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The Muskingum Watershed and Utica Shale Water Demands

Ohio Utica Well Water Usage

Figure 1. Ohio Utica well water usage across 306 wells (Gallons Per Well)

How much freshwater has the unconventional drilling industry used to-date?

By Ted Auch, OH Program Coordinator, FracTracker Alliance

Given that Ohio’s largest conservancy district, the Muskingum Watershed Conservancy (MWCD), is considering the sale of large stocks of freshwater and deep mineral rights to the Utica Shale drilling industry, we thought it would be helpful to take a “back of the envelope” first look at how much freshwater the gas industry has already used within the basin and how much it might use given current permitting trends.

Background

But first a little background… The MWCD is an 18 county political body that encompasses the Muskingum River basin in its entirety – roughly 19% of the state’s landmass (Figure 1). The Muskingum River Watershed (MRW), Ohio’s “largest wholly contained watershed,” contains nearly 19% of OH’s wetlands and 28% of the state’s lakes and reservoirs (Table 1).

Table 1. The number, minimum/maximum size, total area, and mean (±) size of wetlands, lakes, and reservoirs in the Muskingum River Watershed (MRW)

#

Min

Max

Sum

Mean

±

Wetlands (acres)

MRW

25,529

0.014

507

98,924

3.87

12.01

Ohio River

134,736

6.9*10-5

1,500

507,312

3.77

13.94

MRW as % of Ohio

18.9

202.9

33.8

19.5

102.7

86.2

Lakes & Reservoirs (miles2)

MRW

25

0.35

5.5

44.6

1.78

1.5

Ohio River

91

0.15

5,014

5,545

61

523

MRW as % of Ohio

27.5

233.3

0.1

0.8

2.9

0.3

The sustainability of the watershed’s freshwater stocks and flows is of concern to many, given climate trends and the fact that the MWCD, according to their website, is “…awaiting results from a U.S. Geological Survey analysis of water availability at several other reservoirs before deciding whether to approve a growing number of requests for water by other drilling companies.”

Water Use Trend

Our methodology examined rainfall, evapotranspiration, and usage of water by forests, crops, and humans. “When we account for all of these usages, as well as unquantified usages like watershed discharge and soil holding capacity, the remainder is what I will call available water.”

According to our analysis of 306 drilling, drilled, or producing OH Utica gas wells, the hydraulic fracturing process requires on average 4.6-4.8 million gallons of water per well(2). This is equal to 2.8-2.9 billion gallons of water to-date for the watershed’s 613 wells or 4.5-4.7 billion gallons across the state’s currently permitted 985 wells (Figure 1).

After looking at water use from this industry, the following water usage scenarios emerge:

  1. For just Muskingum Watershed gas wells – water use is equivalent to 2.47% of the watershed’s “available water” assuming a low discharge scenario, 2.50% for a medium discharge scenario, and 2.56% for a high discharge scenario.
  2. For all Utica gas wells in Ohio – water use is equivalent to 3.97% of the watershed’s “available water” assuming a low discharge scenario, 4.02% for a medium discharge scenario, and 4.11% for a high discharge scenario.
Put another way, these volumes equate to 4.44 and 7.14% of Muskingum Watershed residences’ total annual water usage.

A year from now – assuming two Utica permitting trajectories(3) – our calculations resulted in the following estimates:

(Note: The below projections assume the entirety of Ohio Utica wells permitted to date or 985 permits and an increase in Utica Well water usage of 220,329 gallons per quarter(4).)

  1. 25 permits per month for the next 12 months – equivalent to 5.40, 5.47, or 5.59% of the watershed’s “available water” by November 2014 when added to the currently utilized water detailed in part 1 above. This will be equivalent to 9.70% of human water usage in Ohio.
  2. 51 permits per month for the next 12 months – equivalent to 6.90, 7.00, or 7.14% of the watershed’s “available water”. This will equal 12.40% of human annual water usage in the watershed.

Ohio vs. Other States

Total horizontal drilling water usage across 59 Counties in 6 US states.

Figure 2. Total horizontal drilling water usage across 59 Counties in 6 US states (1*105 m3)

To put OH into perspective, we decided to compare the above water usage across 19 OH counties to identical data for 40 counties in 5 other states. In doing so we found that each county’s horizontal well stock has used an average of 2.82*105 m3 of water to date or 3,912 swimming pools and 119 golf course acres worth of irrigation, with the latter equivalent to 1.53 US golf courses. Six of OH’s counties come in over this average and the remaining thirteen below. Meanwhile, 10 of neighboring West Virginia’s 19 counties exceeded 2.79*105 m3 of water. OH and WV horizontal well water usage averaged across counties exceeds the Six State*Fifty-Nine County continuum average by 0.13 and 1.48*105 m3 of water, while the remaining four states fall short of the average by 2.02*105 m3 (Figure 2).

Total water usage across the 59 counties turns out to be a robust predictor of how the industry’s water needs relate to general public water usage accounting for 78.4% of the latter (Figure 3). However, this relationship isn’t as straightforward as one might expect – requiring a statistical technique called log transformation which is generally applied by statisticians to data that is “highly skewed…This can be valuable both for making patterns in the data more interpretable and for helping to meet the assumptions of inferential statistics.” Due to the “skewness” of this data set, the average and median industry water usage as a percent of the general public is 1.40% and 11.83%, respectively.

Horizontal drilling water Vs General Public's Water Requirements across 59 Counties in 6 US states.

Figure 3. Total horizontal drilling water usage across 59 Counties in 6 US states relative to the general public’s water requirements (1*105 m3)

OH Inter-County Utica Water Usage By The Numbers

Hydraulic Fracturing Industry Yearly Water Usage

  • Per well – 5.29 million gallons (Note: This is increasing by 149-220K gallons per quarter)
  • Total water usage is increasing by 36.993 million gallons per quarter, which means that within 5-6 years the industry will be using more than 1.1 billion gallons of freshwater per year
  • Per Square Mile – 10,355 gallons
  • Per Capita – 138 gallons Per Well Per Person; 2,612 gallons Per Person
  • Per Household – 358 gallons Per Well Per Household; 6,674 gallons Per Household
  • Per Well Foot – 821 gallons
  • Water Costs Per Well – $21,494 (Per capita resident water costs are $107.86 per year)
  • Water Usage as a % of Total Well development and production costs – 4.41%
  • The Ratio of Water as a % of Total Materials Used Per Well To Water Cost Per well – 27.25

Resident-to-Industry Ratios

  • a. Per Capita Resident Water Usage Per Year as % of Per Well Usage – 0.87%
  • b. Per Capita Water Cost Per Year as % of Utica Well Water Cost – 10.05%
  • Ratio of (b) to (a) – 11.86

References

[1] “The Muskingum River Watershed is comprised of three major subwatersheds – the Tuscarawas River Watershed in the northeastern, the Walhonding River Watershed in the northwest and the Lower Muskingum Watershed in the south. The Tuscarawas and Walhonding rivers flow in a southern direction where they intersect at Coshocton, forming the Muskingum River.” Learn more

[2] The median per well volumes required in Oklahoma range from 3.0 million gallons for the state in totol to 4.2 million gallons for the state’s Woodford Shale horizontal wells according to a study by Kyle Murray at the University of Oklahoma.

[3] The two trajectories assume 25 and 51 permitted wells per month based on the entirety of Ohio’s Utica permitting period back to September, 2010 and the current 2013 year-to-date average, respectively.

[4] This number increases to 339,812 gallons per quarter if we remove Q3-2013 where our data is admittedly incomplete relative to the previous eight quarters. We did not include Q3-2010 or Q1 and Q2-20111 in our extrapolation because we only have data for 1, 2, and 2 wells, respectively.

[5] Mekonnen, M M, & Hoekstra, A Y. (2010). The green, blue and grey water footprint of crops and derived crop products Value of Water (Vol. 47). New York, NY: United Nations Educational, Scientific and Cultural Organization – Institute for Water Education (UNESCO-IHE).

[6] Sanford, W E, & Selnick, D L. (2013). Estimation of evapotranspiration across the conterminous United States using a regression with climate and land-cover data. Journal of the American Water Resources Association, 49(1), 217-230.

Utica well water and chemical usage in-depth: Part I

By Ted Auch, PhD and Daniel Berghoff

Our Ohio intern and I have been working to compile complete water and chemical usage data for Ohio’s horizontal Utica wells. At this point we have an inventory for 248 wells and thought it would be helpful to present our initial analysis.

Water Use

Million gallons per fracked well interval range for 248 horizontal Utica wells.

Figure 1. Million gallons per fracked well interval range for 248 horizontal Utica wells. Click to enlarge.

The Ohio Utica wells are using 4.4-4.6 million gallons (±1.6 MG) of water per fracked well1 (Fig. 1). On the low end of the range are the 93,402-533,412 gallons for the Onega Commissioners 14-25H (PDC Energy), Kernich 3-10-2 1H, and Starkey 36-13-4 5H wells in Guernsey, Columbiana, and Carroll Counties, respectively; the latter two are owned by Chesapeake Energy. On the high end are the four 10 MG+ Antero and Anadarko wells in the counties of Monroe, Muskingum, Noble, and Coshocton (Fig. 2).

Excluding Carroll County – where this water usage is equivalent to 63% of the county’s per capita annual water usage – the Utica wells have used 1.2 billion gallons of water or 3.2% of the population’s annual water demands2. When the state’s additional permitted wells come online they will require an additional 2.5 billion gallons of freshwater…

Put another way, Ohio Utica water usage in five years – assuming 25-52 permits per month3 – will amount to 6.1-12.8 billion gallons per year.

Ohio’s drilling, drilled, and producing Utica wells and average water usage per well interpolation.

Figure 2. Ohio’s drilling, drilled, and producing Utica wells and average water usage per well interpolation. Click to enlarge.

The volume of material injected into each well is 80±6% freshwater (4.1 million gallons) and 7±4% recycled water (373,783 gallons) (Figs. 3 & 4, below). Of the top 20 wells utilizing the highest percent of freshwater, Anadarko and Antero operate 14 of the wells. With respect to recycled water, the only corporation utilizing recycled water is Chesapeake accounting for all 152 wells, with a range of 13,471 4 – 966,412/1,015,826 gallons5 recycled water (Fig. 2, right). A quarter of Ohio’s drilled, drilling, or producing wells – along with the other 12 firms we have data for – do not utilize any recycled waters, however. Currently Ohio’s Utica wells are producing 1.4-11.1 or 1.7-1,063 barrels of brine per barrel of oil depending on whether you choose to incorporate into your calculations the eight wells that have only reported brine numbers to date all of which speaks to its place on nascent Energy Return On Energy Invested (EROEI) league tables. Learn more>

Chemical Utilization

Utica wells are using Hydrochloric Acid (HCl) ranges of 0.12-0.36% per well. However, due to the fact that the strength of this reagent is not required for each well knowing the percentage of HCl – which is one of six “Strong Acids”6 – is relatively useless; HCl’s molarity/concentration determines its corrosive and acidifying capabilities as defined by the International Union of Pure and Applied Chemistry’s (IUPAC) Gold Book. As such, requiring firms to report the concentration of the HCl utilized on a per well basis should be a component of the reporting process especially given that these percentages translate to 5,351-16,350 gallons of HCl per well– nontrivial amounts by anyone’s standards.

Frac Sand

Ohio’s Utica wells have used 703,080 tons of sands with a market value of $46.87 million7. See Table 1 for a more detailed breakdown.

The per-well origin of these frac sands is an additional unknown variable that would assist in understanding the flows of materials into the state and within the state given that:

  1. Ohio is home to one of the major players in the north American frac sands industry Fairmount Minerals;
  2. the origin and texture of frac sands determine their ability to result in silicosis – already 10 times higher in hydraulic fracturing workers – on and around fracking operations; and
  3. states such as Minnesota and Wisconsin (Click here for 2012 Wisconsin DNR “Silica Sand Mining in Wisconsin” report) and to a lesser degree Kansas, Iowa, and Illinois are claiming that their frac sands are smaller, more uniform, and rounder.

Just like the concentration of HCl, we need to have access to frac sands sourcing in order to fully understand the industry’s footprint and trajectory outside of the “shale plays.”

Table 1. Summary sand usage and chemistry statistics for 248 horizontal Utica wells
Constituent Mean Median +/-

Percent freshwater water per fracked well interval range for 248 horizontal Utica wells.

Figure 3. Percent freshwater per fracked well interval range (248 horizontal Utica wells). Click to enlarge.

Percent recycled water per fracked well interval range for 248 horizontal Utica wells.

Figure 4. Percent recycled water per fracked well interval range (248 horizontal Utica wells). Click to enlarge.

Grain Size (μm) Sand Usage Per Well (Tons)
106-212
212-425
300-600
425-850
1,406
1,269†
5,320
2,267
737

5,371
1,499
4,872

1,374
1,858
– – – – – – – – – – – % of Total Frac Fluid – – – – – – – – – – –
Petroleum
Polysaccharides
Guar Gum
Proprietary Polymers
Surfactants
Crystalline Silica
Gelling Agents
0.090
0.1034
0.172
3.47
0.029
0.029
0.511
0.084
0.1021
0.070
0.07
0.003
0.003
0.145
0.042
0.0247
1.22
12.96
0.061
0.060
3.80
† Only one well reported using 212-425 mm sands

Endnotes

  1. To put these volumes in perspective, a complete inventory (n= 411) of neighboring West Virginia horizontal wells, we find that their wells are using 5.39-5.49 MGs per well with 85.8-88.0% freshwater and 8.00-9.28% recycled water – or 9.2-11.0 freshwater-to-recycled water ratios. Additionally, WV wells are using 0.76-0.094% HCl and 8.38-10.29% sands. Meanwhile across sixteen Michigan wells, water usage is quite variable with an average between 369,349 and 4.23 MGs, along with 87.85-90.69% freshwater, 0.56-0.79% HCl, and 8.05-8.80% sands.
  2. Assuming 90 gallons of water usage per capita per day. Reference: USGS
  3. The 25 and 52 permits per month values are the monthly average since the first permits were issued here in Ohio in September 2010 and the 2013 monthly Ohio average, respectively.
  4. Fligiel 29-12-5 12H well
  5. Lozier 14-15-5 8H and Bucey Bucey 3H wells, respectively.
  6. Sulfuric Acid H2SO4 is the only common acid that is stronger.
  7. Assuming 4-8 million pounds per lateral well. References: ICIS and OAIMA
OH Shale Viewer

OH National Response Center Data on Shale Gas Viewer

By Ted Auch, PhD – Ohio Program Coordinator, FracTracker Alliance

Thanks to the Freedom of Information Act (FOIA), we as US citizens have real-time access to “all oil, chemical, radiological, biological, and etiological discharges into the environment anywhere in the United States and its territories” data via the National Response Center (NRC). The NRC is an:

initial report taking agency…[that] does not participate in the investigation or incident response. The NRC receives initial reporting information only and notifies Federal and State On-Scene Coordinators for response…Verification of data and incident response is the sole responsibility of Federal/State On-Scene Coordinators.[1]

We decided that NRC incident data would make for a useful layer in our Ohio Shale Gas Viewer. As of September 1, 2013 it is included and will be updated bi-monthly. Thanks go out to SkyTruth’s generous researchers Paul Woods and Craig Winters. We have converted an inventory of Ohio reports provided by SkyTruth into a GIS layer on our map, consisting of 1,191 events, including date and type, back to January 2012.


The layer is not visible until you zoom in twice from the default view on the map above. It appears as the silhouette of a person lying on the ground with Skull and crossbones next to it. View fullscreen>

Currently, the layer includes 28 hydraulic fracturing-related events, 61 “Big [Oil and Chemical] Spills,” and 1,102 additional events – most of which are concentrated in the urban centers of Cleveland, Toledo, Columbus, and Toledo OH.

From a Utica Shale corporation perspective, 21 of the 28 reports are attributed to Chesapeake Operating, Inc. (aka, Chesapeake Energy Corporation (CHK)) or 75% of the hydraulic fracturing (HF) events, while CHK only accounts for 48% of all HF drilled, drilling, or producing wells in OH. Anadarko, Devon, Halcon, and Rex are responsible for the remaining 7 reports. They collectively account for 2.7% of the state’s current inventory of unconventional drilled, drilling, or producing wells.


[1] To contact the NRC for legal purposes, email efoia@uscg.mil. The NRC makes this data available back to 1982, but we decided to focus on the period beginning with the first year of Utica permits here in Ohio to the present (i.e., 2010-2013).

Koontz Class II Injection Well, Trumbull County, Ohio, (41.22806065, -80.87669281) with 260,278 barrels (10,020,704 gallons) of fracking waste having been processed between Q3-2010 and Q3-2012 (Note: Q1-2016 volumes have yet to be reported!).

OH Class II Injection Wells – 2012 Year-in-Review

By Ted Auch, PhD – OH Program Coordinator

Ohio is currently home to 242 of what Ohio Department of Natural Resources (ODNR) calls “Active” Class II Injection wells capable of accepting hydraulic fracturing waste1. This is not an accurate reflection of the state’s entire Class II Injection well inventory, which includes 129 Enhanced Oil Recovery (EOR), 82 Annular Disposal (AD), 221 Salt Water Disposal (SWD), 1,987 Temporarily Abandoned Annular Disposal (TAAD), and 57 Salt Mining (SM) wells. These have all been chronicled in our Shale Gas Waste Disposal Network Map (see below).

View Map Fullscreen >

Data Demographics

Ohio Class II Injection Well Volumes and Depth

Figure 1. Ohio’s Current “Active” and “Other” Class II Injection Well inventory, total depth, and depth interval model

The state’s “Active” stock of Class II wells averages 4,434 ± 2,032 feet in total depth with a range of 871 to 13,727 feet and 793,734 linear feet (Figure 1). The two deepest wells are CNX Gas Company’s 10,490 foot well in Warren Township and David R Hill’s 13,727 foot well in Pease Township, both of which are in Belmont County. The state’s 22 ≥7,000 foot wells are spread throughout the state’s eastern quarter2, however, in Washington (5), Summit (1), Stark (2), Portage (1), Mahoning (3), Guernsey (2), Coshocton (1), Carroll (2), Belmont (2), and Ashtabula (3). Meanwhile the state’s shallow Class IIs are predominantly in Tuscarawas (4) and Morgan (3) Counties (Figure 1)3. The state’s deepest Class II interval is home to very few “Active” wells and likewise is devoid of related – but not currently fracking-related injection wells – Class IIs. The state’s primary Class II counties are Morgan, Perry, and Hocking, with 610 of the state’s 1,988 Temporarily Abandoned Annular Disposal (TAAD) Class IIs at a depth of 2,870-4,000 feet. These “Other” Class IIs are the very wells many Ohioans are worried will be called into service for the disposal of fracking waste as unconventional drilling expands in OH, WV, PA, and potentially NY. Additionally, there are early signs of interest in horizontal drilling in Indiana, Kentucky, Illinois, and Michigan. With this growing interest comes concomitant concerns about disposal in those states, with specific foci on Michigan’s Class IIs in its most sensitive aquifers and natural areas and Illinois’ relatively strict drilling regulations.

Class II Geology

Utilizing data generously provided to us by ODNR’s UIC Section analyst Jennifer Gingras, we were able to take a closer look at OH’s current fracking waste story (Figure 2). Most of the “Active” wells lie within primary shale and secondary siltstone geologies, with secondary formations of importance being sandstones and black shales (Figure 3). Silstone, shale, and black shale are the primary geologies (>50% of the formation) underlying 202 of the state’s “Active” Class IIs; whereas the secondary geology (<50% of the formation) of nearly all (228) “Active” wells is either shale or siltstone.

Ohio Class II and Underlying Primary Geology Ohio Class II and Underlying Secondary Geology Ohio Class II Geology Pie Chart
Figure 2. Ohio’s 146 Active Class II Injection Wells that accepted hydraulic fracturing related brine wastes and their associated primary (Left Plate) and secondary (Right Plate) geologies. Figure 3. The primary and secondary geologies of Ohio’s 179 Active Class II Injection Wells as of December 2012

Class II Volumes 2010-2013

From a volume-injected perspective, 1.480 and 1.813 million barrels of waste fluids were received in and out of district, respectively, with averages of 3,096 and 3,793 barrels per well for a total of 3.29 million barrels year-to-date. The highest volumes received were in the Myers Well in Edinburg Township, Portage County well (received 71,116 “In Sector” barrels) and from “Out of Sector” in the Long Run Disposal Well (SWIW #*) in Newport Township, Washington County (received 208,845 barrels) (Figure 4). These two wells injected the most total drilling waste, followed by Ohio Oil Gathering Corp’s Newport Township, Washington County well and Warren Drilling Corp’s (SWIW #6) Jackson Township, Noble County well (Figure 1).

Ohio "In Sector" Class II and Underlying Primary Geology Ohio "Out Of Sector" Class II and Underlying Primary Geology
Figure 4. Ohio’s Active Class II Injection Wells that accepted hydraulic fracturing related
brine wastes from “In Sector” (Left Plate, 145 Wells) and “Out of Sector (Right Plate, 58 Wells) based locations.

Between 2010 and 2013-Q2, OH’s Class II Injection wells have received 35.058 million barrels, 46.6% from “In Sector” and 53.4% from “Out Of Sector”, with per well averages of 68.4 and 78.3K, respectively. The highest volume quarters to date were Q3 and Q4 of 2012, which boasted a total volume of 7.79 million barrels (59% “In Sector” Vs 41% “Out Of Sector”).

OH’s Fab Four Class II Counties

County No. “Active” Class II Injection Wells Yearly Processed Waste (barrels) Per-Well Average (barrels)
Morrow 13 440,040 33,849
Stark 17 745,601 43,859
Ashtabula 14 846,986 60,499
Portage 13 1,608,139 123,702

 

Combined, 34 of these 57 wells received 27% of the state’s total fracking brine waste.

Our “Shale Gas Waste Disposal Network Map” has been updated to include Q3 2010 to Q2 2913 Class II disposal rates and revenue on a quarterly basis.

Ohio Class II Processing Trajectory

Figure 5. Ohio’s quarterly fluctuations in Class II Injection well waste injected between 2010-Q3 and 2013-Q2 in sector, out of sector, and total

The Ohio Class II Crystal Ball

Using a simple statistical technique called linear regression we can do a decent job of projecting future trends in Ohio’s Class II volume story (Figure 5). Using this technique we see that the average amount of waste injected by the state’s Class II wells increases by 147,202 barrels or 4.64 million gallons per quarter. Most of this trajectory is due to “Out Of Sector” fracking waste, explaining 45% of the 67% quarter-to-quarter change attributed to the simple relationship between fiscal quarter and barrels received.

The amount of Class II Injection well waste received here in Ohio will likely double by the first half of 2015 at 68.379-71.711 million gallons and tripled by Q2-Q3 of 2018 (105.031-108.363 million barrels).


References

[1] Two of these wells are missing Latitude-Longitudes according to a search of the Ohio Department of Natural Resources (ODNR) Risk Based Data Management System (RBDMS) database. Additionally, fifty-one of these “Active” wells had yet to receive fracturing waste at the end of 2013-Q1.

[2] Much of the state’s western half is underlain by Karst topography which is susceptible to subsurface erosion due to the fragility of the limestone geology.

[3] Neighboring West Virginia is home to sixty-two Class II Injection Wells, Pennsylvania 805 “Active” Class IIs, Virginia 8 “Active” Class IIs, and Kentucky 82 Class IIs (US Class II Injection Well soon to arrive on FracTracker).

Ohio’s Shale Gas Waste Disposal Network Map Now Online

By Ted Auch, Ohio Program Coordinator, FracTracker Alliance

A complete inventory of Ohio’s Active Class II Injection Wells, as well as Ohio Department of Natural Resources certified Underground Injection Control (UIC) certified transporters, is now available in map form on FracTracker.org (See embedded map below). There is an interest in mapping Ohio’s waste facility network for many reasons; in addition to concerns regarding the spreading of waste on roads, problems with Class II Injection Wells in Youngstown are forcing the state to turn to secondary disposal options.

Shale Gas Waste Disposal Network


To view the map’s full set of controls, including legend, please click on the “fullscreen” button on the map.

Map Layers

In addition to the Class II waste injection wells, the map includes Ohio disposal wells designated for Enhanced Oil Recovery (129), Annular Disposal (82), Salt Water Disposal (221), Temporarily Abandoned Annular Disposal (1,987), and Class II Salt Mining (57).

Active Class II’s have quarter-mile buffering increments from 0.10 to 1.5 miles.On average, Ohio’s active Class II wells are 4,434±2,032 feet deep, with a maximum depth of 13,727 feet. There is a total of 793,734 linear feet worth of active Class II wells throughout the state. Utilizing capacity estimates from current Class II fracking waste well permits in Portage County, Ohio, the state’s active Class II’s are capable of accepting 34.6-97.2 million gallons of fracking waste. However, if we include the state’s aforementioned Class II’s that are not currently being utilized for fracking waste disposal, this capacity estimate jumps to 510.9-1,437.4 million gallons of fracking waste. Such volumes would profoundly affect surface water volumes and flows (i.e., headwater streams and vernal pools), aquifer and sub-surface water chemistry, and the types of issues facing California. [1]

At the present time Ohio’s Utica wells are utilizing 4.2-4.5 million gallons of water and 206,837-261,907 gallons of brine per well with an average of 1.96 barrels of brine produced per barrel of oil. To date Ohio’s 213 reported producing wells have utilized 949 million gallons of water and 681,789 gallons of brine. If the state’s remaining 481 permitted Utica wells produce and utilize water at a similar rate The Utica Play would utilize approximately 3.03 billion gallons of water and produce 113 million gallons of brine all of which would require additional Ohio Class II Injection Well capacity requiring the state to repurpose the existing stock to handle this sizeable increase in fracking fluids, drill cuttings and muds, and related oilfield fluids. Thus, FracTracker felt the need to begin to map the state’s non-shale gas Class II Injection Wells.

The map also shows the locations of current natural gas compressor stations and underground storage tanks, along with the state’s hazardous waste and orphaned landfills. These sites were included in response to the Ohio EPA’s recent advisory suggesting waste landfill facilities begin accepting drill cuttings, drilling muds and frac sands, and related oilfield fluids [1,2].

We also present Ohio’s network of Bulk Transporters, which are charged with transporting related materials.

Acknowledgements

This is an original map from The FracTracker Alliance and was constructed with the assistance of Ohio State University graduate student, Caleb Gallemore, and a selection of students from his GIS Class “Elements of Cartography: Serving the Community through cartography.” It was made possible by information from Bulk Transporter Magazine. [3]


References

[1]  Staff. (2013, May 14). Will Ohio’s Landfills Become a Dumping Ground for Radioactive Fracking Waste? EcoWatch. Read>

[2] See our recent post: Ohio’s Waste Not, Want Not!

[3] Who in their words “is the information source for liquid and dry bulk logistics industry. Written for bulk shippers, transporters, and storage operators, BT is dedicated to providing the latest information on regulations, technological developments, logistics management, and hazardous materials safety. For over 65 years, BT has been a trusted source of information for the bulk logistics industry.”

Land-Use Change, the Utica Shale, and the Loss of Ecosystem Services

By Ted Auch, PhD – Ohio Program Coordinator, FracTracker Alliance

In Ohio, Utica Well pads range in size from 5-15 acres. (Estimates for pipeline and retention ponds are unavailable.) That figure gives us the chance to estimate how hydraulic fracturing influenced changes to land-use, ecosystem services, plant productivity, and soil carbon loss.

Working with Caleb Gallemore and his Ohio State University GIS class, we created a data set that estimated the percent cover for each well pad prior to drilling using the USGS and Department of Interior’s 2006 National Land Cover Database (NLCD, 2006) [1].

Figure 1. Ohio’s original vegetation cover and Utica Well permits as of April 30th, 2013

Figure 1. Ohio’s original vegetation cover and Utica Well permits as of April 30, 2013

Accordingly, the state was and is dominated by:

  • mixed oak (from 12,038 mi2 pre-settlement to 7,911 mi2 today) to the east and
  • maple-beech-birch (from 13,917 mi2 pre-settlement to 2,521 mi2 today) to the west stretching into the southeast and northwest corner of Ohio.

During pre-settlement times additional dominant forest types included:

Since industrialization:

  • The faster growing elm-ash-cottonwood has arisen as a sub-dominant forest type currently comprising 1,237 mi2.
  • Additional sub-dominant forest types comprising 100-140 mi2 of Ohio’s land area include aspen-birch (134 mi2), white-red-jack pine (124 mi2), and loblolly-shortleaf pine (108 mi2).

Our results suggest the average amount of deciduous forest [2] disturbed – as a percent of total well pad area – by well pad establishment is 9.8 ± 5.5% per well pad with a range of 4.7% in Stark and Holmes Counties and a high of 24% in Monroe County (Figure 2). With respect to pasture and crop displacement the average is 11.7 and 10.7% per well pad, respectively, with significantly higher between-county variability for crop cover (±5.5% Vs ±3.6%).

Figure 2. Percent Cover across Ohio’s 269 Utica Well Pads assuming an average area of 7.75 acres and the National Land Cover Database 2006 (NLCD 2006) as a proxy for previous land-use.

Figure 2. Percent Cover across Ohio’s 269 Utica Well Pads assuming an average area of 7.75 acres and the National Land Cover Database 2006 (NLCD 2006) as a proxy for previous land-use. – Click to enlarge

Converting this data into ecosystem services requires certain assumptions about plant growth, soil organic matter content, and soil compaction utilizing Natural Resource Conservation Service (NRCS) soil data to model the latter two and established peer-reviewed estimates for plant pattern and process (Follett, Kimble, & Lal, 2000; Lobell et al., 2002; Valentine et al., 2012). The basics of this analysis – assuming subsurface soils are 25% more compact and contain 45% less organic matter than the surface 12-13 inches (Needelman et al., 1999) – demonstrated that well pad establishment has displaced approximately 28,205 tons of surface and 78,348 tons of subsurface soil carbon [3] for a total of 106,554 tons of carbon equivalent to 389,986 tons of CO2.

Additionally, the displacement and/or removal of vegetation – assuming the average Ohio forest is 40-80 years old [4] – has resulted in the annual loss of 1,050, 6,516, and 9,461 tons of crop, pasture, and forest carbon production, respectively. This is equal to 17,027 tons of carbon or 62,319 tons of CO2, which when added to the aforementioned soil loss is equivalent to the CO2 footprint of 25,198 Ohioans [5].

Over the life of these three ecosystem types, well pad establishment displaces 1,021,619 tons of carbon. This equates to 3.74 million tons of CO2 or 230,034 Ohioans, which is roughly 9,000 less people than reside in Akron and Warren combined. Another way way to frame this figure is that it would be equivalent to the eightieth largest US city between Henderson, NV and Scottsdale, AZ.

At CO2’s current valuation this Ohio Utica well pad “carbon displacement” is roughly $18.71 million. However, if we assume this is at the lower end of reasonable CO2 estimates and that a range of $10-75 dollars is more indicative of carbon’s price, then we estimate the value of well pad displaced carbon is more like $41.29-309.68 million.

The true value of Utica well pad carbon displacement is somewhere in this range and entirely dependent on your belief in the feasibility of valuing CO2 emissions. However, these estimates do point to some of the externalities associated with Utica Shale development currently ignored by industry lobbyists and political advocates. There is far more work to be done as it relates to understanding well pads’ influence on ecosystem services, crop productivity, and local hydrology; this is simply an attempt to begin quantifying such effects.


References

Follett, R F, Kimble, J M, & Lal, R. (2000). The Potential of U.S. Grazing Lands to Sequester Carbon and Mitigate the Greenhouse Effect. Boca Raton, FL: CRC Press LLC.

Fry, J, Xian, G, Jin, S, Dewitz, J, Homer, C, Yang, L, . . . Wickham, J. (2011). Completion of the 2006 National Land Cover Database for the Conterminous United States. PE&RS, 77(9), 858-864.

Lobell, D B, Hicke, J A, Asner, G P, Field, C B, Tucker, C J, & Los, S O. (2002). Satellite estimates of productivity and light use efficiency in United States agriculture, 1982-98. Global Change Biology, 8(8), 722-735.

Needelman, B A, Wander, M M, Bollero, G A, Boast, C W, Sims, G K, & Bullock, D G. (1999). Interaction of Tillage and Soil Texture Biologically Active Soil Organic Matter in Illinois. Soil Science Society of America Journal, 63(5), 1326-1334.

Valentine, J, Clifton-Brown, J, Hastings, A, Robson, P, Allison, G, & Smith, P. (2012). Food vs. Fuel: The use of land for lignocellulosic next generation energy crops to minimize competition with primary food production. Global Change Biology Bioenergy, 4(1), 1-19.


Footnotes

[1] The NLCD estimates land cover using sixteen classes at a 98 foot spatial resolution applied to 2006 Landsat satellite data or 4-5 years prior to the first Ohio Utica permit in September, 2010 (Fry et al., 2011)

[2] Primary tree species include red and sugar maple, red and white oak, white ash, black cherry, American beech, hickory, and tulip poplar according to the most recent USFS Forest Inventory Analysis “Ohio Forests 2006”.

[3] Along with roughly 6,536 tons of soil nitrogen assuming an Ohio soil Carbon-To-Nitrogen ratio of 14.6.

[4] Utilizing the USFS’s Forest Inventory and Analysis EVALIDator Version 1.5.1.04 tool we determined that 62% of Ohio’s oak-hickory, maple-beech-birch, elm-ash-cottonwood, and oak-pine forest types, which account for 94% of the state’s forest area, are 40-80 years old.

[5] Assuming 17.3-18.6 tons of CO2 per capita based on Oak Ridge National Laboratory’s Carbon Dioxide Information Analysis Center as cited by the World Bank.

Unconventional Shale Drilling: What we know, What we don’t know, What we need to know to move forward

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By Ted Auch, PhD – Ohio Outreach Coordinator, FracTracker Alliance

A Conference Retrospective

Communities, NGOs large and small, local governments, and even next door neighbors and/or families are dealing with long-term potential and realized environmental, economic, health*, and social equity damage from the activities of the gas industry in Ohio and beyond. These impacts were vetted at a conference (PDF) recently convened in Warren, OH by FreshWater Accountability Project Ohio, The FracTracker Alliance, and the Buckeye Forest Council. The title of the conference was “Unconventional Shale Drilling: What we know, What we don’t know, What we need to know to move forward.” The premise was to bring together a forum of diverse subject matter experts from academia, industry, government and private organizations to discuss and prioritize – using a knowledge-based approach – the various major issues relating to energy extraction that are facing local, state and national agencies and private citizens.

Conference attendees heard from a variety of researchers and community activist about their successes and failures, data needs, and expectations for how to leverage the conference gathering into a relatively cohesive and largely ego free movement. One highlight was a presentation and informal discussion with Deborah Rogers, former Merrill Lynch and Smith Barney investment banker, Dallas Federal Reserve Advisory Council member, current U.S. Extractive Industries Transparency Initiative (USEITI) advisory committee member, and the woman behind the Energy Policy Forum. Ms. Rogers’ keynote presentation “Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?” focused on the regulatory and high finance parallels between the early aughts real-estate bubble and the current US shale bubble’s red queen predicament (what’s this?) forcing industry to acquire shale assets and repurchase shares in an illusory attempt to inflate their balance sheets and placate Wall Street expectations (while simultaneously overestimating reserves by 400-500% and experiencing 6.5% recovery efficiencies). Ms. Rogers pointed to the fact that the US is home to 181,000 oil and gas jobs Vs. 183,200 renewable energy jobs, however, they account for 45% and 15% of total energy generation capacity, respectively, with the latter “providing significantly more jobs per kilowatt capacity than oil and gas.”

Ms. Rogers was followed by University of Pittsburgh professor Dr. Bernard Goldstein, Biological Mimetics, Inc. President and CEO, Peter Nara, with public health and environmental concerns presentations, respectively. Julie Weatherington-Rice, an OSU adjunct faculty geologist, delivered an Ohio- focused talk on the legal and public policy implications of drilling in public water well fields. Dr. Weatherington-Rice gave an encore performance the following day focusing on shale gas waste, public water supplies, Ohio EPA’s September 2012 advisory regarding disposal of fracking waste in the Great Lake’s waste landfill facilities, and the dangers associated with technologically enhanced radioactive material (TENORM). Dr. Rice was followed by presentations on sustainable communities via “Local Self-Government and the Rights of Nature” by Tish O’Dell of the Community Environmental Legal Defense Fund (CELDF) and Matt Nisenoff exploring the non-binary nature of Ohio advocacy. Mr. Nisenoff addressed the need for persistent organizing and “entering the political ring as candidates rather than voters.”

One of the most novel components of the conference was the presentation by Rumi Shammin, an environmental studies professor at Oberlin College who brought to the floor the concepts of ecosystem services and ecological economics or the monetization of ecological pattern and process [1]. These two lines of research are new to the hydraulic fracturing conversation and potentially integral to policy formulation, community outreach and academic-citizen scientist collaboration in Ohio.

Bowling Green State University professor Andrew Kear offered the final presentation titled “Unconventional Politics of Unconventional Gas: Environmental Reframing and Policy Change.” The presentation highlighted his PhD dissertation work focusing on unlikely bedfellows in the mountain west shale plays and the types of lessons he thought applied to Ohio’s shale fracturing discussion.

The conference closed with attendees coming together to identify the explicit knowns, known unknowns, and unknown unknowns in Ohio relative to economic, environmental, social integrity, and health issues. The results of these break-out groups and discussion will be made available to the public in the next two weeks.

Next steps include crafting two to three white papers, writing a peer review publication, implementing effective collaboration strategies, planning future conferences, and developing policy recommendations. The ultimate goals are to promote fact-based transparency, best in class technologies, and create healthy and sustainable energy resources.

In the face of industry and regulatory inertia that continues to push back against transparency and local control, the conference underscored the need for more education, data, and far more research – all issues of special interest to the FracTracker Alliance – while bridging rifts and fortifying existing bonds.

Contact Information

For more information and notices as to resulting products, please contact:

  1. Leatra Harper, FreshWater Accountability Project Ohio,
  2. Ted Auch, PhD, The FracTracker Alliance, Ohio Program Coordinator
  3. Peter Nara, PhD, Biological Mimetics, Inc.
  4. Julie Weatherington-Rice, PhD, Adjunct Faculty The Ohio State University and Bennett & Williams
  5. Nathan Johnson, Buckeye Forest Council

* Keynote speaker Deborah Rogers cited health impact costs in the Barnett, Fayetteville, and Marcellus Shale of $73, 33.5, and 32 million per annum.


[1] Arrow et al., 1995; Costanza et al., 1997; Costanza et al., 2000; Costanza, Wainger, Folke, & Mäler, 1993; Daily et al., 1997; Krantzberg & Boer, 2006; Ruhl, 2006

A Year in the Life of Ohio’s Utica Play

The Ohio Utica play has taken off in the last calendar year, jumping from 160 permitted wells as of March 2012 to 453 since then. This equates to 1.24 permitted wells per day. (Note: The state’s less exploited Marcellus shale had 13 permitted wells a year ago with an increase of 7 since then.) A year ago Ohio was home to 50 “drilled” wells and is now home to an additional 80 “drilled” wells (Figure 1). Meanwhile 0.65% and 1.14% of permitted wells are what Ohio Department of Natural Resources (ODNR) calls “Inactive” or “Not Drilled” with the latter being relatively similar a year ago vs. today with 3 and 4 “Not Drilled” wells, respectively. According to the latest ODNR data 54 Utica wells were permitted as of 4/1/2012 vs. 342 since then. Plugged wells constitute 1.63% of all Ohio Utica wells although the industry appears to be increasing efficiency with respect to plugging having experienced 7 “Plugged” wells as of 4/1/2012 and only 3 since. Conversely, wells that are “Producing” have declined from 25.63% (41 “Producing” wells) of all permitted wells to 1.32% (6 “Producing” wells) of all permitted wells since then with the latest reported producing well being a Mountaineer Keystone well in Windham Township, Portage County.

The permitting process has continued along its exponential path since permitting began September 28, 2010 (Figure 2). The gross average number of permitted Ohio Utica wells per month in the last five months is 39 with a total of 195 permitted since November 2012. The quarterly permit average has increased by an order of magnitude of 4.2 permits per month between September 2010 and 2011 to 39 per month since September 2012. In recent months Washington county was added to the list of Ohio counties home to Utica hydraulic fracturing permits, while Carroll remains the state with the most Utica permits followed by Harrison, Columbiana, Guernsey, and Jefferson/Noble with the average number of Utica well permits across the 22 counties home to at least one permit being 28 per county with six counties above and sixteen below this mean (Figure 3). In the last year the four counties that have entered the Utica conversation are Trumbull, neighboring Holmes and Wayne, and Washington, with 4, 3, 1, and 1 Utica permit as of April 1st, respectively. Meanwhile five other counties have seen no increase in Utica permits including Muskingum, Knox, Ashland, Geauga, and Medina. Conversely Belmont County has seen a 21-fold increase in Utica well permits followed distantly by Harrison, Guernsey, Noble, and Coshocton counties all of which have experienced ≥5-fold increases.

The average number of people per Utica well across the aforementioned 22 counties is 31,808, while the average number of wells per square mile is 0.066. The range is quite broad for both variables ranging from 0.0018 wells per square mile in Wayne – home to the Wayne National Forest – to 0.59 wells per square mile in Carroll County, with the one recent Washington County well placing it 13th out of 22 counties. The inverse is the case for people per well with Medina County, home to the highest number of people relative to Utica well permits with 172,332 people per well (vs. 124-563 people per well in Carroll, Harrison, Noble, and Monroe counties).  Since last we conducted this type of analysis in late January the valuation of Ohio’s major Utica players has actually increased by 11.7%. This is a particularly complex situation considering that Atlas Noble the owner of 6 Utica wells has actually gone private for a variety of reasons and Chesapeake Energy has ousted its CEO Aubrey McClendon due to “philosophical differences and a pending SEC investigation. Meanwhile, Wall Street-types:

… expect well results to vary greatly, given 2012 drilling activity across many fringe areas of the play. We believe weak results from other operators are likely to validate that Gulfport remains the most exposed operator. Source

Additionally, the repeated delay in 2012 production numbers scheduled for the 1st of April is creating layer upon layer of uncertainty leaving everyone guessing and relying on 2011 production numbers. This leaves public sentiment worried about the unsustainability, uncoordinated, and unbalanced nature of both Ohio’s regulatory framework and highly Utica exposed and/or leveraged balance sheets. Meanwhile Wall Street analysts are contemplating whether market forces, expectations, reality, or collusion is to blame. Our current model of potential Utica production in the form of barrels of oil equivalent speaks to small and discrete highly productive zones in Belmont, Noble, Guernsey, Morgan, and Muskingum counties, rather than the originally estimated zones of highest production in Carroll and Columbiana. An additional hotspot appears to be located in Fairfield, Perry, and Hocking counties. However, due to insufficient data quantity, quality, and methodology, and transparency from ODNR and industry, the opportunities to conduct such exercises are still accompanied by substantial uncertainty in the form of high signal-to-noise resulting from scant and unreliable data. The hope, herein and on Wall Street, is that ODNR and industry will begin to make their production data available in real-time.

This is an especially important consideration given that the aforementioned regulatory environment here in Ohio – as well as the relatively generous severance taxing system[1] – has reached a point that even industry/supply-side think tanks like The Fraser Institute in Canada have determined “the extent of investment barriers (based on All-Inclusive Composite Index values)” are as good as they are ever going to get; Ohio trails only Mississippi in a global investment barrier ranking of 146 countries, US states, and Canadian provinces. Furthermore, in one year the conditions for doing largely hydrocarbon-related business in Ohio improved so much between 2010 and 2011 that Ohio jumped up the league tables from 12th to 2nd, according to the institute’s 2011 “Global Petroleum Survey.” This loosening of regulations, combined with decreasing data quality and availability, is the primary concern of The FracTracker Alliance in Ohio.

Utica Permit activity by status to April 1, 2013

Figure 1: Utica Permit activity by status to April 1, 2013

Figure 2. Cumulative and Per Month Utica Permits to September 2010 through March 2013

Figure 2. Cumulative and Per Month Utica Permits to September 2010 through March 2013

Figure 3. Utica Permit Count by County from September 28, 2010 to April 1, 2013

Figure 3. Utica Permit Count by County from September 28, 2010 to April 1, 2013

Figure 4. Utica Permits Per Square Mile and People Per Well by County from September 28, 2010 to April 1, 2013

Figure 4. Utica Permits Per Square Mile and People Per Well by County from September 28, 2010 to April 1, 2013

(Note: This model was constructing utilizing the Geostatistical Analyst Tools “Empirical Bayesian Kriging” tool in ArcGIS)

Figure 5. A map of the current Ohio Shale and Tight Gas Plays, hydraulic fracturing permits in Ohio as of 4/1/2013, and a generalized model of potential production from with light green representing 20 Barrels of Oil Equivalent (BOE) and red approximately 10,000 BOE

Table 1. Distribution of Ohio Utica Shale wells across companies (#, %), Date of First Permit (DFP), and the valuation of the publicly funded companies at their DFP at the close of business 4/9/2013.

     

Company Valuation

Company

#

%

DFP

Share Price DFP

Share Price 4/9/2013

% Change

Anadarko

12

0.019

09/07/2011

69.88

86.70

1.241

Antero

21

0.034

03/23/2012

Atlas Noble††

6

0.010

09/24/2012

31.14

Carrizo

2

0.003

07/26/2012

24.02

26.26

1.093

Chesapeake Energy

389

0.626

12/23/2010

25.61

19.99

0.781

Chevron Appalachia

2

0.003

07/31/2012

109.58

118.71

1.083

Consol Energy

25

0.040

06/17/2011

45.86

33.85

0.738

Devon Energy

13

0.021

11/02/2011

65.46

55.28

0.844

Eclipse Resources

1

0.002

12/21/2012

Enervest

16

0.026

06/30/2011

9.37

8.79

0.938

EQT

3

0.005

09/13/2012

57.76

69.59

1.205

Gulfport Energy

46

0.074

02/28/2012

35.49

48.09

1.355

Halcon

2

0.003

11/02/2012

5.003

7.69

1.537

Hall Drilling

1

0.002

09/17/2012

Hess Ohio

24

0.039

09/28/2010

53.63

73.50

1.371

HG Energy

16

0.026

09/14/2011

Hilcorp Energy

3

0.005

12/14/2012

Mountaineer Keystone

7

0.011

07/13/2012

PDC Energy

9

0.014

05/25/2012

25.67

47.59

1.854

R E Gas Development

13

0.021

03/19/2012

Sierra Resources

3

0.005

07/02/2012

SWEPI

1

0.002

06/20/2012

XTO Energy

5

0.008

04/09/2012

0.28

0.01

0.036

BP

1

0.002

03/20/2013

613

1.083

DFP = Date of First Permit; “—“ not a publicly traded company

†† Atlas Noble has since gone private

Corporations that have reported production numbers as of this post: 1) Anadarko – 3, 2) Chesapeake – 14, 3) Consol Energy – 1, 4) Enervest and PDC Energy – 2, 5) Gulfport – 10, R E Gas Development – 4.


[1] Ernst & Young in a 2011 report found that Ohio’s hydrocarbon taxing rates were the most favorable of the eight states they investigated with a total state and local tax of 1.8% vs. 10.9-11.0% in neighboring West Virginia and Oklahoma, respectively. The average across the seven other states was 9.2% or 5.12 times that of The Buckeye State.

To Severance Tax or not to Severance Tax, that is the question!

By Ted Auch, PhD – OH Program Coordinator, FracTracker Alliance

Million Cubic Feet (MCF) as measured over industry standard test periods.


Barrels of Oil Equivalents (BOE) as measured over industry standard test periods.
Figure 1. Ohio’s Producing Utica Wells & Primary Shale Geology – plus non-reporting, drilled, or producing Utica & Marcellus Wells.
“Million Cubic Feet” (MCF) as measured over industry standard test periods.
“Barrels of Oil Equivalents” (BOE) as measured over industry standard test periods.

The economic opportunities provided by Ohio’s Utica Shale play via hydraulic fracturing have been cited repeatedly by the Ohio Oil and Gas Association and industry think-tanks like IHS Inc [1]. Numbers published by the latter last October [2] predicted 143,000 Ohio jobs and $18 billion in state revenue by 2020. However, these projections are accompanied by substantial amounts of error. Given that the state’s Utica Shale well movement is now more than 500 wells permitted strong, we thought it was time to take a closer look at the demographics and economics of the Utica Play, given that there will be a strong geographic component being inserted into the “To Drill Or Not To Drill” and waste disposal debate here in Ohio. This is an especially important issue given that the state is wrestling with either implementing an ad valorem [3] tax or raising the state’s industry-low severance taxes, which currently stands at 0.5-0.8% but would be raised to 1% under the governor’s budget. In contrast, proposals from Policy Matters Ohio and northeast Ohio Democrats seek 5% – 7%, respectively.

In comparison to most other states producing oil and gas, even 5% may be a trivial amount, or what The Cleveland Plain Dealer called “indefensibly low.” It amounts to 97 cents per Ohioan (i.e., $275 mi2) [4]. According to an Ernst & Young analysis of eight states that produce dry gas and natural gas liquids and/or dry gas and oil…

  • Ohio currently imposes the lowest combined state and local taxes of the states included in the analysis.
  • …Ohio’s overall effective tax rate (measured as total taxes divided by sales) is 80% below the average rate for the other 7 states for a well producing dry natural gas and natural gas liquids.
  •  For a well producing dry natural gas and oil, Ohio’s effective tax rate is 65% below the other-state average…
  • With the [proposed] increase, Ohio’s effective severance tax rate (ETR) would be 16% lower than the other states’ average for the well producing dry natural gas liquids and 4% lower than the other states’ average for the well producing dry natural gas and oil.

The governor’s proposed “Severance Tax Changes” will not apply to any Marcellus Shale wells, even though the state is home to five producing Marcellus wells (two in Monroe County) and eight permitted wells across Belmont and Monroe Counties. Additionally, the governor and his staff included a severance tax exemption for all “small-volume gas wells” (gas wells with average daily production of under 10 million cubic feet [MCF] would be exempt from the tax). If early industry production reports – and the Ohio Business Roundtable requested Ernst & Young report – are any indication, only 19% of wells will be subject to this tax. Our own analysis revealed that of the 32 industry reported production wells, the average production value is 7.5 MCF (Figure 1).The Kasich administration admitted the exemptions would apply to – by their estimation – 45,000 gas wells.

Another nuance of the Kasich administration’s severance tax complicated mélange is that rates will be 1% for natural gas and 4% for oil, natural gas liquids, and condensate. However, according to the administration:

… there will be a lower tax rate of 1.5 percent for the first year of production, in order to allow producers to recover the cost of preparing the well site and drilling the well.

Coincidentally, “the first year of production” is generally the time of greatest gas yields. Anonymous sources in Ohio’s Utica sweet spot have spoken of 50% declines in royalties within 6 months of production.

The Ohio Oil and Gas Association, the industry’s lobbying arm, has weighed-in against higher severance taxes, stating that:

a 4% severance tax on oil and gas would be equivalent to a 40% income tax and 16 times more than the commercial activities tax (or CAT). It would also burden economically challenged area throughout the state and landowners who want to lease their land and receive royalty streams.

(Total of 4,037 individual donations, Data courtesy of Common Cause Ohio’s “Deep Drilling, Deep Pockets: Campaign Cash and Fracking Regulation in Ohio” spreadsheet)

Figure 2. Ohio’s Big Energy individual or Political Action Committee (PAC) political donations from 2001 to 2011. (Total: 4,037 individual donations. Data courtesy of Common Cause Ohio’s Deep Drilling, Deep Pockets spreadsheet.)

The anonymous BizzyBlog took the OOGA position one step further proclaiming that energy companies “won’t do business in a state with a newly-enacted punitive severance tax.”

Such arguments against a “hefty tax increase” don’t have much empirical support. OSU oil and gas development expert Douglas Southgate called such taxes “definitely affordable for the industry.” Even with the increases proposed by some, Ohio would still rank lowest among the eight shale gas producing states investigated by Ernst & Young in 2012.

Whereas an ad valorem tax would be redistributed directly back into the communities from which the hydrocarbons are extracted, a severance tax would be distributed throughout the state, even to communities and counties that prohibit Utica Shale drilling and/or injection activity. Theoretically, the entire state could benefit from the toils and environmental risks taken on by Ohio’s Appalachian region. According to a Quinnipiac pole, Ohioans support (52 to 38%) an increase in drilling-related severance taxes. Bipartisan voter support for a severance tax increases (60 to 32%) when the prospect of offsetting state income taxes is proposed.

Either levy – an ad valorem tax or severance tax – would be based upon the industry’s headline well production, even though USGS research recently spoke to the substantial well-to-well production variability in the Appalachian Shale Basin: 250-600% [5]. There are quite a few short- and long-term costs and benefits associated with exploitation of the Utica Shale; however, as it stands the risk burden is disproportionately being shouldered by Appalachian Ohio. Thus, the severance tax being proposed by the governor and House Democrats could add to the regional schisms evident in the state.

But maybe geography is immaterial. The likely big winner of the tax decisions will be energy companies and, according to data on recent campaign contributions, those politicians they deem worthy of their political donations – many of whom are on the fringes or completely outside the Utica Shale (Figure 2).


[1]  IHS Global Insight is the brainchild of Daniel Yergin.

[2] This work was funded by the US Chamber of Commerce’s Institute for 21st Century Energy, the American Petroleum Institute, the American Chemistry Council, America’s natural Gas Alliance, and the Natural Gas Supply Association.

[3] Ad valorem taxes are assessed according to the value of the natural gas extracted.

[4] The Kasich “Ohio’s Jobs Budget 2.0: Jobs. Momentum. Transformation” highlights this aspect of their proposed severance tax, explicitly noting that it “has researched the severance tax structures of other states with significant oil and gas production, particularly those states with shale resources, and has found that even with a 4 percent tax rate, the tax burden on the revenues from these horizontal Utica wells will be lower than in other states.”

[5] According to the USGS, production from the most productive wells in the Appalachian Basin’s shale formations is commonly 50 times larger than the poorest producing wells, with the same value being 250-600 times larger for the Marcellus Basin. However, the only numbers presented to individual landowners – but less frequently to collectives given that energy firms are increasingly aware of the legal advice that land aggregators are seeking out – when the subject of royalties comes up are near-term gushers. For example:

  1. GPOR’s “’King’ of Utica Well” the Shugert 1-1H at 4,913 barrels of oil equivalents per day (BOEPD),
  2. CHK’s Buell well in Harrison County, OH producing 1,040 BOE[5],
  3. GPOR’s Boy Scout 1-33H in Wagner, Harrison County producing 3,456 BOE, the Ryser 1-25H producing 2,914, or the Groh 1-12H producing 1,935 BOE,
  4. Anadarko’s 9,5000 BOE, and
  5. The Wagner 1-H well producing 4,650 BOE. Yet, wells like the Frank unit in Stark County owned by Enervest producing 515 BOE or the non-producing wells across Ashland and Medina Counties are barely discussed – what a JP Morgan energy analyst called a “funding gap.”

The Ohio Utica Shale Play Turns 500… Almost!

Drilling Trends

Ohio’s first Utica well was permitted by ODNR on behalf of Hess Ohio Resources on 9-28-10. As shown in Figure 1 (right), the major uptick in well permitting began in the summer of 2011 with 23 wells permitted during that period, ramping up to 24 wells in November 2011. There was a brief reduction in permitting during the winter of 2011-12, followed by the boom-boom summer and fall of 2012, with an average of 37 wells per month and a total of 261 wells permitted between June and December 2012.

Production

As of the end of 2012, only 30.4% of the 487 permitted wells had been drilled or are currently being drilled. Forty-seven are currently producing gas, with the Ohio Department of Natural Resources (ODNR) reporting production data for only 9 of the 47 producing wells. All of these wells are owned by Chesapeake, 2/3 of which are in Carroll County. On average, these wells produced 61 barrels of oil, 1,875 million cubic feet of gas, and 8,905 gallons (i.e. 37 tons) of brine per day over an average production period of 88 days. Twenty of the permitted wells are classified as inactive (not drilled) or plugged, with the remaining permitted but yet to be drilled (Figure 2). The top five Utica counties based on number of well permits are Carroll, Harrison, Columbiana [1], Jefferson, and Guernsey [2]; while on the other end, Ashland, Geauga, Medina, and Wayne are each home to one Utica well at this point (Figure 3). According to Columbus, OH-based Huntington Bank’s first Midwest Economic Index, early returns in these parts are mixed in Ohio: “58 percent of respondents agreed that the industry would bring opportunity, with 15 percent of those saying it would be a significant opportunity, while 42 percent said they did not see it bringing economic opportunity to their communities.”

Bird’s Eye View

From an area perspective, Carroll County has 0.45 wells per square mile – 0.39 more wells per square mile than the next ten counties with the most wells (Figure 4) – while the bottom four counties currently contain 0.0023 wells per square mile. The relationship between population and wells is generally the opposite of the previous two relationships with the bottom four counties having an average of 108,345 citizens for every well drilled. Carroll County has 163 residents per well, while the remaining top ten counties have an average resident-to-well ratio of 7,057 (Figure 4, Inset). This means that any potential ad valorem-based tax structure would benefit – on a per capita basis – less populated counties rather than those with more wells such as Carroll.

Companies Involved

Chesapeake and its subsidiaries is the dominant player in the Ohio Utica play, with 320 of all wells permitted, followed by Gulfport Energy with 25, Enervest and HG Energy with 16, and Hess Ohio with 14 permitted wells. These five firms account for 80.3% of all permitted wells in Ohio, with an additional eighteen firms splitting the remaining 19.7% (Table 1, below). However, the firms that are publicly traded have been experiencing an average decline in share price of 3.41% since the time their first wells were permitted to the close of business on January 22nd, 2013. The biggest financial losers have been some of the Ohio Utica play’s biggest participants – including Chesapeake (CHK, -27%), Consol Energy (CNX, -29%), and Devon (DVN, -17%) [3]. Meanwhile, Anadarko (APC, +14%), Gulfport (GPOR, +19%)), and the upstart PDC Energy (PDCE, +55%) are the biggest beneficiaries of wading into Ohio’s Utica Shale play. However, the industry is displaying quite a few characteristics of an unsustainable boom; Wall Street analysts have been skeptical of big Utica Shale energy operations from soup to nuts as reported by Reuters last fall. but Wall Street voted in favor of the removal – either voluntary or forced – of CHK’s founder Aubrey McLendon to the tune of a 10% share spike the day of the announcement. Even the aforementioned winners have been outperformed by the S&P 500 and Dow Jones Industrial by 12.6% since permitting began in September 2010.

Will the boom continue to boom? It may be too soon to tell, but one thing is for sure, shale gas extraction to-date has made an indelible mark on many communities in eastern Ohio.

Figure 1. Ohio Utica Well Development per Month &amp; Cumulatively as of January 1, 2013

Figure 1. Ohio Utica Well Development per Month & Cumulatively as of January 1, 2013. Click on the image to view full-screen.

Figure 2. Ohio Utica Well Status as of January 1, 2013.

Figure 2. Ohio Utica Well Status as of January 1, 2013. Click on the image to view full-screen.

Figure 3. Ohio Utica Wells by County as of January 1, 2013

Figure 3. Ohio Utica Wells by County as of January 1, 2013. Click on the image to view full-screen.

Figure 4. Ohio Utica Wells Per Square Mile by County and People Per Well by County as of January 1, 2013.

Figure 4. Ohio Utica Wells Per Square Mile by County and People Per Well by County as of January 1, 2013. Click on the image to view full-screen.


[1] Thanks to the surge in Columbiana County wells, the Texas-based Santrol will be opening a frac sand terminal with direct access to Ohio State Route 11 open 365 days a year and equipped to handle 500,000 tons annually.

[2] Guernsey and Noble are home to the Muskingum Watershed Conservancy District that is currently in negotiations with Antero to drill beneath Seneca Lake – even though there is a substantial and vocal opposition in the region in the form of the Southeast Ohio Alliance to Save Our Water.


Table 1. Distribution of Ohio Utica Shale wells across companies (#, %), Date of First Permit (DFP), and the valuation of the publicly funded companies at their DFP at the close of business 1/22/2013.

     

Company Valuation

Company

#

%

DFP

Share Price DFP

Share Price 1/22/2013

% Change

Anadarko

12

0.025

09/07/2011

69.88

79.49

1.138

Antero

11

0.023

03/23/2012

Atlas Noble

5

0.010

09/24/2012

31.14

30.315

0.974

Carrizo

2

0.004

07/26/2012

24.02

22.43

0.934

Chesapeake Energy

320

0.657

12/23/2010

25.61

18.73

0.731

Chevron Appalachia

2

0.004

07/31/2012

109.58

115.91

1.058

Consol Energy

19

0.039

06/17/2011

45.86

32.74

0.714

Devon Energy

13

0.027

11/02/2011

65.46

54.28

0.829

Eclipse Resources

1

0.002

12/21/2012

Enervest

16

0.033

06/30/2011

9.37

9.37

1.000

EQT

1

0.002

09/13/2012

57.76

60.43

1.046

Gulfport Energy

25

0.051

02/28/2012

35.49

42.3

1.192

Halcon

1

0.002

11/02/2012

5.003

5.815

1.162

Hall Drilling

1

0.002

09/17/2012

Hess Ohio

14

0.029

09/28/2010

53.63

58.87

1.098

HG Energy

16

0.033

09/14/2011

Hilcorp Energy

1

0.002

12/14/2012

Mountaineer Keystone

7

0.014

07/13/2012

PDC Energy

4

0.008

05/25/2012

25.67

39.8

1.550

R E Gas Development

8

0.016

03/19/2012

Sierra Resources

3

0.006

07/02/2012

SWEPI

1

0.002

06/20/2012

XTO Energy

4

0.008

04/09/2012

0.28

0.027

0.096

 Sum

487

       Average

0.966

DFP = Date of First Permit; “—“ not a publicly funded company.