Ohio Fracking Review: March 2012

March broke the record for new natural gas permits, with the Ohio Department of Natural Resources approving 37 wells, ahead of the 27 in February and 19 in January. Last year’s 100 permits is set to be quickly surpassed in the coming weeks, with 83 permits issued in the first three months of 2012 alone.

These new permits bring the total to 194 permitted wells in Ohio, of which 19 are drilling, 37 are drilled, 11 are producing, and 12 are completed. Carroll and Columbiana Counties were the most sought-after locations, with 12 and 8 permits approved respectively. Once again, Chesapeake Energy proved to be the dominant player in the industry, adding 29 new permits to its portfolio in March.

As part of his new (mid-annum) budget plan, Governor Kasich introduced a number of fracking proposals, including provisions for baseline water supply testing that resemble recommendations made by Innovation Ohio earlier this year.

Governor Kasich also proposed a decrease in the natural gas severance tax and a modest increase in the gas liquids tax to 4%, a rate that still leaves Ohio behind other states like Texas (7.5% for natural gas and 4.6% on gas liquids).  A new report released by ODNR on April 3 offered a first peak into the performance of Ohio’s natural gas wells, and more importantly, allows us to make accurate estimates of potential tax revenue under the current and proposed plans. The data indicates that the Ohio shale is producing much less oil and much more natural gas than previously estimated, further highlighting the weakness of the Governor’s tax changes

The estimated $500 million generated by the Governor’s new tax plan would be reallocated to fund an across-the-board tax cut that would largely benefit the wealthiest Ohioans, even as local governments struggle to close gaps left by last year’s state budget cuts.

Adding to the budgetary woes of local governments, the Kasich administration has also proposed a revenue neutral impact tax on oil companies, $25,000 fee per well, which could be offset by a reduction in local property taxes. Although the idea of holding oil accompanies accountable for the damage their equipment does to local roads makes sense, Kasich’s plan will not provide relief for cash-strapped local governments.

Last month, legislators began discussion on Senate Bill 315, a plan to double the “brine tax” on Ohio injection wastewater to 10 cents per barrel, and to increase the fee on out-of-state wastewater from 20 cents to $1. Concerns over the disposal of industrial wastewater flared up earlier in the month, when a state report concluded that a disposal well in Youngstown triggered a dozen earthquakes in less than a year.

The environmental concerns surrounding this wastewater disposal are obvious, and the alternatives are not much better. The Ohio EPA placed restrictions on wastewater retreatment in the city of Warren, over concerns that the process could produce cancer-causing chemicals.