanestate.edu. College website is www.zanestate.edu.

BElMONT TEChNICAl COllEGE (ST. ClAIRSvIllE) NGT 100 - Introduction to the Oil and Gas Industry is a 5 1/2 week 4-credit course beginning on July 3 and meeting Tuesdays and Thursdays from 5:30 to 9:30 p.m. at the main campus. End date is Aug. 7. This course provides a survey of the oil and gas industry, its history, development, influence on society and work politics, and its current state. The course will cover concepts of petroleum discovery, geology, production, transportation, refining, marketing, and economics. Course learning outcomes include: To introduce the petroleum industry from inception to the present; to review the history of petroleum and natural gas development as a function of changing society and technology; to explore the discovery, geologic development, and technology of oil and gas production; to introduce the techniques of modern on and off shore

exploration and production; to review domestic and world markets for oil, gas, and their many derivative products; to explore current world use, future demand, and alternatives; and to introduce U.S. and state regulations on the industry. For registration information call 740-699-3809. College website is www.btc.ed.

WAShINGTON STATE COMMuNITY COllEGE (MARIETTA) New programs and courses offered for credit include: Geoscience; Geotechnical Drafting; Private Security Academy; and Introduction to the Oil & Gas Industry. Existing programs and courses to support the oil and gas industry include: CAD Drafting; Electronics; Industrial Machining & CNC; Instrumentation, Control & Electrical; Process Technician; Chemical Operator Online; and Diesel Truck Technician. For program information contact Dean of Business, Engineering & Industrial Technologies Brenda Kornmiller, 740-3748716 or bkornmiller@wscc.edu. College website is www.wscc. edu. MARIETTA COllEGE (MARIETTA) Bachelor of Science degree offered in petroleum engineering. Courses required of all petroleum engineering majors include: Petrophysics; Core Analysis Laboratory; Drilling and Completion Fluids; Well Control and Casing Design Laboratory; Hydrocarbon Phase Behavior; Reservoir Engineering; Drilling Engineering; Production Systems Engineering I; Production Systems Engineering II; Formation Evaluation; Enhanced Recovery; Natural Gas Engineering; Transient Pressure Analysis; and Senior Capstone Design Seminar. For program information contact Dr. Robert W. Chase, 740-3764776. College website is www.marietta.edu

KENT STATE uNIvERSITY (KENT) The Oil and Gas Management Certificate is designed to enable industry executives, senior budget-holders and decisionmakers in investment banks, consultancies, government agencies and large multinational corporations to evaluate and manage risk and exploit business opportunities in the global oil and gas industry. The course includes three modules: Module I, Project Management in Oil and Gas – Managing Resource; Module II, Oil and Gas Accounting – Oil and Gas Operations and Costing; and Module III, Essentials of Leadership. Cost includes an Apple iPad2TM pre-loaded with course materials. The course is offered during the summer and fall to suit an organization’s schedule. May be arranged for a group of 20 or more. For further information, contact Dr. Pratim Datta at pdatta@kent. edu or Pam Silliman at psillima@kent.edu. College website is www. kent.edu.


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July 2012 Edition

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Gas & Oil

July 2012 Edition - Dix Communications

“Recorders” from pg. 38

“Farm and Lease” from pg. 34

nies to come forward within the 60 days of the ad being filed and also the abandonment document. The heirs or companies in that time frame can come forward and file a Notice to Preserve the minerals. If they do not, then the surface owner retains the mineral rights and is able to lease the land. After the 60 days has expired the attorney files a document for the recorder to memorialize the record. The Preservation of Minerals is the document the heirs would file to keep the mineral rights. That is a separate document that is filed within the time frame the abandonment gives notice. “The task of researching can result in deeds that were recorded centuries ago when Ohio was part of the Northwest Territory in 1787,” she said. “But, the only enforceable deed is the last one signed, dated and notarized, and that is on file at the office.” Daily requests for copies of a variety of documents has resulted in a significant increase in revenue. “We make copies for the public, the oil and gas companies make their own copies. The charge is $1 per page,” said Wheatley. Figures reported by the Guernsey County Recorder’s Office for 2011, for copies alone, totaled $110,865. The office issued 2, 560 new leases. Total income for all documents filed and recorded in 2011 was $564,533. According to current figures, the office is having a banner year. Fees for copies of documents from Jan. 1, 2012 through June 13, 2012 are $191, 975 — just for copies. Total of all fees for the same time period is $475,353, which includes 1,540 new leases recorded.

“It’s going to limit the use of about five acres of land forever,” Sweger said. This is one reason Sweger advises farmers to try maintaining as much control as they can on well placement. If a farmer has 50 acres of crop ground and 50 acres of pasture, landowners can try to have the well placed in the pasture to preserve available cropland. Sweger estimates that a well site can usually be moved 500 to 1,000 feet from the proposed location. The oil and gas industry may change the business of farming for many, but Sweger said the relationship between agriculture and drilling can be mutually beneficial. “Originally, I thought that gas could be the end of agriculture as we know it,” Sweger said. “Who would keep milking cows twice a day and working this hard if they didn’t have to? But I’m seeing people invest in milking parlors and newer farm equipment. It seems to be having a positive impact on the farming community.

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Dix Communications - Gas & Oil

July 2012 Edition

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Farm Bureau looks at severance tax Staff Reporters Dix Communications

On May 16, the Ohio Oil and Gas Association called into question an analysis by the Ohio Business Roundtable, a conservative think tank, on Gov. John Kasich’s proposal to increase tax rates on oil and gas produced through fracking. The trade association, which represents 2,500-plus drillers and others involved in the industry, said the study underestimated the up-front cost of developing horizontal wells and assumed larger-than-realistic production volumes from such wells, among other issues. “We’re also very curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would support a tax increase on another business, particularly when they pay a commercial activity tax rate of just 26 cents per $100 in revenue, while asking one industry to pay a rate nearly 16 times higher,” the association wrote. In Pennsylvania, impact fees are charged in place of severance taxes. These fees will add thousands of dollars to township budgets. The amount is calculated based on when drilling began, the age of the well and the average price of natural gas that year. According to the nonpartisan National Conference of State Legislatures, Pennsylvania is the largest natural gas-producing state that does not impose a severance tax. At least 36 states currently have some type of severance tax in place. Residential * Commercial * Agricultural

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Severance taxes are excise taxes taken when natural resources are “severed,” or removed, from the earth. Currently, Ohio imposes a resource severance tax of 20 cents per barrel of oil and three cents per thousand cubic feet of natural gas. Governor Kasich’s proposal raises the severance tax on the oil and gas industry by up to four percent over time (1.5 percent in the first two years) and uses those funds to cut income taxes for Ohioans. The proposed tax rates differentiate between horizontal fracturing (fracking) wells and conventional vertical wells. Conventional wells would experience no change or even possible tax reductions.

“We’re also very curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would support a tax increase on another business, particularly when they pay a commercial activity tax rate of just 26 cents per $100 in revenue, while asking one industry to pay a rate nearly 16 times higher”

The greatest fear within the industry is that higher taxes will stifle Ohio’s recent shale-related job growth. Industries generally oppose higher taxes, but some analysts suggest that taxes will not discourage companies that have already spent money on land leases, given the leases are contractual. Ernst and Young was engaged by the Ohio Business Roundtable to study the taxation issue, comparing total taxes (state and local) on gas and oil activities.  This study looks at the combined tax burden on a productive well, using specific oil and gas outcomes, comparing seven states that have or will experience significant horizontal drilling and production. This study concluded for the drilling examples it used that Ohio was the most competitive state on its “effective” tax rate, meaning Ohio had the lowest total tax burden.  Jerry James, president of The Ohio Oil and Gas Association, indicated that the Ernst and Young study did not properly take into consideration Ohio’s income tax rates and gas tax abatements that are available in other states.  Furthermore, the study did not use the actual production results from the eight wells currently reporting their production to the Ohio Department of Natural Resources. This caused them to overstate the revenue by 300400% and understate the costs being experienced in the field by 50%.    


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July 2012 Edition - Dix Communications

Top CounTies WiTh horizonTal Drilling aCTiviTy By numBer of siTes

1. Carroll County 88 2. Columbiana County 40 3. Jefferson County 26 4. Monroe County 21 5. Harrison County 20 6. Belmont County 12 Stark County 12 7. Noble County 11 8. Mahoning County 10 9. Guernsey County 9 10. Portage County 7 11. Tuscarawas County 6 12. Muskingum County 3 Coshocton County 3 13.Trumbull County 2 Knox County 2 14. Geauga County 1 Ashland County 1 Medina County 1 Wayne County 1 Well SiteS SiteS in variouS variouS Stage tageS:: Permitted, drilling, drilled, ComP ComPleted, ProduC ProduCing, Plugged SourC Sour Ce: ohio dePartment of natural reSour ourC CeS aS of 6/18/12

25

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Dix Communications - Gas & Oil

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July 2012 Edition - Dix Communications

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July 2012 Gas & Oil Magazine  

A magazine about the Gas & Oil industry in Ohio. Published by Dix Communications.

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