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P.I.G.S Fly Welding
A Strong Future IN THIS ISSUE: WILDFIRES VS. OIL GLUT
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Table of Contents JUNE 2016
A Look Ahead Gas & Oil Events
A Piece of the Pie Lawmakerâ&#x20AC;&#x2122;s Plan Would Use Portion of Severance Tax
When P.I.G.S Fly
Speaker Announced for Utica Midstream
Andrew S. Dix ASDix@dixcom.com
Facing the Future in the Gas & Oil Industry
How Will My Pipeline Easement Payment Be Taxed?
Apateq Clean-tech Water Treatment System
Despite Drilling Slowdown, Safety Remains A Priority
Welding A Strong Future
G.C. Dix II GCDixII@dixcom.com David Dix DEDix@dixcom.com
EXECUTIVE EDITORS Ray Booth RBooth@dixcom.com Roger DiPaolo RDipaolo@dixcom.com
Opinion: Ideologically Driven Protests with Very Real Local Consequences
Policing the Oil Patch
Utica Shale Academy has Second Graduation
Rob Todor RTodor@dixcom.com Lance White LWhite@dixcom.com
RE G IO NAL E DIT O RS Judie Perkowski JPerkowski@dixcom.com Erica Peterson EPeterson@dixcom.com Cathryn Stanley CStanley@dixcom.com Niki Wolfe NWolfe@dixcom.com
Table of Contents JUNE 2016 ADVER TISING Kim Brenning Cambridge, Ohio Office KBrenning@dixcom.com 740-439-3531 Kelly Gearhart Wooster & Holmes, Ohio Offices KGearhart@the-daily-record.com 330-287-1653 Jeff Kaplan Alliance & Minerva, Ohio Offices JKaplan@the-review.com 330-821-1200
Asset Protection: What It Is and What It Is Not When Talking About Oil and Gas
Global Oil Glut Softens Impact of Alberta Oil Sands Wildfire
Instructor Retires From Zane State Oil/Gas Program
Mark Kraker Ashland, Ohio Office MKraker@times-gazette.com 419-281-0581 Diane K Ringer Kent, Ohio Office DRinger@recordpub.com 330-298-2002 Janice Wyatt National Major Accounts Sales Manager JWyatt@dixcom.com 330-541-9450
DIGITAL MEDIA MANAGER Brad Tansey BTansey@dixcom.com
L AYOUT D E SIG NE R Kate Minnich
ation June 2016 • A Free Monthly Public
P.I.G.S Fly Welding
“Gas & Oil” is a monthly publication jointly produced by Dix Communications. Copyright 2016. GasandOilMag.com
A Strong Future
IN THIS ISSUE: WILDFIRES VS. OIL
On The Cover: Welding A Strong Future
Hallie Schmidt completes an overhead weld, one of two required welds at the 12th annual “Weld Off” at the Willett-Pratt Training Center on the Zane State Campus in Cambridge May 5. Hallie was the only female to participate in competition with 12 other high school and vocational school students. Story on Page 18. OhioGas&Oil
A Look Ahead
Ohio’s Gas & Oil Events • June 6, 2016 • July 29-31, 2016 PIOGA’ s Summer Golf Outing and Picnic, Wanango Oil History Symposium, Casper, West Virginia Golf Club, Reno, Pennsylvania • August 19, 2016 • June 8, 2016 SOOGA Summer Golf Outing, Woodridge Golf Club, Utica Midstream seminar, Canton, Ohio Mineral Wells, West Virginia • June 8, 2016 • August 25, 2016 Ohio Oil & Gas Safety Council meeting, Country Club, PIOGA’s Divot Diggers Golf Outing, Tam O’Shanter Golf Cambridge, Ohio Club, Hermitage, Pennsylvania • June 16-17, 2016 OOGEEP STEM Teacher Workshop, Marietta, Ohio
• September 15, 2016 SOOGA Annual Trade Show, Washington County Fairgrounds, Marietta, Ohio
• June 17, 2016 SOOGA Summer Clay Shoot, Hilltop Sports, Whipple, • September 17-18, 2016 Ohio OOGEEP September Firefighter Workshop, Apple Creek, Ohio. Visit http://oogeep.org/event/oogeep-september• July 12-13, 2016 2016-firefighter-workshop/ for more information. OOGEEP STEM Teacher Workshop, Canton, Ohio. Visit http://oogeep.org/event/oogeep-stem-teacher- • September 25-27, 2016 workshop-canton-ohio/ for more information. Eastern Section, American Association of Petroleum Geologists (ES-AAPG), Lexington, Kentucky • July 21-22, 2016 PIOGA’s Pig Roast, Equipment Show & Technical • October 14, 2016 Conference, Seven Springs Mountain Resort, Champion, SOOGA Fall Clay Shoot, Hilltop Sports, Whipple, Ohio Pennsylvania • October 22-23, 2016 OOGEEP October Firefighter Workshop, Apple Creek, Ohio. Visit http://oogeep.org/event/oogeep-october2016-firefighter-workshop/ for more information.
• October 30-November 1, 2016 NARO Appalachia Convention, White Sulphur Springs, West Virginia. Visit http://www.naro-us.org/ for more information.
A Piece of the Pie
Lawmaker’s Plan Would Use Portion of Severance Tax
tate Rep. Jack Cera (D-Bellaire) has introduced House Bill (HB) 540, legislation to assist local communities impacted by oil and gas drilling. The Bellaire lawmaker’s proposal would direct a portion of state severance tax revenue to affected communities in order to help them rebuild crumbling roadways and provide fire and emergency services. “Eastern Ohio’s roads and bridges are deteriorating under the weight of the increased truck traffic brought by the oil and gas industry. It is only fair that a portion of the severance tax is used to restore our communities’ infrastructure,” said Cera. “This proposal takes surplus dollars over and beyond what is needed by ODNR and sends them back to eastern Ohio.”
provide grants to fire departments in shale counties for the purchase of firefighting and EMT vehicles and equipment. • 10 percent to communities with injection wells for oil and gas waste. In addition, Cera’s proposal would establish a well-plugging program under ODNR’s Oil and Gas Resources Management Guidance to require an inventory of all known and suspected idle and orphaned wells. An annual report would be required to be submitted to the Ohio General Assembly.
In fiscal year (FY) 2015, Ohio collected $24 million in severance tax revenue but appropriated only $14 million to the Ohio Department of Natural Resource’s (ODNR) Division of Oil and Gas. The severance tax is on pace to generate more than $30 million in the current fiscal year, while the Division’s appropriation remains the same.
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Under HB 540, the Division of Oil and Gas would keep the first $20 million in severance tax revenue each year for its regulatory program and to plug idled and orphaned wells, but any additional revenue would be distributed to Ohio communities bearing the brunt of oil and gas drilling activity. House Bill 540 would redirect excess severance tax revenue as follows:
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When P.I.G.S Fly Story By: Sara Klein • Dix Communications
Photos By: Judie Perkowski • Dix Communications
hat squeals like a pig and thickness, pressure and temperature, as travels through oil and well as whether cracks, fissures, erosion gas pipelines? or other forms of pipeline deterioration exist. The answer isn’t a science fiction beast: it’s an industry standard The idea is to identify and address called a Pipeline Inspection Gauge. potential problems before they take a toll on the company’s bottom line by The device, called a “PIG” as an acronym stopping the flow of oil and gas or cause and for the sound it is said to produce environmental disasters like leaks or while in operation, is an inspection explosions. tool that travels through pipelines on a search for gouges, dents, corrosion and Special sensors on an inspection PIG
the walls of the pipe, to detect leaks, corrosion or flaws in the pipeline. A second method called “ultrasonic inspection,” or UT, uses ultrasonic sounds to measure how long it takes for an echo to return to the PIG’s sensor. In this way, operators can directly measure the thickness of the pipe wall. Prior to 2011, some PIGs often weighed up to two tons and relied on the pressure of oil and gas products in the pipeline to power their motion. Conventional inspection devices used magents to determine whether pipe walls had become corroded, but the magnetic field impeded the speed of the PIG. Today, oil and gas companies are likely to use robotic “smart PIGs” based on a design pioneered by Carnegie Mellon University roboticist Hagen Schempf and his team of researchers. Called the Explorer-II, Schempf’s pipeline inspection gauge is equipped with a compact electromagnetic coil that can detect corrosion without slowing down the inspection device’s movement.
Students and instructors in the Oil and Gas Engineering Technology program at the Willett-Pratt Training Center, get ready to test the pig launcher on the Zane State College campus in Cambridge. The Willett-Pratt Center is used for all gas and oil classes. The four-inch pipeline inspection gauge known as a PIG, was made on a 3-D printer at the school’s Advanced Science and Technology Center IDEA lab on the Zanesville campus. The purpose of a PIG when it is shot through the pipeline is to detect any abnormalities, such as leaks or a buildup of oil and its by-products. more as part of the pipeline maintenance process. When oil and gas operators “pig the pipeline,” they use the pipeline inspection gauge to collect data about the health of the pipe, including its 6
Weighing in at fewer than 70 pounds, the robotic PIG’s segmented body is designed to follow the twists and turns of a pipeline, and its drivetrain allows operators to determine precisely where the robot begins and ends its work within the pipeline.
But PIGs are not only for inspecting pipelines. The tools are used for identify not only what the problems many different aspects of pipeline are but where in the pipeline they are maintenance. located, which helps maintenance teams address repairs quickly and efficiently. For example, utility PIGs scour debris from pipelines, which can build up PIGs can use magnetic flux leakage, or during construction or operation. These MFL, which sends magnetic flux into devices are also used to seal the line by GasandOilMag.com
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Jake Van Allen and Tyler Wells created a PIG — a pipeline inspection gauge — for their capstone project, a requirement for all graduates of Zane State College’s Oil and Gas Engineering Technology degree program. The smallest PIG held by Jake and Tyler is approximately four inches in diameter and was designed on a 3-D printer at the college’s IDEA Lab on the Zanesville campus. The other two PIGS in the photo — a six-inch and an eight-inch — are actual PIGS used by gas and oil companies. Both PIGS were donated by Dominion East, a major energy company with operations in Ohio. removing liquids. Mandrel PIGs, foam PIGs, solid cast PIGs and spherical PIGs are all forms of utility PIGs.
Specialty PIGs, such as plugs, keep the pipeline pressure in the line by stopping up the pipeline on either side of where the remedial work is being done. This operation is undertaken before maintenance work is performed on that section of line.
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Gel PIGs, which contain a variety of gel liquids, can be used along with conventional PIGs or by themselves to assist with product separation, debris removal, hydrotesting, dewatering and condensate removal as well as with removing a PIG that can’t move through the line, which gives “stuck PIG” a brand new, high-tech meaning.
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Utica Experts Discuss
Speaker Announced for Utica Midstream
Chelsea Shar he gas and oil industry in the Utica region has slowed over the last year, but that hasn’t stopped the Canton Regional Chamber of Commerce from hosting growing, businesscentered seminars about how local companies can invest and prepare for the industry. “I think that smart business people realize that this is a rough period but that in the long run this is going to be a massive and transformative business in Ohio,” said Dave Kaminski, vice president of public policy and energy at the chamber. Through three major events, Utica Upstrem, Utica Midstram and Utica Summit, the chamber has brought experts to Canton to speak about the future and current state of what is needed in the gas and oil market. June 8 will mark the third Utica Midstream seminar, which will focus on pipelines, processing plants and infrastructure in the midstream region. A few items of special interest that will be discussed at the June event will be the ET Rover Pipeline, the Nexus Pipeline and the Marathon Pipeline that will go through parts of Stark County. Kaminski said the mission of the chamber is to provide businesses with an idea of how their company
can profit from the gas and oil Rover Pipeline LLC, which will industry. draw gas from Utica processing plants and send it to a distribution “We have tried to inform business point in Defiance. From there, it will rather than host forums for move onward to other markets. conversation about whether we ought to do this or not. These have Aaron Fleming, EnLink’s Ohio River always been conferences for serious Valley operations director of crude business people who have choices supply. EnLink Midstream once to make and business to peruse. I again returns to Utica Midstream to think that audience still exists. They talk about its work in bringing Utica seem to like what we do and come energy to markets that need it. back,” he said. Mark James, vice president of Utica Midstream, co-produced by economic and business development the Canton Regional Chamber of for American Electric Power. Commerce and Shale Directories, will be held from 8 a.m. to 2:30 p.m. Frank Nieto, senior editor for Hart June 8 at the Pro Football Hall of Energy’s Midstream Business Fame. magazine. The seminar includes a lineup of experts in midstream, covering aspects from pipeline engineering to construction to technology. The complete lineup of speakers include:
Jason Stechschulte, Marathon Pipe Line LLC’s commercial development senior engineer.
Sponsors for the event include AEP Ohio, Beaver Excavating, Furbay Oil Brent Breon, vice president of & Gas and media partner Kallanish business development for Caiman Energy. Energy II-Blue Racer Midstream. Blue Racer is a joint venture by Reservations can be made at www. Caiman Energy II and Dominion to uticacapital.com. Tickets are $175 own, operate, develop and acquire and include free admission to the midstream assets in the Utica Shale Pro Football Hall of Fame after the and certain adjacent areas in the event concludes until 5 p.m. when Marcellus Shale. Breon will update the hall closes. the seminar audience on Blue Racer projects. For questions regarding Utica Midstream or the Canton Regional Joey Colton, senior director of Chamber’s oil and gas programming, commercial optimization for Energy contact David Kaminski, at davidk@ Transfer of Houston, Texas. Energy cantonchamber.or or 330-458-2059. Transfer’s big project in Ohio is
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Facing the Future
In the Gas & Oil Industry Judie Perkowski • Dix Communications
nyone who is interested in a career in the gas and oil industry has an opportunity to enroll in the Oil & Gas Engineering Technology program at Zane State College in Cambridge to gain the required knowledge to engage in the most challenging and dynamic industry in Ohio and around the world.
some very tough classes, such as algebra, trigonometry, software applications, world and regional geography, chemistry, hydraulics and pneumatics, reservoir/ formation evaluation and even public speaking. Most of the class work is actually done in the Willet-Pratt Training Center on the college’s campus, some classes are at the Zane State Advanced Science and Technology Center in Zanesville.
“The printing wasn’t done by Tyler or Jake personally, but they were involved in the design process. Their capstone project was to complete everything that needed to be done to make the pig launcher actually work. They did the wiring for the vacuum motors and anything else physically connected to the project,” said Paslay.
In a real-life situation, pigs can vary in size and composition, depending on the size of the pipeline and what Just ask any of the eight students The final requirement to qualify the pig is designed to accomplish, who just graduated from the twoprimarily, helping with the year degree program May 7. maintenance of transmission pipelines. These pipeline pigging Only one of the eight young men devices are major components said he is going on to a four-year to pipeline safety and accident degree program in petroleum prevention. They are inspecting engineering. The majority said they for leaks and for a build up of oil just want a job in oil and gas, where and gas sludge. They are called pigs some of their first-year classmates because they are an abbreviation have already gone. for “pipeline inspection gauge” and also because they squeal when Robert Stonerock and Paul Paslay, running though the pipeline. —Paul Paslay instructors for Zane State’s OGET program, said in the first year of The Oil & Gas Engineering the two-year program there were 18 Technology program at Zane State students. College emphasizes the basic science to receive an associate degree is a and technology of oil and natural Like any industry that relies on capstone project — something that gas exploration, development, and physical labor for many of its is physically related to the industry distribution. The completion of the operations, and they know when a and verifies your understanding of Oil & Gas Engineering Technology person enrolled in a college-level the OGET program. The project can program leads to a career in oil and oil and gas program has a basic be the work of a student or two, or natural gas exploration, drilling, knowledge of its operation, oil and the entire class. completion, production, natural gas scouts are knocking on the door. gas compression, distribution, and This year, Jake Van Allen and related field services. An emphasis About a third of the students Tyler Wells created a p.i.g. — a is placed on the development of the who enrolled in this year’s OGET pipeline inspection gauge — for oil and natural gas resources in Ohio program answered the call to begin their capstone project, which was and the surrounding Appalachian working at entry-level positions. designed on a 3-D printer at the Basin including the application Others realized the course work college’s IDEA Lab on the Zanesville of the best available technology required total dedication to campus. utilized in the traditional oil and
“ Their capstone project was to complete everything that needed to be done to make the pig launcher actually work. ”
gas formations as well as those applied to the Marcellus and Utica Shales. Students will develop an awareness of the oil and natural gas industry; establish the basic knowledge and skills that are necessary for developing the fundamentals of the scientific and engineering technology needed in the oil and natural gas industry along with the specific technical knowledge and skills that are required to obtain careers in the Oil and Gas Engineering Technology. Five of the eight 2016 graduates of the Oil and Gas Engineering Technology Program at the Willett-Pratt Training Center on the Zane State College Campus in Cambridge the week before graduation exercises. From l to r, Robert Stonerock, OGET instructor; Paul Paslay, OGET instructor; Brad Houk, Seth Straker, Jack Van Allen, Tyler Sealover and Tyler Wells. Graduates not pictured: Jordan Watson, Matt Leasure and Andrew Minosky.
For more information about the OGET program or any of the 46 programs offered at Zane State, go to www. zanestate.edu.
How Will My Pipeline Easement Payment Be Taxed?
Garrett M. Roach • Attorney he recent oil and gas drilling boom in southeastern Ohio, Pennsylvania and West Virginia has brought about an unexpected visitor for many landowners, including some far removed from where shale wells are being drilled—pipelines. Pipeline companies are acquiring easements (also called rights of way) from landowners in order to construct transportation pipelines. They may be acquired through negotiation between the pipeline company or (under certain circumstances) eminent domain (condemnation) proceedings. If you are considering a potential pipeline easement offer, make sure you consult your attorney and tax professional before you sign! Proper planning and negotiation with the pipeline company can minimize and possibly defer the tax generated by the sale of the easement. Payments for pipeline easements can be categorized in different ways. Different categorizations can have different tax consequences to the landowner. Whether the easement payment qualifies as a capital gain or ordinary income depends upon whether the pipeline company obtains a permanent easement or a temporary right to use the land. The maximum capital gains tax rate for an individual is generally lower than the maximum ordinary income tax rate. Temporary work space payments and payments for lost profits (such as crops) generally are taxed as ordinary
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income. Under certain circumstances, a permanent easement payment may qualify as capital gain income. (A landowner generally is allowed only to offset the proceeds from the sale of a permanent easement against the landowner’s cost basis in the easement tract. In limited circumstances, the proceeds of the easement payment may be applied to reduce the aggregate basis in both the easement tract and the landowner’s remaining property.) Pipeline easements also frequently include payments for damages. Damage payments are intended to compensate the landowner for damages caused by current construction as well as a release for future loss of use and damages to the surface, fences and crops. Payments for current damages may generally be offset against the landowner’s cost basis. The IRS characterizes payments for future damages as a rental and thus ordinary income. The law on taxation of damages is murky and the IRS closely scrutinizes payments for damages. Good drafting requires distinguishing between upfront payments for construction damages and payments for future damages. Under certain circumstances, easement payments which would be taxable may qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code. This may allow the landowner to defer the income and tax generated from the sale of an easement by re-investing the proceeds in other real estate. The tax free exchange requirements are stringent and the transaction should be properly structured before the easement is signed and any payments are received. There is a special rule for landowners who receive easement payments as a result of eminent domain or threat of eminent domain. Certain pipeline companies may acquire easements by eminent domain if they qualify as a common carrier. Section 1033 of the Internal Revenue Code allows qualifying landowners to avoid taxable gain by reinvesting their proceeds in qualifying property during the replacement period, which can be as long as three years. The landowner must make sure that the amount and type GasandOilMag.com
of various easement payments are specifically detailed in the written easement document. The pipeline company is responsible for sending the landowner a Form 1099-S or Form 1099-Misc for income tax reporting purposes. If the written easement document does not include sufficient detail regarding how payments should be categorized, the pipeline company will unilaterally allocate the payments in a manner which is most advantageous to the pipeline company. Once a Form 1099 is issued, it will be difficult for the landowner to reverse or challenge the allocations set forth in that Form 1099.
Mr. Roach is a member of Critchfield, Critchfield and Johnston, Ltd., a law firm with extensive experience in all aspects of the oil and gas industry which has been representing landowners, producers, drillers, service providers, and others in the industry for over 75 years.
For landowners considering a pipeline easement â&#x20AC;&#x153;an ounce of prevention is worth a pound of cureâ&#x20AC;?. Proper professional advice and advance planning can save you thousands of dollars. Find out your exact tax consequences before you sign. If you fail to heed this warning, Uncle Sam may end up with a larger share of your easement payment than you anticipated.
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PATEQ, pronounced Ap-pa-tek, has developed a revolutionary, “cost-effective method green processing technology that efficiently separates hydrocarbons from frack flowback, produced water and brine without using chemicals,” said Dirk Martin, chief sales officer at APATEQ. “It is an undeniable fact that oil and gas production comes along with large amounts of water produced as a by-product. On average, three to five barrels of water are produced with every barrel of oil. This means that more than 21 billion barrels per year of this water is generated in the United States alone. Worldwide this figure exceeds 77 billion barrel per year. Most often, this contaminated water, such as frack flowback, produced water and brine, are discharged into disposal wells. However, various factors such as economical considerations, fresh water shortage and legislation put the focus more and more on the treatment of this kind of wastewater for recycling,” he said.
As the concentration of contaminants varies significantly from region to region or even from well to well and, in addition, the requirements for disposal or reuse of the effluent water are largely varying as well, produced water treatment equipment is available on the market in a wide range. Most often, an effective produced water treatment system will consist of many different types of individual process units used in series to remove a wide suite of contaminants that may not be removed with a single process. Organic and particulate removal, desalination, and disinfection are the major classifications of produced water treatment technologies. As current treatment solutions are either cost or energy consuming, and most often require different types of individual unit processes used in series, the clean-tech company APATEQ developed a cost-effective, green process technology based on long lasting membranes that efficiently separates hydrocarbons from frac flowback, produced water and brine without using chemicals in the treatment process, meeting the most stringent environmental legislation. This all is achieved
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The OilPaq consists of three modules: primary treatment, ultrafiltration and an office including control center and storage space. Available in different sizes and capacities, OilPaq is a portable solution that reduces free and emulsified oil from extremely high levels, and eliminates bacteria, without altering the raw water chemistry. This is unique on the market, as so far, membrane technology, only in theory, represented a potentially effective technology in the oil and gas industry to eliminate suspended solids, recover oil and recycle the contaminated water for recycling.
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Story continued on page 29 GasandOilMag.com
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Despite Drilling Slowdown,
Pipeline Safety Remains a Priority Dan Garcia
ew start-up, Pipeline Compliance Group, LLC, seeks to assist pipeline operators comply with federal pipeline safety regulatory requirements and provide local governments with pipeline safety education and consulting programs. Veteran pipeline safety attorney, Dan Garcia, has announced the formation of a new consulting company, Pipeline Compliance Group, LLC (www.pipelinecgllc.com) to provide pipeline safety consulting to local governments and pipeline safety and regulatory consulting for pipeline operators. The company will primarily focus on pipeline public awareness programs as required by federal regulation, or, as it is known in the pipeline industry, RP-1162 Public Awareness Programs. The RP-1162 Public Awareness Program was developed by the American Petroleum Institute as a recommended practice, which was then incorporated into the pipeline safety regulations, requiring pipeline operators and gas utilities to develop and perform public awareness campaigns in an effort to reduce pipeline accidents. Federal enforcement of these programs is now managed by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) to ensure pipeline safety awareness messages are being developed, communicated, and recorded effectively. Most recently, PHMSA released a Notice for Proposed Rulemaking which seeks to expand PHMSA oversight of Type A lines in Class 1 locations for lines 8-inches or greater. These particular gathering lines have been under increased scrutiny lately due to their status as ‘unregulated’ pipelines. If this proposed rule is approved, these types of programs will extend to those gathering lines as well.
Those are the very programs Pipeline Compliance Group aims to help develop. Additionally, many Ohio municipalities are finding themselves staring down the fairway of a new pipeline easement. For many of these elected officials, this is their first time encountering a pipeline operator and the first time hearing some of the more technical aspects of pipeline development. The Pipeline Compliance Group recognizes the need to provide these local governments with help navigating the federal regulatory requirements governing pipeline safety. “My role isn’t to convince the elected official to support or object to pipelines; my role is to “call balls and strikes” by educating the local official on federal pipeline safety regulations and ensure they have [pipeline safety] expertise available to them. This makes a safer environment for all involved.” Garcia was compelled to start up Pipeline Compliance Group to close the communication gap between pipeline operator, local official, emergency responders, and the affected public.
“Everyone has a role and responsibility to ensure our pipelines remain the safest mode of transportation for our commodities. As our population grows and becomes denser in formally rural areas, understanding pipeline safety and our roles in ensuring it According to Garcia, “There is significantly greater public remains safe becomes a priority.” scrutiny over natural gas development and pipelines are not immune. Regardless of commodity price fluctuations, state To learn more about pipeline safety awareness programs or about and federal inspectors will respond to this public pressure by Pipeline Compliance Group, LLC, please contact Dan Garcia at increasing their audits of these types of regulated programs.” firstname.lastname@example.org 16 OhioGas&Oil
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Welding A Strong Future Judie Perkowski • Dix Communications
he 12th annual “Weld Off” at Zane State’s Willett-Pratt Training Center in late April drew a large crowd of young people anxious to find out more about the college’s program of welding and fabrication, and to observe demonstrations of the latest welding and cutting technologies, especially Zane State’s new robotic welder and
CNC plasma cutting. Attendees also had an opportunity to try the VRTEX 360, Lincoln Electric Co.’s virtual reality welding simulator.
Career Center, Buckeye Career Center, Harrison Career Center, Jefferson County Joint Vocational School, Knox County Career Center, Mid-East Career and Technology Centers and Wheeling Students at 10 area vocational schools Park High School. Thirteen contestants and career centers were invited to competed for dozens of prizes. compete for prizes and a chance to earn a certification from the American Judges for the event were adjunct Welding Society. Each school was invited welding instructors Danny Laudermilt, to send two students to the competition. Ed Miller, Roberta Maxwell, and Seven schools responded: Belmont Deanna Duche, director of welding at Zane State. Zane State College will file state certification papers on behalf of the contestants whose test assembly met the criteria of the American Welding Society’s Bridge Welding Code, with no cost to the contestant. “Eleven students received at least one certification, six of them were certified in both positions. The criteria included welding a set of plates in the vertical and overhead position,” said Duche. “Technically referred to as the 3G and 4G position. The “G” means its is a groove weld.” First place winner was Aaron Conrad from the Harrison County Career Center. Second place was Robert Kimble of Jefferson County JVS, and third place winner was Robert Nealy of the Buckeye Career Center.
Hallie Schmidt completes an overhead weld, one of two required welds at the 12th annual “Weld Off” at the Willett-Pratt Training Center on the Zane State Campus in Cambridge May 5. Hallie was the only female to participate in competition with 12 other high school and vocational school students.
Prizes included two torch sets, valued at approximately $500 each; welding helmets, several sets of tools needed for welding, a couple of starter kits with a hat, gloves, welding helmet and jacket, all in a very nice duffel bag. In addition to an assortment of welding tools and equipment.
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Deanna Duche, director of welding education at Zane State College checks on the welding of test plates by contestants in the annual “Weld Off” at the Willett-Pratt Training Center on the Zane State Campus in Cambridge May 5. Students from area vocational schools and career centers competed for prizes and certifications. Duche was a judge at the event, in addition to adjunct welding instructors, Ed Miller, l, a U.S. Air Force retiree, and Danny Laudermilt, who retired from Columbia Gas.
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Prize winners were allowed their choice of a gift rather than have the prizes pre-designated as first, second, third, etc. The quality and generous number of prizes and material used by contestants were donated by 3B’s Welding, Air-Gas, BiCon Services, ESAB Welding & Cutting Equipment, Fastenal Industrial and Construction Supplies, James C. Dawes Co., Inc., Lincoln Electric Co., Matheson TriGas, Mid-East Career & Tech Center, Miller Electric Manufacturing Co., Plumbers & Pipefitters Local Union 495, Victor Technologies and Zane State College. U.S. Bridge donated the steel for the contest. Vendors onsite were Air-Gas, Lincoln Electric, Miller Electric, Matheson and Victor Technologies. Each vendor presented visitors an opportunity to try the newest welders on the market. “It is a good experience for the students to go to a strange place and use a welder that they are not used to, because most places that hire welders require the applicant to take a weld test. This contest prepares them for those conditions. There is the added benefit of gaining a recognized credential if they are successful,” said Duche. For more information about the school’s welding program visit ZaneState.email@example.com GasandOilMag.com
Anthony Komar, a student at Wheeling Park High School and one of the 13 students who participated in the annual “Weld Off” May 5 at the Willett-Pratt Training Center. Each student completed two weld plates, one vertical and one in the overhead position, in addition to a written test. Students were also evaluated in eight categories. OhioGas&Oil 19
Opinion: Ideologically Driven
Protests with Very Real Local Consequences Dr. Jack Rafuse • Former White House Energy Advisor
t’s an old saying, “The squeaky wheel gets the grease.” Environmental activists and groups are taking this idiom to new heights, planning extreme events across the country and the world this month to act out in civil disobedience in protest of the fossil fuel industry. From Pennsylvania to Washington, organized protests sniffingly titled “Break Free from Fossil Fuels,” are led by billionaire “purists” in a group called 350.org. Their paid recruits and followers will disrupt normal activity in towns and cities to push their extreme and nonsensical ideology. Neither the leaders of the movement nor their fun-seeking demonstrators seem to realize that the disruptions will distract rather than add to a much larger – and needed – conversation about energy development. Even in Utah some 90 protestors crashed a Bureau of Land Management auction and started singing. The U.S. government is accommodating people who want to attend so they prevent anyone from speaking and consider it a success if it results in a shutdown of the event. This is not freedom of speech; it is not responsible, it is gangsterism paid for by billionaires. Organized protests like these, offer no ideas, just rhetoric from a 20 OhioGas&Oil
megaphone – the very embodiment of a squeaky wheel. These organizations are ignoring a simple truth: The way America consumes energy is complex; it is not a real option for our society to stop using fossil fuels. Even “The Experts” from The Wall Street Journal could not unanimously agree on the benefits of renewable energy as a viable economic source. All in all, the U.S. needs to be engaging in a healthy mix of energy sources including the cheap reliable source of fossil fuels. But instead of focusing on real solutions, these organizations are planning protests that are shrouded in irony.
dominated by fossil fuels.” The same is true, of course, of transportation fuels. The fossil fuel protests would not be possible without the modern advancements of fossil fuels –the irony should not be missed.
Consistently and equally ironic, these protests will interfere with daily economic activity of local communities where the fossil fuel industry provides numerous major economic benefits. Across the Midwest, protests are being held near Chicago and previously in Philadelphia, disrupting the daily business and lives of Midwesterners. The demonstrators know and do not care that they will be hurting First, we should consider that these the economic life of Midwesterners environmentalists will drive or provided by fossil fuels. In Ohio fly to centrally located, regional alone, the Utica shale region is protests all with the help of fossil becoming one of the leading natural fuels. These organizers will spend gas production areas, allowing fossil their day protesting and acting out fuels to play a larger role in the in civil disobedience. And then the state’s industry portfolio. In fact, lucky few who avoid arrest will hop shale energy and petrochemicals back in their cars, drive home, and employ 89,875 workers each year. turn on their lights, encouraged that Additionally, the Progressive Policy they made the world a better place. Institute’s report “U.S. Investment A glowing Washington Post article Heroes of 2015,” states that fossil headlined that “Why clean energy fuel companies invested $43.6 is now expanding even when fossil billion, underscoring how the power fuels are cheap.” Only in paragraph of innovation can drive investment 21 did it reveal that “wind and solar growth. The billionaire backers provide about 5 percent of U.S. of these demonstrations feel that electricity right now, for instance. they know better than ordinary Here, as across much of the world, Americans and that it is their duty electricity generation is still to “fix” the situation to their liking. GasandOilMag.com
Lastly, what is so striking about these protests is the depth of financial backing behind these environmental groups. Many of them are actually funded by multi-million dollar organizations with deep-pockets like the Rockefeller family or billionaire, Tom Steyer. Another billionaire, George Soros, founded and funds many such movements, as well. For these purposes, all pretend to be local groups the reality is quite clear: they do not care about local communities; they are focused on the ideological goals of their out of state and out of touch, wealthy financiers. Take for example, the issue of fossil fuel divestment –an issue that 350. org has made a rallying cry for the fossil free movement. Much like these protests, divestment is a symbolic tactic that could have negative effects for local pensions. When a community divests, public servants, such as teachers,
police officers, firefighters, and other officials who serve our community, must do without the high-yielding energy stocks, which are typically considered one of the safest investments. Additionally, divestment is not a viable action
“The demonstrators know and do not care that they will be hurting the economic life of Midwesterners...” — Dr. Jack Rafuse to reduce carbon emissions – two reports from Caltech and the University of Chicago Law School have proven that divestment is costly and inefficient.
Finally, after the protestors have come and gone, the local communities will have to foot the bill for the harm and disturbance these activists have created in communities. By refusing to listen to all sides of the argument and recognizing the economic benefits of fossil fuels, environmentalists are taking the wrong approach to address how to reduce greenhouse gas emissions. It’s time for ideological noise to end and a balanced conversation to take center stage. At least it’s something we should all hope for. Dr. Jack Rafuse, former White House energy adviser and current principal of the Rafuse Organization, advises government agencies, policy centers, businesses and associations on energy, trade, sanctions, national security issues and their interrelationships.
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Policing the Oil Patch David J. Wigham • Attorney
ith the s u d d e n surge in the value of mineral rights in southeastern Ohio, landowners and local producers have been thrust into the position of competing for ownership of these valuable mineral rights. Unless an old oil and gas lease covers their property (and absent any other mineral title issues), landowners are free to enter into a Utica Shale lease, which carries with it a lucrative signing bonus and a better royalty. Conversely, if a local producer is able to maintain a valid oil and gas lease, the producer is in the position of being able to assign the deeper Utica rights held by the lease and receive compensation and an overriding royalty interest. This tension is forcing more scrutiny upon the validity of old oil and gas leases. Unfortunately, there is no clear bright line test under Ohio law to determine when an oil and gas lease expires. Under Ohio law, most oil and gas leases contain a primary term and a secondary term. The primary term is a period of years within which the producer must commence drilling operations in search of oil and gas. The secondary term of an oil and gas lease is indefinite and extends the producer’s rights under the lease, usually for so long as oil and gas are being produced in paying quantities. If, after the expiration of the primary term, the conditions of the secondary term are not being met, then the lease automatically expires by its own terms. A secondary term that continues for so long as oil and gas are found in paying quantities requires that oil or gas actually be discovered and 22 OhioGas&Oil
produced in paying quantities. In other words, there must be actual production that generates a profit over and above operating expenses attributed to the well. An oil and gas lease that is in its secondary term expires on the day the well stops producing in paying quantities.
secondary term of their lease and to see who currently owns the lease and operates the well. Second, the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management (“ODNR”), has an excellent interactive website landowners can access at http://oilandgas.ohiodnr.gov/wellinformation/oil-gas-well-locator. By using the mapping tool at the above address, Ohio landowners can locate any wells on their property and, by clicking on the well and link to the associated well summary report, obtain year by year data for production from the well, see the current producer listed with the ODNR and view the ODNR well file.
Landowners also need to know that once a lease expires, it cannot be resurrected. The best example of this is when a well stops producing altogether for several years. Once a well stops producing, the lease expires by its own terms. After the lease expires, a producer cannot return the property and restore production from a well after the lease expires. In this scenario, the producer risks claims by the landowner for trespass and conversion of the landowner’s minerals. Well summary reports should be only viewed as a useful tool for identifying possible issues affecting lease validity. Since all of the production data available to ODNR has been supplied to them by the well operators themselves, these numbers should not be treated as gospel and should not be relied upon as absolute proof of production. There are many cases in which the ODNR publishes production from wells that are not producing and also publishes no production from wells that are producing. This information — David J. Wigham may be helpful to verify the accuracy of production information, and it may also helpful to identify inconsistencies There are thousands of landowners in that should trigger further inquiry. southeastern Ohio with shallow wells on their property. Landowners who The current oil boom has been are interested in knowing whether the beneficial to both landowners and small lease covering their property is valid producers in southeast Ohio. The vast can do several things. First, landowners majority of Ohio’s producers are honest should obtain a copy of the oil and and ethical. Unfortunately, a very gas lease covering their property to small minority of producers, seeking determine the exact language of the to reap perhaps unfair windfalls in
“Unfortunately, there is no clear bright line test under Ohio law to determine when an oil and gas lease expires.”
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the bounty brought about the shale boom, have engaged in practices that somewhat strain credulity when determining if production exists to hold a lease. Chief among these has been inaccurate reporting of production numbers, mailing of unearned royalty checks, and asking landowners to sign legal documents that affect their mineral rights. Without an attorney, producers will always have the upper hand because they in a better position to see the value of the minerals ahead of landowners and can take steps to try to protect their mineral rights before landowners realize that there may be issues.
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For many landowners in southeastern Ohio, the minerals under their land are the most important asset they will ever own. Landowners should police the oil and gas activity in and around their property to ensure their mineral rights are preserved and protected. Landowners are encouraged to watch for warning signs and, if anything seems suspicious, to consult an experienced oil and gas attorney as soon as possible. Finally and most importantly, landowners should never sign any documents relating to their minerals without first having them reviewed by an attorney.
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Utica Shale Academy has Second Graduation Rhonda Reda
he number of graduates is growing at the Utica Shale Academy. Members of the Utica Shale Academy Board of Directors was to confer degrees to 18 seniors during commencement on May 26, preceded by a dinner for the graduates and their families. Keynote speaker will be Rhonda Reda, executive director of the Oil and Gas Energy Education Program and Ohio Oil and Gas Energy Education Foundation.
Reda helped form the organization in 1997. Prior to that, she served as vice president of internal affairs and public information for the Ohio Oil and Gas Association for more than a decade and had worked for several oil and gas companies including CGAS Exploration, Inc., Philip Brown Oil Well Services, Inc., and Halwell/Energy Omega, Inc. Collectively, she has more than 26 years of experience in the crude oil and natural gas industry. Reda also serves on the Public Outreach Committee of the Interstate Oil and
Gas Compact Commission and the Communications Committee for the Independent Petroleum Association of America. She is an active member of the IPAA, the Society of Petroleum Engineers and the Ohio Geological Society. She has received numerous state and national awards and accolades for OOGEEP’s efforts including the Ohio Oil and Gas Association’s Oilfield Patriot Award, the American Association of Petroleum Geologist’s Eastern Section’s
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Presidential Award for Public Outreach, the Environmental Protection Agency’s Ohio Environmental Education Award for Outstanding Program, and the IOGCC’s Public Outreach Stewardship Award, to name a few. Director Eric Sampson said the number of graduates has increased by eight people, and now they will head out into the world with an advantage in the workforce. Between guest speakers from the industry to visits to area rig sites, students have been getting schooled on what the energy field is about. They have also gained certification that goes a long way when working in the business. “We went to a rig site in Piedmont, had lectures from Brian Logue [of Express Energy LLC] , and students received OSHA 10 training, plus we took a field trip to West Virginia Northern Community College to look at their associate degree program,” Sampson added. “We have also applied for Industry Credential Certification and are waiting for approval. If students earn certification through the Utica Shale Academy, they can do work assessments in reading and math through the state as an alternative to taking AIR and Ohio Graduation Tests to graduate.”w
International Association of Drilling Contractors certification, which includes Drilling Instructors Training, WellSHARP, and Safety RigPass. The Utica Shale Academy is a tuition-free program that incorporates traditional high school subjects and specialized courses relevant to the energy industry. Sponsored by the Jefferson County Educational Service Center, the program provides flexible scheduling and blended learning to students statewide in grades 9-12, as well as hands-on activities. Pupils will also be eligible for oil and gas-specific certifications so they can leave high school ready to enter the job market. Now wrapping up its second year, the Utica Shale Academy has a total of 70 students between its main site at Southern Local and a satellite site at Columbiana High School. Registration has begun for next year’s program. For more information about the Utica Shale Academy or its satellite location, contact Sampson at (740) 679-8162, or go to the website at uticashaleschool.com.
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What It Is and What It Is Not When Talking about Oil and Gas Frank McClure • JD, AEP, Counsellor at Law
hen I was thinking about what I would write about this month I thought I should review and clarify what asset protection is and what it is not. This may be concerning your bonus money, if that is where you are in the leasing process or it may be protecting your royalty interests. So with that in mind let’s begin with what asset protection is:
avoiding governmental reporting requirements; in fact many asset protection strategies are both tax neutral; and may result in increased tax reporting requirements;
Asset protection simply is any strategy, tool or action taken or implemented to protect, preserve or enhance one’s assets or those of or for a beneficiary(s). I will use the analogy that I have used before which is that asset protection in some ways can be considered similar to building a structure around a treasure that you own. What might you do with your treasure? You might put it into a chest for safekeeping. Then you might put a lock on the chest. Then you might put the chest into a vault. Then you might build a castle around your vault. Then you might put a moat around the castle. Hopefully this will give you a great picture in your mind as to what asset protection planning is. All we are doing is adding additional barriers and protections to safeguard your treasure (your assets). Each level is another obstacle, which the creditor must find a way to get through or around to get to your treasure. By using proven, simple techniques and strategies you can create different levels of protection for your assets.
5. Asset protection is not always about “going offshore to exotic tropical locations,” but, instead, it may be about reviewing which one of the 50 states offers the best case law and state statutory law for asset protection; and Ohio now has one of the best asset protection statutes;
If that is what asset protection means, then what does it not mean? Here are some examples of what asset protection isn’t:
4. Asset protection is not about concealing assets from creditors or hiding assets from the U.S. government; it’s about following the proper reporting procedures that are required by U.S. law;
6. Asset protection is not about circumventing the law or doing something illegal, or being involved in secret strategies or cookie cutter asset protection promotion schemes; it’s about properly interpreting and following the law.
“By using proven, simple techniques and strategies you can create different levels of protection for your assets.” — Frank McClure
When reviewing asset protection and your needs concerning your oil and gas bonus money or royalty interests, it is important to remember what it is and it is not. It is also important to seek out an attorney who deals in this area of the law. Like estate planning this is a very specialized area and you need to be talking to someone 2. Asset protection is not always about elaborate tax and who concentrates their law practice in this area. legal structures; in fact, some of the most effective asset protection strategies are the least complicated, most If you would like more information about asset protection and fundamental and least expensive; estate planning or to review my past articles concerning asset protection, please go to www.fmcclurelaw.com, our contact our 3. Asset protection is not about always avoiding taxes or law firm. 1. Asset protection is not just for the wealthy or for high net worth earners; it is for all wage earners and individuals with any type or form or amount of assets which they may wish to protect or preserve;
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Global Oil Glut Softens Impact of
Alberta Oil Sands Wildfire Jacob Runnels
n May 1, a wildfire erupted in the oil sands of Alberta, Canada, which starting May 3, forced residents of Fort McMurray to leave in the largest firerelated evacuation in Alberta’s history. Fort McMurray is positioned near oil sands, where Suncor Energy Inc. developed a plant to extract crude oil. As of this writing, firefighters are still combating the flames and residents won’t be returning to their homes until June 1 (from Alberta Premier Rachel Notley) (http://bit.ly/1TI2OdZ). In an article by CBC News (http://bit. ly/1XFxK4h), Bank of Montreal (BMO) economist Robert Kavcic said “as much as 500,000 barrels per day is now offline,” and BMO analyst Tom Mackinnon said the fires “could potentially lead to $9 billion in insured industry losses.”
“In terms of global oil prices, it had a limited and passing impact,” said Jim Burkhard, vice president and head of oil market research for IHS Energy. “We’ve had disruptions in Kuwait and Nigeria so [the disruption in Alberta] was not a particularly unique or profound development in the global oil market. For the people in Fort McMurray… the human impact... was very severe. In terms of the global oil market, it’s not something that is going to have a significant or enduring impact unless the fires return.”
Burkhard said the existing oil glut is what’s influencing the oil market now because there is less investment compared to two years ago, when gas prices were significantly higher than they are today. He said because there’s so much supply, short-term disruptions like the Alberta won’t make a lasting impact, as the “wellBut what about the economic impact supplied market” can “absorb disruptions everywhere else because of the reduced like this without shooting the price skyamount of crude oil being exported? high.” According to the U.S. Energy Information Administration (EIA), America imported He said losing as much as 500,000 barrels in more than 41 percent its crude oil from production a day for a month would only Canada in 2015. have a limited impact on the global market.
“There is still plenty of supply but that is changing and we’ll be in a different situation that will be changing over the next year,” he said. “When you have low oil prices, people invest less in producing oil and they consume more; it’s just the forces of demand and supply.” Due to the glut, there are contributing forces, such as Saudi Arabia’s new energy minister continuing the country’s interest of keeping oil prices low, (http://cnb. cx/1T0Twda) that will make disruptions like the Alberta fires have a small impact. What will also contribute to the oil glut is the oil-rich Iran, which had its financial sanctions lifted earlier this year (http:// cnnmon.ie/1ljpfM1). “The new minister is expected to continue Saudi Arabia’s strategy of producing significant amounts of oil to maintain market share,” said Michael Green, director of public relations for AAA. “Iran is looking to increase its production significantly in order to compete with market share with other major producers.” These disruptions will have a smaller impact on the global price of crude oil because of other countries contributing to the glut, but it’s not the same in America. Green said because Canadian oil prices will temporarily rise due to the lack of production, it is “most likely to affect drivers in the Great Lakes region and give them higher gas prices.” He said the Great Lakes states import crude oil from Alberta because “it’s relatively cheap crude oil they can get from Canada [and] t’s abundant as well [as] it’s generally a pretty steady supply.” He said the low prices, as well as the lack of “political problems… from other oil producing countries” keep Albertan oil a favorable
investment, but the wildfires have prompted Great Lakes states to coming from other parts of the world, which has led to a soft “get oil from other places,” which serves as a backup plan in the landing… compared to where we would have been in years past.” event of oil disruptions. Even though the fires have made somewhat of an impact in “Great Lakes refineries, many of them, are paying more for crude America, CME Group predicts global crude oil prices will continue oil than they previously were,” he said. “There are no shortages to decline until August, 2017 (http://bit.ly/1lmnTff), at the time of of oil or anything like that, but the costs have gone up and that this writing. The wildfires have put a strain on Canada but it looks makes the price of gasoline more expensive for U.S. drivers in the like America won’t receive the full brunt of the damage. Great Lakes region.”
Green said he hasn’t seen “anything particularly troubling” in the Great Lakes region, but gas prices in those states will still go up. However, compared to oil prices two years ago, he said “the cost of fuel is still relatively inexpensive.” “Given the fact that oil supplies are still relatively high, even with the decline in canadian production, drivers are paying less,” he said. “Fortunately, we’ve seen a significant increase in crude oil production in the United States and there’s a glut of crude oil GasandOilMag.com
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According to information from GasBuddy.com, each Great Lakes state has seen an increase in the average retail price for a gallon of regular gas from May 1 — when the fires started — to May 20, the time of this writing. The price differences range from as low as a 6-cent increase in Illinois, New York and Pennsylvania to as high as a 13-cent increase in Minnesota.
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