This week the Ohio legislature takes on a busy legislative schedule after the holiday break. Among the many pieces of legislation getting attention are five bills pertaining to the oil and gas industry. These bills, all of them Democrat-sponsored, are up for hearing before the House Agriculture and Natural Resources Committee this week. While no further action is expected before the end of the year, these bills propose significant changes to existing oil and gas regulations and threaten to undermine the regulatory framework in Ohio.
Here are brief summaries of the bills:
HB 537: Local Government Authority To Regulate Oil and Gas Industry
HB 537 would bring the largest changes to the regulatory landscape. This bill seeks to give political subdivisions (i.e. local governments) authority to enact their own regulations on oil and gas operations.
The existing law, R.C. 1509.02, gives “sole authority” for oil and gas regulation to the Ohio Department of Natural Resources (“ODNR”), which prevents local governments from creating their own regulations.
This bill removes the language from the statute that establishes the ODNR as the “sole authority” and authorizes political subdivisions to write their own oil and gas regulations. The bill preserves state regulations as a “floor” and allows political subdivisions to further restrict oil and gas operations.
This bill would fundamentally alter the regulatory landscape in Ohio. In one of our September posts we already discussed state preemption of local oil and gas regulation through R.C. 1509.02. This bill upsets the current balance of power between state and local governments, and would add yet another layer of complexity to Ohio’s oil and gas regulations. Local governments would have the power to transform Ohio into a patchwork of different and changing regulations that could present significant challenges to the oil and gas industry.
Unrelated to the shift in regulatory authority, this bill also increases setback requirements to 1000 feet for new oil and gas wells, tank batteries of wells, mechanical separators, and heating vessels, with exceptions.
HB 493: Required Terms in Oil and Gas Leases; Landman Registration [UPDATE]
HB 493 is another marquee bill in this group. This bill proposes minimum content requirements for oil and gas leases of the Marcellus Shale or deeper formations. Essentially, this bill would require lessees to include certain terms and clauses in their lease contracts. These are some of the required terms:
- Lessee must inform lessor once a pooled unit is recorded;
- Groundwater testing performed by ODNR (or persons registered with ODNR) before drilling and after stimulation of the well;
- Lessor may annually request a written audit from lessor;
- Lessee must give written notice to lessor of any assignment of interest in the land;
- Lessor must be given the option of receiving a lump sum payment (no less than $3000) in lieu of any offer for “free gas.”
The bill also establishes, among other things:
- Landmen (“land professionals”) may not negotiate oil and gas leases without registering with ODNR. Information about land professionals will be published online.
- A minimum rate of royalty at 15% of gross revenue of the sale of oil or gas from any well drilled to the Marcellus Shale or any deeper formation.
- Increased disclosure of chemicals used in fracking fluids to ODNR before well stimulation.
- Limits groundwater testing to ODNR or persons registered with ODNR.
UPDATE: According to GONGWER and other sources, the Kasich Administration is showing interest in creating statewide regulations for landmen. The Administration has voiced concerns over alleged unfair negotiating practices, and would like to work with the Department of Commerce to come up with an oversight plan.
HB 528: Monthly Production Statements
HB 528 would require an oil and gas lessee to provide monthly production statements to the lessor. The bill lists required information for these monthly statements, including production volumes and information on the royalties paid to the lessor. The bill also outlines procedures for a lessor to request records from the lessee for an audit.
HB 596: Disclosure of Fracking Fluid Composition
HB 596 seeks to increase the required disclosures of fracking fluid compositions. Applications for new well drilling permits and “well completion reports” submitted to ODNR would require complete disclosure of the chemical composition, manufacturer, and other information about fracking fluids. The bill also makes it easier for doctors to demand full disclosure of the chemical makeup of fracking fluids in connection with patient treatment.
HB 500: Fee on Brine Recycling Operations
HB 500 would authorize local governments to levy a fee of 17.5 cents per barrel on facilities that recycle brine from oil and gas operations.
To be clear, these are merely proposed laws. They are at the first stage in a long process to becoming law. As Democrat-sponsored bills in a Republican controlled legislature, they may face an uphill battle. But even in their infancy these bills shed light on concerns being discussed by the Ohio legislature and threats facing an emerging oil and gas industry in Ohio.