On Monday, July 11, Governor John Kasich signed Senate Bill 315, which ushered in broad new requirements governing hydraulic fracturing and unconventional drilling operations in Ohio, which is home to portions of the Marcellus and Utica Shale formations.   The broad rules amend Ohio Revised Code Chapter 1509 to specifically define “horizontal drilling” and to cover a broad spectrum of issues, including chemical disclosure, water use/origin disclosure, and well construction requirements.  Perhaps most significantly, however, is what was not covered by the rules: Governor Kasich has been loudly advocating for a severance tax on high-producing fracked wells to fund his income tax relief efforts.   Lawmakers opted to leave out the severance taxes due to concerns about the impact of such taxes on O&G investment in the state and because the concept of targeting the tax burden to certain operators based on output and formation faced legal headwinds and, in practice, could create delineation problems.  Nonetheless, while the Governor’s severance tax program failed to make the cut, he still was able to sign a bill that made some meaningful changes to Ohio’s O&G rules.  Here are some highlights:

Chemical Discloure

Ohio is following in the steps of several other states and, potentially, the U.S. Bureau of Land Management, in requiring the disclosure of the components of fracking fluids.  Well owners must disclose, either in their well completion report or through www.frackfocus.org, trade names, volumes, and concentration of chemicals used to stimulate the well or otherwise intentionally added to the fracking fluid and must use “reasonable efforts” to obtain such information from service companies.  The disclosures, while broadly applied to many types of constituents of fracking fluid, are subject to a fairly broad trade secret exemption that permits the protection of components’ “identity, amount, concentration, and purpose.”     Medical professionals treating or diagnosing individuals injured or sickened from fracking fluid exposure during a production-related incident may have the trade secret prohibitions lifted, but must maintain confidentiality.

Permit Applications

Complete permit applications for O&G drilling will now require: (1) approval from an applicable local official to preserve the safety and integrity of roads; (2) identification of each proposed source of ground water to be used in production and an estimation of the rate and volume of such withdrawals; (3) the estimate volume of recycled water (if proposed to be used); and, (4) water sample results for each well within 1,500 feet of a horizontal well (300 feet for vertical wells).

Injection Wells

Not surprisingly given the seismic activity that has been attributed to injections wells, the rule writers sought to bolster Ohio’s underground injection control requirements. The law requires injection well owner to electronically report each shipment of brine or other waste received for injection and requires ODNR to promulgate rules establishing the depth of injection wells as well as any other procedures and requirements necessary to protect public health and safety.

Gathering Lines and Pipelines

The law’s upstream and mid-stream transmission regulations have evaded most of the headlines but are worth noting.   The new law, for the first time, requires gas gathering pipelines (generally, the lines running to the gas processing plant) and processing plant gas stub pipelines (generally, the lines from the processing plant to the transmissions line) that transport gas from horizontal wells to meet federal safety standards for gas pipelines.  These federal requirements include robust design, installation, siting, inspection, and testing standards.  They further require significant maintenance and operation standards including corrosion control requirements, maximum pressure limits, leak detection systems, and marking and other damage prevention programs.

Fracking Insider Bottom Line

The bill signed into law on Monday by Governor Kasich meaningfully regulates hydraulic fracturing from preconstruction to transmission.  The drafters appropriately addressed the key themes of disclosure, groundwater protection, water withdrawal management, and safety.   While some activists will bemoan the trade secret protections and other aspects of the law, they cannot argue that states are failing to exercise their authority to regulate hydraulic fracturing operations within their borders.

Indeed, the virtue of state-level regulation is that those closest to the action can craft laws and regulations that reflect the unique geological and hydrological conditions within their state.  Ohio did just that here.  Out of concern for local seismic activity that has been attributed to waste injection wells, Ohio stepped up to further regulate those injection wells.  Federal regulators take note:  one size does not fit all in Ohio.