Eastern Ohio is in the midst of a rush of natural resources development which presents both remarkable opportunities and challenges for the State of Ohio and its businesses and residents.  The development of the Marcellus and Utica shale gas, natural gas liquids (“NGL’s”) and oil resources will require the drilling and development of wells, the storage, transportation and disposal of substantial quantities of brine and flow back water, the construction and operation of roads, pipelines and railroads to transport equipment and product and the capability to maintain this infrastructure.  Ohio took a significant step toward establishing a proactive framework for regulating these activities by enacting Senate Bill 315 which was signed by Governor Kasich on June 11, 2012.

Although S.B. 315 addressed a range of natural resource and energy issues, this blog entry will highlight three significant components of S.B. 315: 1) protection of water resources; 2) the use of substances and fluids used and produced in hydrofracturing; and 3) standards for the construction of natural gas and NGL pipelines.

Protection of Water Resources

In recognition of the larger surface and subsurface footprint and impact of horizontal drilling, Section 1509.06(A) requires well owners to identify in any application to drill an oil and gas well the estimated quantity and the source of water to be used in exploration and production operations.  We expect that the substantial quantities of freshwater used in horizontal drilling operations will be increasingly important, particularly as much of the country faces recurring drought conditions.  Ohio Revised Code (“R.C.”) Section 1509.03(A)(2) specifically directs the Ohio Department of Natural Resources (“ODNR”) to establish by rule permit conditions which address the amount and source of water used.  The development of cost-effective recycling options to avoid the permanent loss of freshwater resources will be a priority.  

Applicants proposing to drill horizontal wells must sample all existing water wells within 1500 feet of the proposed wellhead prior to drilling and must provide the results to ODNR.  This sampling will provide a baseline from which to measure potential impacts to groundwater from drilling and production activities.  If the owner of the well will not allow sampling, the location of the relevant well must be provided to ODNR.

Disclosure of Composition of Hydrofracturing Fluids

The chemical formulation, use and disposal of hydrofracturing fluids remain an issue of substantial public concern and media coverage.  S.B. 315 established new requirements for the disclosure of the composition of materials used in the hydrofracturing process. 

For example, R.C. Section 1509.10(A)(9) requires the disclosure of the trade name and total amount of all products, fluids and substances (and the relevant supplier of each) to be disclosed along with the purpose for which the additive is used within sixty (60) days after completion of drilling operation.  If a recycled fluid was used, the owner must disclose the total volume of recycled fluid used and the well or other facility that is the source of the recycled fluid.  This requirement applies to fluids used in both drilling and hydrofracturing. ODNR will maintain a database of all chemicals reported.  Substantial trade secret protections are provided in the statute; provided, however, that adversely affected third parties may bring an action in Franklin County Common Pleas Court challenging the claim of trade secret protection.

Natural Gas Gathering Lines

Senate Bill 315 also clarified siting and construction requirements applicable to natural gas gathering and transmission lines and certain NGL processing facilities.  Importantly, S.B. 315 establishes certain design and construction standards applicable to natural gas gathering pipelines and processing plant gas stub pipe lines.  These requirements generally incorporate these standards set forth in the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) as set forth in Title 49 Chapter 192 of the Code of Federal Regulations and include inspection, marking, construction standards, record keeping, etc.  Although formal siting and construction approval of the Public Utilities Commission of Ohio (“PUCO”) is not required, the pipeline operator must file certain information with the PUCO prior to construction and file the final pipelines route and operating information to the Commission within sixty (60) days after completion of construction.  Importantly, S.B. 315 confirmed that most natural gas gathering systems and processing plants will not be considered major public utilities subject to siting approval by the Ohio Power Siting Board (“OPSB”).  See R.C. Section 4906.01(B)(2).  Gas pipelines that are greater than five hundred feet in length and are more than nine inches in outside diameter and which are designed for transporting gas at a maximum allowable operating pressure in excess of 125 pounds per inch are considered major utility facilities which remain subject to the lengthy OPSB approval process.

Later blog posts will discuss additional aspects of S.B. 315 which range from the availability of renewable energy credits (“REC’s”) for combined heat and power systems and new permitting and operations requirements for Class II underground injection wells.