On June 11, 2012, Ohio Governor John Kasich signed Senate Bill 315 (“S.B. 315”) into law. S.B. 315 addresses a wide array of issues and substantially revises the sections of Revised Code 1509 and Revised Code 4906. S.B. 315 includes new restrictions and controls on oil and gas producers, well construction, hydraulic fracturing chemical disclosure, increased daily fines for rule violations, pre-drilling water testing, water usage reporting, increased insurance requirements for horizontal wells, enhanced enforcement authority from the Ohio Department of Natural Resources (“ODNR”), and revamped laws affecting midstream companies. The new law, effective September 12, 2012, does not contain an increase in the severance tax, despite calls by the Governor for an increase. 

Defines Horizontal Well

S.B. 315 defines “horizontal well,” as a well producing from the Utica, Point Pleasant or Marcellus formations. (R.C. 1509.01 (GG)). Horizontal wells will be subject to heightened regulatory requirements such as (1) higher insurance requirements ($5,000,000 per well) and the policy must include an environmental endorsement (R.C. 1509.07 (2)); (2) required testing of water wells (out to 1,500 feet from the wellhead (R.C. 1509.06(C)); and (3) well pad pre-construction site visits with the ODNR inspectors (R.C. 1509.04(H)). Also required with the permit application for a horizontal well is a road use and maintenance agreement or an affidavit that the operator attempted, in good faith, to enter into such an agreement but was unable to reach agreement with the local officials. (R.C. 1509.04(11)(G)).

Requires Chemical Disclosure

S.B. 315 requires operators to disclose, with the initial filing of the well completion report, all chemicals used in drilling the well, including, if applicable, the trade name and total amount of all products, fluids, and substances, not including cement and its constituents and lost circulation materials, intentionally added to facilitate the drilling of any portion of the well until the surface casing is set and properly sealed. (R.C. 1509.10(A)(9)(a)). Drillers must also provide a brief description of the purpose for which the additive is used and, in the case of stimulation, provide the maximum concentration of the additive. The disclosure must contain the chemical's corresponding Chemical Abstracts Service number. In addition to the current disclosure requirements for hydraulic fracturing, operators will need to disclose the chemicals to the ODNR or on the FracFocus website. (R.C. 1509.10(F)). There are now provisions allowing operators and service companies to protect their trade secrets. (R.C. 1509.10(I)). Operators will need to disclose any chemicals used to re-fracture a well. Operators will also be required to keep records of all chemicals placed in a well for two years. (R.C. 1509.10(J)(1)-(2)). Inaccurate or incomplete disclosures will be treated as substantial compliance if reasonable efforts are made to obtain that information. (R.C. 1509.10(K)(1)). Chemicals that appear in incidental or trace amounts do not need to be disclosed. (R.C. 1509.10(K)(2)).

S.B. 315 requires a person claiming trade secret protection for a product, fluid, or substance used in the production operations of a well, upon request of a medical professional, to provide the exact chemical composition of each product, fluid or substance and of each chemical component in a product, fluid or substance that is designated a trade secret in order to assist in the diagnosis or treatment of an individual who was affected by an incident associated with the production operations of the well (R.C. 1509.10).  It also requires a medical professional who receives trade secret information to keep the information confidential and not to disclose the information for any purpose not related to diagnosis or treatment of an individual who was affected by an incident associated with the production operations of a well (R.C. 1509.10).

Enhanced Penalties

S.B. 315 enhances Revised Code 1509’s penalties section. Civil (R.C. 1509.33(I)) and criminal penalties (R.C. 1509.99(F)) will be treated as separate violations. (R.C. 1509.33(I)).

Water Usage

Producers must now report, to the best of their knowledge, on the anticipated source of water to be used for well operations as a part of the permit application, with a focus on whether the water will come from the Lake Erie or Ohio River watershed. (R.C. 1509.06(A)(8)(a)). Also, the ODNR can now establish site-specific terms and conditions for wells located in a hundred-year flood plain and in the five-year time of travel for a public drinking water supply. (R.C. 1509.06(H)(2)). For UIC-Class II injection wells, owners and brine haulers will need to electronically make quarterly reports of the information they are required to collect on each load of produced water. (R.C. 1509.22(D)(1)(c)). Lastly, the producer must take water samples within 1,500 feet of a proposed horizontal well and disclose the results in their permit applications.

Regulatory Update Mandates

S.B. 315 calls on the Public Utilities Commission of Ohio (PUCO) to update regulations for construction, inspection and safety of these new lines. The new regulations are supposed to encourage wastewater treatment and recycling technologies in order to conserve water resources and reduce Ohio’s reliance on underground injection wells for wastewater disposal.

S.B. 315 authorizes the DNR to specify requirements in rules governing the location and construction of freshwater impoundments that are part of an oil and gas production operation (R.C. 1509.23).

Permitting

S.B. 315 will have a large impact on the permitting process. It revises the application requirements for an oil and gas drilling permit by requiring an applicant to include with the application the following additional pieces of information:

• For an application for a permit for a horizontal well, a copy of an agreement between the applicant and the public official of each applicable local government who has legal authority to enter into an agreement concerning maintenance and safe use of the roads, streets and highways in the political subdivision that will be used for access to and egress from a well site, or an affidavit attesting that the applicant attempted to enter such an agreement in good faith;
• An identification of each proposed source of groundwater and surface water that will be used in the production operations of the well and of the applicable watershed and the estimated rate and volume of the water withdrawal for the production operations;
• The estimated volume of recycled water to be used if recycled water will be used in the production operations;
• For an application to drill a new well that is not a horizontal well within an urbanized area, the results of sampling of water wells within 300 feet of the proposed well prior to commencement of drilling, which distance may be revised by the ODNR; and
• For an application to drill a new horizontal well, the results of sampling of water wells within 1,500 feet of the proposed well prior to commencement of drilling, which distance may be revised by the ODNR (R.C. 1509.06).

Furthermore, the producer must notify an inspector from the ODNR prior to the commencement of well pad construction. The ODNR is required to conduct a site review prior to commencement of well pad construction prior to issuance of the permit. (R.C. 1509.06).

Oil and gas injection wells

S.B. 315 authorizes the ODNR to issue an order to the owner of an injection well in existence on the bill's effective date to make changes in the operation of the well to correct problems or address safety concerns (R.C. 1509.22). S.B. 315 also requires the following be included in the rules the ODNR must adopt concerning injection wells:

• Electronic submission by the injection well owner to the ODNR of information concerning each shipment of brine or other waste substances received by the owner for injection into the well; and
• Provision and electronic reporting of information concerning brine and other waste substances from a registered brine transporter prior to the injection of the transported brine or other waste substances (R.C. 1509.22).

Transportation

S.B. 315 revises the information that must be included with an application submitted by a brine transporter for a registration certificate by requiring the application include a list identifying each vehicle, vessel, railcar and container that will be used in the transportation of brine (R.C. 1509.222). S.B. 315 allows the ODNR to establish procedures for the electronic submission to the ODNR of the information required to be included in the daily log each registered transporter must keep on each vehicle used to transport brine (R.C. 1509.223).

Power Siting Board certification

The new law changes the Power Siting Board (PSB) certification requirements regarding gas transmission and distribution lines to require certification for a gas pipeline greater than 500 feet in length, and its associated facilities, that is more than nine inches in outside diameter and designed for transporting gas at a maximum allowable operating pressure in excess of 125 pounds per square inch (R.C. 4906.01).

It also excludes the following from PSB certification requirements: gathering lines, gas gathering pipelines and processing plant gas stub pipelines; any gas processing plant; natural gas liquids finished product pipelines; pipelines from gas processing plants to an interstate or intrastate gas pipeline or to a natural gas liquids fractionation plant; any natural gas liquids fractionation plant; an oil, gas or other production operation regulated by the state including pipelines upstream of any gathering lines; and certain compressor stations (R.C. 4906.01).

Public Utilities Commission (PUCO) general authority

S.B. 315 now exempts from regulation as a public utility an entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids (R.C. 4905.03). It also exempts certain natural gas gatherers and producers engaged in the business of supplying natural gas for lighting, power or heating purposes to Ohio consumers, and that deliver or sell Ohio-produced raw natural gas liquids (R.C. 4905.03).

S.B. 315 exempts from Ohio's pipeline safety law (specifically requirements on "operators") an entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids or finished product natural gas liquids (R.C. 4905.03). It does add to the current law duties of the Public Utilities Commission (PUCO) regarding intrastate pipeline safety the requirement that the PUCO perform all regulatory and enforcement duties required under Ohio's pipeline safety law (R.C. 4905.91).

Filing of pipeline information with PUCO prior to and after pipeline construction

S.B. 315 now requires any person who plans to construct a gas gathering pipeline or a processing plant gas stub pipeline subject to the bill's safety standards to file a form with the PUCO Division of Pipeline Safety, not later than 21 days after the commencement of construction, that specifies certain information including, for example, the pipeline's route and maximum allowable operating pressure (R.C. 4905.911). It also requires the operator of those pipelines to file with the Division an explanation of the constructed pipeline's route and operating information, not later than 60 days after the completion of construction (R.C. 4905.911).
S.B. 315 requires each operator under Ohio's pipeline safety law and each pipeline company, on July 1 and November 1 of each year, to file a disclosure with the PUCO that specifies the country in which each tubular steel product used by the operator or company in the exploration, gathering or transportation of gas or hazardous liquids was manufactured (R.C. 4905.912).

Pipeline safety standards for operators of gas gathering pipelines and processing plant gas stub pipelines

S.B. 315 now subjects operators of either of the following types of pipelines completely constructed on or after the effective date of this provision of the bill, and that transport gas produced by a horizontal well, to various pipeline safety standards:

• A gas gathering pipeline; and
• A processing plant gas stub pipeline (R.C. 4905.911).

It also requires those operators to engage in various other activities in accordance with federal standards regarding the pipelines, including:

• Designing, constructing, inspecting and testing;
• Controlling corrosion;
• Carrying out a damage prevention and public education program;
• Establishing the maximum allowable operating pressure;
• Installing and maintaining pipeline markers; and
• Performing and maintaining records of leakage surveys (R.C. 4905.911).

S.B. 315 also declares that gas gathering pipelines and processing plant gas stub pipelines are not subject to the Natural Gas Pipeline Safety Act, the resultant United States Department of Transportation rules, or the PUCO's current safety and other regulations over gathering lines (R.C. 4905.90 and 4905.91).

Aggregate forfeiture for pipeline safety violation or noncompliance

S.B. 315 increases, from $500,000 to $1 million, the maximum aggregate forfeiture that the PUCO may assess upon certain pipeline operators for violations of or noncompliance with the pipeline safety law (R.C. 4905.95).