Substitute Senate Bill 315

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On June 11th, Governor John Kasich signed into law Senate Bill 315, comprehensive energy legislation impacting the Ohio energy industry. After several negotiations and committee hearings on the subject, Senate Bill 315 (Governor Kasich’s Mid-Biennium Budget Review Bill on Energy) was moved out of the Ohio Senate and House of Representatives before their Memorial Day legislative break. The bill endured several changes before it left the respective Senate and House committees dealing with the issue. The bill creates substantial changes to Ohio oil and gas law, including making Ohio the national leader in disclosure of hydraulic fracturing fluids.   

Senate Bill 315, sponsored at the request of Governor John Kasich by State Senator Shannon Jones (R-Springboro), was a compilation of proposals creating a broad energy policy for Ohio. The relevant provisions to the Ohio oil and gas industry can be broken down into three distinct categories: direct oil and gas policy, midstream proposals, and underground injection control (UIC) program proposals.

Direct Oil and Gas Policy

These were the most extensive set of changes to Ohio oil and gas law contained in Senate Bill 315. Several provisions were altered, including material and substantial violations, water well testing, per-day violations, insurance requirements and unitization. However, the most discussed change to oil and gas law has been the disclosure of hydraulic fracturing fluids.

With Senate Bill 315, Ohio now has the most stringent regulations for disclosure of hydraulic fracturing fluids in the nation. When the bill was introduced, language included in the bill would have created a total “spud to plug” disclosure program on all aspects of the drilling process. The program was generally modeled the recent regulatory rule package approved in Colorado. It meant that every chemical used on the well site would need to be reported to the Ohio Department of Natural Resources (ODNR). This would have included reporting chemicals contained in any paint used on site during the life of the well.

Since ODNR’s focus was to gather all pertinent chemical information during the drilling process, the bill was amended to mirror the Colorado rule in the Ohio Revised Code with some alterations. SB 315 requires the disclosure of all chemicals intentionally added during the drilling process until the surface casing is set (including the chemical abstract services (CAS) number) on all wells. The bill was amended to exclude chemicals deemed a trade secret by an operator or service company. Invoice for all chemicals used on the well site must be maintained by the operator for 2 years and made available to the Chief upon request. A producer is in substantial compliance with these reporting provisions if a minor variation is found due to an inaccurate or incomplete report from a supplier.  

After the initial completion, operators must again make all chemical disclosure if the well is refraced or newly completed. An amendment by the industry was also accepted to remove the term “rework” from the disclosure requirements. This language, which would have included recompletion and moving down hole, was included in the original bill’s language. Since “rework” was a wide-reaching term under Ohio law, it was removed from disclosure provisions.  

The bill was also amended to provide chemical information, including those deemed a trade secret,  to a medical professional in the event that an incident happens on the well site and an injury due to a chemical compound occurs. The medical professional will utilize the trade secret information for their treatment of the patient but have an obligation to keep the trade secret information confidential.       

Another important change pertains to what constitutes a material and substantial violation (MSV) under Ohio law. MSV now includes the failure to submit a “report, test result, fee or document” that is required under Ohio oil and gas law. Industry contended that this provision is unnecessary, as the Chief could do so by issuing a Chief’s order. The provision to change MSV remained a part of the bill. However, ODNR will provide notice and a 30 day cure period to those who have failed to file before a MSV is issued.

SB 315 allows ODNR to enter into “cooperative agreements” with other state agencies. OOGA was successful in amending this language to clarify that such agreements “shall not be construed to dilute or diminish the division’s sole and exclusive authority as established in this section”.

Another portion of the bill that gained significant attention was Road Use and Maintenance Agreement (RUMA) language. The bill requires that a producer file a RUMA or check the appropriate box on an oil and gas permit pertaining to a RUMA. The producer can then state that they do have a RUMA in place and submit an affidavit to ODNR stating they negotiated in “good faith” but could not reach such an agreement.

The bill changes definitions of industry terms currently within Ohio law, such as condensate, well pad, and horizontal well. Importantly, a horizontal well is now defined in Ohio law as a well that is drilled to the Point Pleasant, Utica, or Marcellus Shale formations and is stimulated. Well pad was defined as the area needed for one or more horizontal wells.

Water wells are now required to be tested prior to drilling in urbanized areas and on horizontal wells. Water wells within 300 feet of a wellhead in an urbanized area and 1,500 feet of a horizontal wellhead should be tested. If a producer is denied access to such a water well by a landowner, then the producer reports the denial to the Division. Though discussed during the process, requirements for post-drilling testing of water wells were not made a part of the final bill.  

Other provisions included in SB 315 include the reporting of all water (including sources and amounts) anticipated to be used on a well to ODNR, increasing the insurance coverage on horizontal wells to $5 million (bodily injury and property damage) from agents licensed or operating in the State of Ohio, and the creation of a new fee for unitization applications of $10,000 for an application submitted under Ohio Revised Code Section 1509.28.  

Finally, one provision was included in SB 315 that gives the Association great concern. Ohio Attorney General Mike DeWine pushed for per-day violations on oil and gas operators (for civil and criminal violations) under the law. The industry pushed for an amendment that would clarify this broad provision under the law to an intentional standard and focus it on civil penalties. For now, the language remains applicable to even minor violations and will remain in Ohio law. However, the industry has grave concerns over broad per-day violations being part of Ohio oil and gas law without some guardrails to avoid abuse of this power.

Midstream Proposals

With the expected development of Utica Shale in Ohio comes the anticipated construction of an underground pipeline network. This network is needed to move the natural gas and natural gas liquids from the site of production to newly constructed processing plants and then to the marketplace. It is this network of pipelines and processing plants that is commonly referred to as the “midstream industry”. 

SB 315 tried to find a way for these midstream facilities to be built safely while also protecting the environment. This was because the current structure of Ohio law was not crafted to address the construction and operation of a robust midstream industry. To do so, the initial version of the bill increased the regulatory authority of the existing government agencies.

Upon introduction, SB 315 had several flaws regarding midstream development. First, the bill did not establish a clear system for regulatory authority but rather blurred the lines of regulation. Second, several highly technical definitions (IE – “wet gas”, “dry gas”) were not accurately crafted. Third, the midstream regulations were ambiguous, failing to spell out what a midstream company needed to exactly do when siting a gas gathering line.  

After several amendments, the Ohio legislature clearly drew lines of regulation by Ohio’s three midstream regulatory agencies. The ODNR retains its jurisdiction over production sites and production facilities. ODNR may seek the advice of other agencies, but the “sole and exclusive” regulatory authority of ODNR as described in 1509.02 is maintained over these production sites and facilities.

The Public Utilities Commission of Ohio (PUCO) has the exclusive jurisdiction over all gas gathering lines that are currently regulated and overseen by their Pipeline Safety Division for production from a horizontal well. This authority has been expanded to cover Class One rural gas gathering pipelines. A Class One pipeline is a classification by the United States Department of Transportation which includes pipelines in rural areas.

Finally, the Ohio Power Siting Board will continue to have the authority to site major utility facilities. Their final role was not expanded from the gas transmission lines that they currently site but the midstream processing plants and gathering systems will not be subject to Power Siting Board jurisdiction.

Additionally, the midstream proposal requires that the owner or operator of all new gas pipelines (including Class One pipelines) must file detailed plans (including the route, pipeline material, maximum operating pressure, and yield strength) to the PUCO Pipeline Safety Division at least 21 days before construction.

After construction, the owner or operator of the new gas pipeline must file with the PSD “as built” plans within 60 days after construction. This is done so that the PSD will have both knowledge and information on these newly-built midstream gathering pipelines.

Finally, all midstream jurisdictional pipelines under PSD authority are required to have a corrosion control program, damage prevention program, maximum allowable operating pressures, public education program, above ground markers, excavation registration, and leak surveys.

UIC Program

Due to recent seismic events in northeastern Ohio and concerns from the public, changes to the underground injection control (UIC) program were brought forward. The UIC program deals with the underground disposal of produced waters and brine stemming from oil and gas exploration and development. These fluids are disposed of in underground rock formations as deep or even deeper than the geologic formations from which the brine was extracted.

As introduced, the UIC proposal contained several concerning provisions. Specifically, the proposal included the electronic tracking of brine (via transponders) being transported in the state of Ohio, chemical disclosure information on “out-of-district” brine being injected into Ohio UIC wells, and an increase to the both “in district” (from $0.05 to $0.20 per barrel) and “out-of-district” (from $0.20 to $1.00 per barrel) brine disposal fees created last General Assembly under Senate Bill 165 (Sen. Tom Niehaus).

The bill as passed removed all increases to the brine disposal fee. Also stripped from the final version of the bill are the electronic monitoring provisions via transponder and additional chemical disclosure provisions for “out-of-district” brine.

SB 315 retains all previous requirements under today’s UIC law. Those transporting brine into the state of Ohio must be registered with the ODNR. Those operating UIC wells must collect all information required under the law today before the fluids are injected. The slight change to this portion of the law is that this information must be reported to ODNR electronically every quarter. Reporting requirements were expanded for all vehicles, vessels, and containers transporting brine, which specifically included rail cars.

As you can see, Senate Bill 315 contained many provisions that will have a profound effect on the Ohio oil and gas industry. The bill, as initially proposed by the Kasich Administration, had several flaws which were generally addressed by the legislature. Once these flaws were addressed, the bill became something that garnered industry support.

While the book on Senate Bill 315 can now be shut, it may not be too long before the next chapter plays out before the legislature. In testimony before the House Public Utilities Committee, ODNR Director Jim Zehringer stated that the ODNR would like to revisit two issues before the legislature – broader chemical disclosure provisions and additional changes for UIC injection.  

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Substitute Senate Bill 315 Information: