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Ohio Utica Shale

Background on Ohio's unitization rules for drilling

By Bob Downing Published: January 12, 2014

Unitization:

 

Action of last resort in the drilling industry, in which companies gain permission to tap the mineral rights of property owners who object.

Purpose:

 

The goal of the statute is to balance the competing property rights of the landowners within a drilling unit, to prevent waste and to allow drilling to occur when appropriate. Unitization is about gathering all the mineral rights for a specific portion of gas-oil resources and bringing its development under common control.

Rights issue:

 

When property owners want to tap and profit from their mineral rights, they are deprived of that right if nearby opponents are not forced to join the drilling unit; opponents say it forces them into a business arrangement or creates risks they do not want.

Property protected:

 

State and gas officials say the law guarantees fair compensation and that the properties of unwilling landowners won’t be damaged. Under the state rules, there can be no surface operations, roads or pipelines on the unleased properties.

History:

 

Became law in 1965 in response to a vertical drilling boom in Morrow County between Mansfield and Columbus. The law helped establish spacing rules and reduce over-drilling in an area where wells were drilled in close proximity. Until 2011, the law was invoked only twice.

To qualify for unitization:

 

A horizontal well requires a minimum 640 acres of surface land. Owners of 65 percent of the land within the area to be tapped must have signed leases to their mineral rights for the unitization proposal to be considered.

Process:

 

The driller pays a $10,000 fee to the Ohio Department of Natural Resources for consideration. A panel holds a public hearing and the ODNR renders a decision. Appeals go to the Ohio Oil & Gas Commission, comprised of persons appointed by the governor. Further appeals can be made to Franklin County Common Pleas Court.

Payment methods:

 

Payment to unwilling landowners differs from payment to willing landowners. When unitized, opponents without standard leases can choose to become working-interest owners or non-participating working-interest owners.

Working-interest owners become well partners. They pay projected costs to drill and complete the well based on their percentage of property in the unit. They are responsible for their share of up to 200 percent of each well’s cost, which ranges from $7 million to $10 million. Those costs are subtracted from royalties, which are payments from well production, pro-rated to the percentage of ownership. In addition to the royalty, participants receive a proportionate share of the net revenue interest when the well begins producing.

The other option is the non-participating working-interest owner. There is no prepayment of well costs. Instead, the well owner carries the property owner’s working interest expenses and deducts those pro-rated costs from the well’s revenue. That may include deductions of up to 200 percent of each well’s cost and of up to 600 percent for not participating in the upfront drilling risks. Payments of landowner royalty begins with production. The participant does not gain working interest until the carried well costs and risk-factor costs have been recovered.

By Bob Downing

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Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.