July 2012 Gas & Oil Magazine

Dix Communications - Gas & Oil July 2012 Edition 1

Oil&Gas1

LEASING TIPS: “Dormant Mineral Act” May Impact You

DRIVING: Will Ohio be Driving on Natural Gas?

A FREE MONTHLY PUBLICATION

Ohio

JULY 2012 • www.ohiogo.com

See inside

What is Natural

Gas?

Andrew S. [email protected]

G.C. Dix II [email protected]

Ray Booth Executive [email protected]

Cathryn Stanley Regional [email protected]

Niki Wolfe Regional [email protected]

Ed Archibald SE Ohio Sales Cambridge, Ohio [email protected] 740-439-3531

Janice WyattNational Major Accounts Sales [email protected]

Peggy Murgatroyd SE Ohio Sales Barnesville and Newcomerstown, Ohio [email protected] Barnesville 740-498-7117 Newcomerstown

Jeff Kaplan NE Ohio Sales Alliance & Minerva, Ohio [email protected] 330-821-1200

Owen WilliamsLayout Designer

“Gas & Oil” is a monthly publication jointly produced by Dix Communication newspapers across Ohio. Copyright 2012.

Cover Photo by: Michael Neilson, The Daily JeffersonianCrews work on the horizontal hydraulic fracturing phase of a well in Seneca Township, Noble County

◆ FAQ: What is Natural Gas? ............................pg. 3

◆ A Closer Look

ODNR field inspection staff to triple ..............pg. 4

◆ LEASING TIPS

‘Dormant Mineral Act’ May Impact You ..........pg. 6

◆ Ohio regulations earn national praise ............pg. 8

◆ ‘Things have been improving’

Industry revitalizes economies ....................pg. 10

◆ Natural Gas to drive Ohio? ..........................pg. 11

◆ Taxes: Who pays what & and when .............pg. 12

◆ Gas and oil development

a fast-moving phenomenon .........................pg. 16

◆ ‘Take the money and run’ .............................pg. 18

◆ WIDE range of job opportunities .................pg. 21

◆ Minimize the ‘footprint’ of development ........pg. 22

◆ Building a pipeline to the Future ..................pg. 24

◆ ’Don’t be Greedy’

Everyone’s better off with

common sense ............................................pg. 26

◆ Need Information? Here’s Help ...................pg. 30

◆ MAC Trailer adds 400 Jobs with

Gas and Oil Growth .....................................pg. 32

◆ Can Farm and Lease Coexist? ....................pg. 34

◆ Museum among nation’s largest for

oil and gas tools...........................................pg. 36

◆ ‘Organized chaos’: Gas and oil surge busy for

county recorders ..........................................pg. 38

◆ Knowledge to fuel the future ........................pg. 42

◆ Farm Bureau looks at severance tax ...........pg. 45

Table of Contents

Attributions

A FREE MONTHLY PUBLICATION

Ohio

JULY 2012 • www.ohiogo.com

Gas & Oil July 2012 Edition - Dix Communications2

Oil&Gas2

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FAQ: What is Natural Gas?

Natural gas currently supplies 25% of U.S. energy needs. Clean-

est burning of all fossil fuels, natural gas is used for electric power generation, heating, and feed stock for plastic, fertilizer and other important chemicals. It is also growing as transporta-tion fuel. Industry experts esti-mate that there are enough de-velopable natural gas reserves to supply the country’s needs for more than 100 years at cur-rent rates of use. Here are some frequently asked questions:

WhAT IS NATuRAl GAS? It’s primarily methane, a nonreactive hydrocarbon that is an

environmentally friendly fuel compared to oil and coal. After processing to remove impurities, natural gas is nontoxic, non-carcinogenic and noncorrosive. It is lighter than air, making it a safe fuel for many applications. As long as it is not allowed to accumulate in a confined space, any leakage will quickly dis-sipate into the atmosphere, reducing the risk of an explosion as compared to liquid fuels, which pool on the ground or pollute ground water.

WhERE DOES NATuRAl GAS COME fROM? It’s found in large underground fields, much like crude oil.

The natural gas we use today began as microscopic plants and animals living in the ocean millions of years ago. As they thrived, they absorbed energy from the sun, which was stored as carbon molecules in their bodies. When they died, they sank to the bottom of the sea and were covered by many layers of

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Continued on pg. 13

Oil&Gas3

Sandstone

Coal Seam

Surface

Tight Sand Gas

Gas Rich Shale

Oil

Conventional Associated Gas

(over oil)

Conventional & Shale Gas Deposits

Conventional Non-Associated

Gas typically much less than1 mile below the surface

Seal(impervious cap)

typically 1 to 2 miles below the surface

Ho

rizo

nta

l Wel

l

Ver

tica

l Wel

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ODNR field inspection staff to triple

The Ohio Department of Natural Resources’ Di-vision of Oil and Gas

Resource Management staff is expected to triple in the coming months as the agency prepares for the anticipated boom in the oil and gas industry statewide.

“We are in the midst of tri-pling our field inspection staff,” said Heidi Hetzel-Evans, me-dia relations manager with the ODNR Office of Communica-tions. “With the increased drill-

ing, we want to stay ahead of the game by bringing in inspec-tors and training them prior to the height of the growth, which we believe is still several years away. We are hiring batches of inspectors ... 12 to 15 at a time ... and pairing them with expe-rienced inspectors for training.”

Hetzel-Evans said the agency cur-rently has approximately 40 inspec-tors.

“We expect to have 80 to 90 inspec-tors hired by the end of the year,” said Hetzel-Evans.

The growth will also create the need for more administrators in the Division of Oil and Gas.

“We are hiring in phases, but right now we are focusing on the field staff,” said Hetzel-Evans.

Oil and gas programs were incorporated into the Ohio De-partment of Natural Resources in 1965.

On Oct. 1, 2011, the Oil and Gas program separated from the Division of Mineral Resources Management and became the Division of Oil and Gas Resources Management.

The Division of Oil and Gas responsibilities include regula-tion of Ohio’s oil and gas drilling operations, oil and gas pro-duction operations, brine disposal operations, solution mining

operations and underground injection operations.The staff inspects the drilling, restoration, and plugging of

all oil and gas wells in the state, as well as issuing permits for all oil and gas, injection and solution mining wells.

“On May 24, the Ohio Legislature approved landmark oil and gas regulatory legislation that establishes one of the na-tion’s toughest regulatory frameworks for overseeing the new technologies that allow for the exploration of natural gas in deep shale rock formations,” said ODNR Director Jim Zeh-ringer.

“This landmark legislation sends a strong and positive mes-sage to those with concerns about Ohio’s ability to regulate the shale industry. We have learned from the shortcomings of other states, and we will safeguard our people and environment by providing this expanding industry with strong and clear rules for conducting business in Ohio.

“I can assure Ohioans that our regulators will demand strict compliance with all aspects of this tough new law,” added Zeh-ringer.

The new law builds on recently ap-proved well construction standards, which are extremely protective of groundwater and the environment.

Through the “Oil and Gas Well Search” on ODNR’s Oil and Gas website, individuals can track infor-mation on oil and gas well permitting, project completion and production re-ports.

The online emergency “Oil and Gas Well Locator” also provides well

locations, contact names, facility information and the location of nearby schools, hospitals, roads and bodies of water in the event of an emergency.

The Oil and Gas Resources Management office is located at 2045 Morse Road, Building F-2, in Columbus.

Call the Oil and Gas Resources Management office, 614-265-6922, for additional information.

[email protected]

Rick StillionDix Communications

Oil&Gas4

“I can assure Ohioans that our regulators will demand strict compliance with all aspects of this tough new law”


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LEASING TIPS‘Dormant Mineral Act’ May Impact You

Ohio’s eastern counties, due to the improved horizontal drilling oil

production techniques devel-oped in Texas, are now expe-riencing unprecedented inter-est in the Marcellus and Utica Shale formations.

While historically Ohio land-owners received lease bonus payments of $10 per acre and a 12 ½ percent royalty for their oil and gas leases, it is now com-mon for landowners to receive lease bonus payments of $3,000

t o $6,000 per acre and royalty pay-ments of 15 to 20 percent depending upon the amount of land leased and its location.

However, not every cloud has a silver lining. Landowners should keep in mind that the lease offered to them

by the lease agent was drafted by attorneys for the lessee (gas and oil companies). In almost every case, it is not landowner friend-ly. Before executing an oil and gas lease, it is imperative that a landowner consult with an experienced oil and gas attorney in an effort to balance the playing field. Land owners who have the potential for more lucrative outcomes may also want to consult a tax professional and an estate planning attorney.

Limited space will not allow a comprehensive discussion, but let’s explore some key provisions a landowner should consider when negotiating their lease:

lOCATION APPROvAlThe landowner should have the right to approve in advance the

location of equipment and facilities on their property. Some land-owners may wish to seek a “no surface” lease, which does not permit the lessee to install any equipment or facilities on the land. This may be acceptable to the lessee, particularly where a smaller number of acres is involved.

GROSS ROYAlTYMany leases offered contain clauses permitting the lessee to

deduct from the landowner royalty payment costs incurred for marketing, transportation, and compression. The landowner should insist on a clause that only permits deductions from roy-alty payments for severance and ad valorem taxes and no other deductions.

STORAGE RIGhTS AND DISPOSAl WEllSThe landowner should insist on language providing that the les-

see will have no right to use the leased premises for gas storage purposes, and will not be permitted to construct, operate or con-vert an existing well for use as a disposal well.

WATER TESTINGThe Ohio Revised Code, specifically Section 1509.22, does

provide some protection for the landowner’s domestic water sup-ply. However, the landowner should insist on lease provisions providing for testing of water wells both before and after the drill-ing operation at lessee’s expense.

SET-BACKSA clause should be included in the lease providing that no drill-

ing operations shall be conducted any closer than 500 feet to any house or structure on the surface of the land.

DOMESTIC GASDetailed provisions should be included in the lease that spell

out the landowner’s right to free gas for domestic use on an an-nual basis. I also personally prefer a clause that allows the land-owner to waive the right to domestic gas on an annual basis and take a cash consideration in lieu thereof.

uSE Of WATERA clause should be inserted in the lease indicating that lessee

has no right to use water from any ponds, springs, or creeks lo-cated upon the land.

PIPElINESA clause should be included detailing the depth to which pipe-

lines will be buried, particularly if the land is used in farming operations.

fENCES AND GATESThe landowner should consider a requirement that the lessee

shall install a fence around any well site on the property. The landowner should also have the right to request that a locked gate be installed on any lease access roads with a key provided to the landowner.

TIMBERThe landowner should consider a provision requiring the les-

see to obtain a professional appraisal and pay damages prior to removal of any timber from the property.

COMPRESSION fACIlITIESThe landowner should consider a clause that no compression

facilities will be installed on the property.

WARRANTY Of TITlEThe lease should include a clause that the landowner warrants

title only with respect to the best of his or her knowledge and that no claims will be made against the landowner pertaining to the quality of title.

Landowners may find that old oil and gas leases encumber their land or that a previous landowner in the chain of title reserved the oil and gas underlying the property. Certain statutes in Ohio may afford potential relief to the landowner in these situations. The forfeiture statute (R.C. 5301.332) offers a method for removing old oil and gas leases from the public record when there are no

Bruce SmithGeiger, Teeple, Smith

& Hahn LLP

Continued on pg. 19

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Ohio regulations earn national praise

In 2010, in an effort to pro-vide an Ohio response to present day health, safety,

and environmental issues being debated nationally, the state legislature passed Senate Bill 165 with bi-partisan support. The measure was quickly ap-proved by then Governor Ted Strickland. It was the largest update of Ohio’s oil and gas law since its inception.

The structure put in place with Senate Bill 165 was con-

sidered to be one of the nation’s most rigorous and stringent in the nation. The bill, among other provisions, required that operators submit to the Ohio Department of Natural Resources (ODNR) the “frac ticket” – a log of everything that went into the well during a hydraulic fracturing job. It also required that a well be properly constructed with sufficient steel casing and cement under Ohio law. To this end, a recent rules package further clarified the bill’s provisions on well construction by creating a set of industry standards required to construct a well in Ohio. Finally, Senate Bill 165 created a provision called “material and substantial violation.” In short, if an oil or gas producer improperly constructs a well (or violates other major provisions of Ohio oil and gas law), they may be placed in “material and substantial violation” of Ohio oil and gas law by the ODNR.

Environmental groups and peer-review organizations praised the measures that effectively put into place the necessary pro-tections that would meet the high standard of the industry’s best practices. The legislation was praised by STRONGER, a national state review process comprised of environmental, regulatory, and industry interests. STRONGER commended the ODNR for its role in revising Ohio oil and gas law. The report also stated that the Ohio hydraulic fracturing program was, “well-managed, professional, and meeting its program objectives.”

In June, working with input from various parties including the oil and gas industry, Governor Kasich signed into law Sen-ate Bill 315. The legislation is balanced and will help provide the public with the information that they require, while protect-ing the competitiveness of the state’s oil and gas industry. With the enactment of Senate Bill 315, Ohio now unarguably has the most robust and transparent set of oil and gas regulations in the country. This is something Ohioan’s can be proud of. They can also have the piece of mind that the industry is properly regulated by state experts.

Ohio is the verge of an energy-driven economy fueled by oil and gas exploration and production in the Utica shale forma-tion. The measures put into effect with the passage of Senate

Bill 165 and Senate Bill 315 go a long way to assure the public is aware of the high standards of safety and protection held by both the state and the industry.

While we continue to support the legislature in ensuring proper protections of human health, safety, and the environ-ment are put into law, the high standard put forward by Ohio’s oil and gas producers supersedes any law passed by any branch of government, including our own.

Ohio has a bright future ahead. The development of our state’s vast, abundant energy resources have proven to be the driving force in our economic recovery – and it will continue to serve as such. As Ohio reemerges as a leader in domestic en-ergy production, we will also emerge as a leader in job creation and economic revival, all the while remaining good stewards of the environment we call home.

Tom Stewart is Executive Vice President of the Ohio Oil and Gas Association, [email protected]

Tom StewartOhio Oil & Gas Assn.

Photo/Kevin GraffA drilling rig at work in Beloit on a new oil well

in Mahoning County.

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‘Things have been improving’ Industry revitalizes economies

Carroll County is in the heart of hydraulic frac-turing activities.

This activity has resulted in five new businesses in a six-mile stretch on state Route 43 and another three located at Area 330 MX Track, a moto-cross track that canceled its 2012 season.

New businesses are cropping up throughout Ohio as the oil and gas boom builds.

Amy Rutledge, director of the Carroll County Chamber of Commerce, counted 15 new businesses in Carroll County, but not all are contacting the chamber or the county’s economic-development office.

“People assume new businesses contact the county chamber or the county, but the truth is — they don’t,” she said.

What Rutledge can quantify is the increase of chamber memberships. Since April 1, 2011, the chamber has added 55 new members, 75 percent of those are new businesses to the area. She noted some of those new businesses included Kelchner Construction, Lindy Paving, Premier Services and Grady Rentals, as well as three or four pipeline companies. “Most of the growth has been in the oil and gas industry,” Rut-ledge said.

West of Carroll County, Gary Little, executive director of Tuscarawas County’s Community Improvement Commission, agrees. He noted Schlumberger Well Services is constructing a new facility in Strasburg near Interstate 77, while Tremcar USA, also in Strasburg, has seen an expansion with its semi-trailer tank business.

“We have another business, Kimble Manufacturing, which builds spe-cialty vehicles, that has picked up contracts for fracking trucks,” Little said.

Other trucking companies, such as Infinity Oil Field Services, have located operations in Tuscarawas County.Little reports various service companies have moved to the county or local businesses have expanded operations.

“I know some (oil and gas industries) are starting to use lo-cal help,” Rutledge said. “Some of the existing businesses are seeing an influx of business. Ace Hardware in Carrollton is starting construction on a new addition.”

Both Little and Rutledge point out the oil and gas boom has touched many local businesses, especially what the industry re-fers to as secondary businesses. Both county courthouses have been busy with lease agents, who are living in area hotels, and renting additional office space. As well, both counties’ indus-trial parks have seen interest from new businesses wanting to locate there.

Rutledge noted Carroll County restaurants are busier than they were last year and the county’s only hotel is running at 95 to 100 percent capacity.Tuscarawas County’s sales-tax receipts “are at the highest lev-els in history,” Little said. The increase in hotel and motel us-age is a contributing factor.

“There is a lot of excite-ment,” he said. “Local property owners have benefitted from the oil and gas leases and de-posited their money in local banks, who have seen increases in deposits. Manufacturers in the county saw a decrease in 2008 and 2009. A lot of busi-nesses have come back. Some in relation to the oil and gas in-dustry, some not. Things have been improving.”

Kimberly LewisDix Communications

Natural Gas to drive Ohio?

“Tuscarawas County’s sales-tax receipts “are at the highest levels in history”

Oil&Gas10


Natural Gas to drive Ohio?With the summer driv-

ing season in full swing, gas prices will

remain a key factor in determin-ing whether many Ohio drivers take to the road or stay at home.

As prices for gasoline contin-ue to hover around $4 per gallon, people are looking for alternatives. And here in Ohio, we have an option that

is not only affordable, but also cleaner and more efficient than gasoline or diesel.

Thanks to our abundance of natural gas, we can save money and protect the environment in making transporta-tion choices. Natural gas vehicles (NGVs) have tailpipe emissions that are 25 percent cleaner than gasoline or diesel fuel and emit less carbon monoxide, nitrogen oxide and particulate matter than vehicles fueled by other sources. Thanks to natural gas powered vehicles, drivers across the Buckeye state can meet their transpor-tation needs and protect the environment.

In addition to the environmental benefits, using NGVs to power large city or state vehicle fleets generate significant savings over

the life of the vehicle. Many fleet managers report savings between 15 percent and 28 percent by powering their fleets with natural gas. And in some of Ohio’s largest cities, where air quality can be a concern, fleets powered on natural gas are helping to clear the air. As community and state governments work to be good stewards of taxpayer funds during tight economic conditions, powering fleets with natural gas vehicles offers a cost-effective solution for trans-portation priorities.

And while many fleet manag-ers are enjoying the benefits of greater NGV use, many compa-nies are also investing in NGVs. Here in Ohio, Waste Manage-ment Columbus has converted its fleet to run on natural gas trucks and stands to gain sub-stantially from this decision.

This conversion is part of a company-wide plan to lower emissions by 15 percent and increase the fuel efficiency of its fleet by 15 percent by the year 2020.

The benefits of natural gas have already been recognized by fleet managers and private companies as a way to save money while also improving our environmental quality. With our abundance of sup-ply, natural gas vehicles can put all Ohioans on the express lane to a cleaner, affordable transportation future.

For more information, call (614) 644-6014.

State Rep. Brian Hill House District 94

Oil&Gas11

10039256

“Powering fleets with natu-ral gas vehicles offers a cost-effective solution for transportation priorities”


Taxes: Who pays what & and whenSince the shale devel-

opment phenomena emerged publicly about

a year ago in eastern Ohio, news spread quickly. Land-owners and oil producers be-gan calculating their share of the tax liability relative to oil and gas production, royalties and property taxes.

During an interview with Guernsey County Auditor Tony Brown and Deputy Auditor Bobbi Art, information about

the Ohio Dept. of Taxation’s formula for determining the value of a well was explained.

WhAT IS TAxED? “The state of Ohio has a formula that uses the

average daily production of oil and gas for each producing well,” Brown said. “That gives us a value for each well in production. The value of the well is taxed, not the production.”

He said the oil and gas tax is actually an ad va-lorem tax. Ad valorem taxes are incurred through ownership of an asset.

Property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax (ad valorem tax) which is levied similar to local real estate taxes.

“Gas and oil reserves are taxed only for the year in which, during any part of the preceding year, the well was in produc-tion. The surface is not taxed, meaning the actual well on the property is not taxed, additionally, no value may be added to

the surface (land) because of income generated by a lease or purchase of the oil and gas mineral rights. “And, no tax may be assessed against non-producing oil and gas reserve,” he said. “Oil and gas are not taxed until it comes out of the ground,” he said.

Oil and gas-related taxes are computed and assessed the same as local real estate taxes, ending the year on December 31. The landowner pays taxes only on the income generated from actual production.

OIl AND GAS REvENuEOil and gas revenue is considered to be ordinary income and

is subject to federal, state, and local income tax. Cash bonuses, or upfront lease bonus payments, are considered rent and are taxed as ordinary income, usually in the year received.

The one-time payment may place a landowner in the top in-come tax bracket for that year (35% in 2011). However, the de-duction of expenses such as attorney’s fees, deed/title searches, surveys, some surface damage payments, and property taxes is possible. Also, if the landowner has a working interest in the production of the gas, additional expenses such as intangible drilling costs, development costs, operational costs, equipment depreciation, and production tax credits might be deducted.

ROYAlTIES Royalty payments are considered ordinary in-come for the landowner. Again, if there is no production, there are no taxes. When the well

is producing, the oil and gas are subject to state and federal income taxes. How-

ever, because oil and gas is a natural resource and can be “used up” as it is produced and sold, most landown-ers will have the ability to deduct a

“depletion” allowance. This is simi-lar to depreciating a rental property or

the purchase of capital equipment over time. For natural gas, 15 percent of the landowner’s

gross income from the average daily production up to the total quantity of the gas is considered the depletion allowance. The depletion allowance is then limited to the smaller of either 100 percent of the landowner’s taxable income from the property (without depletion allowance factored), or 65 percent of the landowner’s taxable income from all sources (without deple-tion allowance factored in).

Something to think about: Selling mineral rights rather than leasing could offer the landowner significant tax advantages since selling can generate long-term capital gains. Long-term capital gains are taxed at 15 percent in 2011.

“We are still in the exploration phase ... It’s a long process that will not fix short-term funding,” said Brown. “It’s approxi-mately 32 months from drilling to initial revenue production. This estimate is the longest period between production start and property taxes received by jurisdictions (counties and states). People have to be patient.”

[email protected]

Judie PerkowskiDix Communications

“We are still in the exploration phase ... It’s a long process that will not fix short-term funding”

lorem tax. Ad valorem taxes are incurred through

Property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax (ad valorem tax) which is levied similar to local real

“Gas and oil reserves are taxed only for the year in which,

drilling costs, development costs, operational costs, equipment depreciation, and production tax credits might be deducted.

Royalty payments are considered ordinary income for the landowner. Again, if there is no production, there are no taxes. When the well

is producing, the oil and gas are subject to state and federal income taxes. How

ever, because oil and gas is a natural

lar to depreciating a rental property or the purchase of capital equipment over time.

Property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax (ad valorem tax) which is levied similar to local real

depreciation, and production tax credits might be deducted.

Royalty payments are considered ordinary income for the landowner. Again, if there is no production, there are no taxes. When the well

is producing, the oil and gas are subject to

Oil&Gas12


sediment. As the plants and animals became buried deeper in the earth, heat and pressure began to rise. The pressure com-bined with the heat inside the earth, compressed the biomat-ter and produced natural gas. After natural gas was formed, it tended to migrate upward through tiny pores in the surrounding rock. Over the ages some natural gas seeped to the surface, while other deposits traveled until they were trapped under im-permeable layers of rock, shale or clay. These trapped deposits are where we find natural gas today.

hOW IS NATuRAl GAS PRODuCED? Natural gas can be extracted through either vertical or hori-

zontal wells drilled into the trapped deposits underground. Re-cent technological advances in horizontal drilling and fractur-ing enable the extraction of natural gas from shale and deep rock (tight gas) formations. The horizontal drilling method uses vertical drilling from the surface down to a desired level, often a mile or two deep. Then, the drill is turned in a sweeping right angle and bores into a gas reservoir horizontally, directed by GPS. The wellbore is encased by a steel pipe cemented in place to prevent any leakage of gas or fracturing fluids. Hy-draulic fracturing is an innovative technique that involves pumping mostly water into the wellbore with enough pressure to create fractures in the rock formation. It is these fractures through which natural gas moves into the wellbore and up to the surface.

hOW IS NATuRAl GAS TRANSPORTED? Gathering pipelines and compressors transport the natural

gas to processing facilities to remove water, heavy hydrocar-bons such as ethane, propane and butane for sale, and any un-desirable gases such as carbon dioxide and hydrogen sulfide. An extensive underground pipeline network carries the pro-cessed gas from the wellhead to customers throughout most of the country. Natural gas can also be converted to a liquid state (LNG) for storage and for land or sea transport over long distances and to high-pressure compressed natural gas (CNG) for vehicle fuel.

Not only does the production of natural gas create wealth for producers and lease holders, it creates thousands of jobs and reduces our dependence on imported energy.

W. Norm Shade is the president of ACI Services Inc., head-quartered in Cambridge, OH. ACI is a leader in the manu-facture of custom engineered gas compressor products used throughout the world. Before heading ACI in 2004, he spent 32 years in various engineering and management roles with Cooper Cameron Corporation (now Cameron International) and 2 years developing his own Houston, TX based consulting company that continues to provide market research and tech-nical services to major companies in the oil and gas industry.

“What is Natural Gas” from pg. 3

Oil&Gas13

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Gas and oil development a fast-moving phenomenon

What a difference a year makes. Last year, most Ohio-

ans had not heard of the Utica Shale, today it is responsible for the creation of over 10,000 jobs (http://bit.ly/gasan-doil) and the revitalization of the Buckeye State’s economy.

It’s easy to understand why Ohioans are catching on. A recent New York Times (http://nyti.ms/nytimesutica) report shows over $4 billion has been pumped into the state’s econo-my on leasing activities alone

with an additional $3 billion invested in the production and transportation sectors.

We have also seen significant economic progress in Ohio’s long dormant manufacturing sector – including the return of the steel industry (http://on.wsj.com/wsjsteel). These devel-

opments alone make it clear that our state’s eco-nomic recovery has been, and will continue to be, tied directly to Utica Shale development.

As governor John Kasich pointed out during the State of the State Address, the Utica has had a major hand in reducing Ohio’s unemployment rate from 10.6 percent in December 2009 to to-day’s 7.5 percent rate.

Of course, this is just the beginning. Some studies estimate Utica development will create 205,000 jobs over the next four years. At the same time, additional reports (http://bit.ly/eido-hio) show Ohio consumers are already saving over $1.5 billion due to lower utility prices from increased shale development.

But this progress wouldn’t mean much if we couldn’t develop this resource safely. So far over 60 Utica wells have been developed with-out a single environmental violation (http://bit.ly/MoNGnc). Governor Kasich also just signed Sen-ate Bill 315 (http://bit.ly/O14txV) — bipartisan legislation that builds on Ohio’s already strong regulatory program. Even before the revised rules, Ohio’s shale development regulations were hailed as being “well managed” and “meeting their ob-jectives” by an EPA supported panel (http://bit.ly/O5mInk).

With the tools, institutions, workforce and a strong regulatory system in place, Ohio is poised for continued revitalization – in large part thanks to the development of the Utica Shale.

Mike Chadsey is Campaign Director for Energy in Depth, Ohio, www.eidohio.org

Mike ChadseyEnergy in Depth,

Campaign Director

“Our state’s economic recovery has been, and will continue to be, tied directly to Utica Shale development.”

Potential Marcellus in Ohio

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Fulton Lucas

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Franklin

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Butler

Hamilton

Clermont

WarrenClinton

Ross

Highland

Pike Jackson

Vinton

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Brown

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Lawrence

Gallia

Meigs

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Washington

Perry Morgan

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Muskingum

Licking

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Knox

Holmes

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Wayne

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Williams

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Oil&Gas16


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‘Take the money and run’

A bird in hand is worth two in the bush. Some-thing your parents and

grandparents always told you as you looked for more. Never is that saying more relevant than now in the midst of this oil and gas gold rush.

Over the past three or four years I have had several friends and people who know me from the oil and gas business call and ask about leases. Being a public official, I refrained from doing any business in my home

county, but that didn’t stop me from giving out free advice. I hope it was all good, but in some cases it was ignored anyway.

The main questions were: What should I do and is this lease for real? The last question was the most pressing as the “new” leases are up to 18 pages in length and can per-plex even the most seasoned oil and gas man in this Appalachian region. It would seem every attorney who has had his objections to leases over the last 100 years or so put in his two cents and every word was notated.

But, as I would tell the landowner, they are paying the big bucks and expect certain things. It’s not like the old days when eight hundred dollars for a lease was big money to all. Today money is changing hands in amounts never dreamed by me or those I have associated with.

So, what is a person to do?My advice has been to take the money and run. A nice new

Ford pick-up in the drive sure beats waiting things out until the price goes up or that piece of paper promising you soooo much money really does pay off. Truth is, if they haven’t paid you, that’s just what it is, a promise to pay.

What has been created is what the oil and gas guys call “flip-

pers.” They are generally oil and gas people that have gotten in on the ground floor of an area, promoted what they had and sold it to a willing buyer. Some have been good, some bad. Some really don’t know what the devil they are doing. I have seen them all over the last several years. It’s almost like an up-scale version of the boom in the 80s, and like that time period when things were economically slow, there are those that have joined the oil and gas ranks that don’t understand the business or just don’t care about anything more than the money.

But that’s not to say everyone is painted with the same brush. I have met some decent people over these past several months that I genuinely like and are out there working hard to make the American dream come true. That spirit of getting things ac-complished and the drive to make things happen is still there. That’s what makes this business so much fun.

That’s not to say everything can be laid at the feet of the per-son writing your lease. This area is fast approaching that time when the money is due for the lease. When it isn’t paid on time

or at all it leaves a very nasty taste in one’s mouth. It’s not just the local guys who invite you down to set in their parlor and negotiate a deal, the big boys are just as guilty. Running down to sign up your property at the local hotel may or may not have paid off. Title problems, old leases, or just plain not having enough acreage in an

area to form a unit may have convinced the leasing company not to hold on to the leases in your area.

Additionally, as the wells start to get drilled in this area, the drilling company may decide that they want to concentrate all or most of their efforts in one particular area. Why keep $50 million in leases in an area where the likelihood of drilling is extremely small or non-existent? Like I said, this day has already arrived for some and as this boom and drilling gets fleshed out more the more likely it will happen again.

So, is a bird in hand worth two in the bush?I had a friend who asked me and then did sign a lease for

$250 an acre. He built a new barn with his money. Another held out and held out. Last time I talked to him; he had leased for the big bucks and said he had received his check. He is in a hot area and the gamble worked out. Yet, some more friends leased with local guys they have known for years. Their gamble didn’t pay off as none were paid. I have since directed them to companies I know are working in their area and are paying their leases.

I guess the most direct answer would be to ask around about who your neighbors are with. Whether they are drilled or not, someone owns the deep rights. Companies are constantly mak-ing alliances or buying out acreage. Get with someone who is interested in your area. The likelihood of getting paid should go up dramatically. But, I would suggest to do it now before the rollercoaster starts going down.

Donald J. GaddIndependent

Landman, 39 years

“Today money is changing hands in amounts never dreamed by me, or those I have associated with.”

Oil&Gas18


producing wells or the term of the lease has expired. The Ohio Mar-ketable Title Act (R.C. 5301.47, et seq.) and the Ohio Dormant Min-eral Act (R.C. 5301.56) may also be of assistance in attempting to reunite severed oil and gas interests with the surface ownership of the land. However, these statutes are somewhat complex and the require-ments specified therein must be followed strictly in order to achieve the desired result. Another problem is that there is almost no case law in Ohio to provide guidance on how the courts will construe these statutes. Again, professional legal advice is highly recommended.

Bruce has been a member of the firm since 1976 and is the Managing Partner. He maintains a general practice with an emphasis on oil and gas law and civil litigation.

Bruce has represented clients throughout the State of Ohio and has briefed and argued cases in five of Ohio’s appellate districts. He served for five years as an Acting Judge of the Alliance Municipal Court.

Bruce serves as legal counsel for the Alliance Family YMCA and is the current president of its Board of Trustees. He was chairman of the Alliance Board of Zoning Appeals for seventeen years. Bruce also served as a board member and legal counsel for the Good Samaritan Medical Clinic and the Alliance Neighborhood Center. He is a past president of the Alliance Rotary Club and a Paul Harris fellow. He has been a member of the Ohio Oil & Gas association for many years and has addressed various groups on oil & gas matters.

“Leasing Tips” from pg. 6

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WIDE range of job opportunities

One of the positive outcomes related to Ohio’s natural gas

and crude oil industry is the fact that it provides at least 15 different entry-level jobs and 59 degree positions. These po-sitions represent opportunities in a wide range of work envi-ronments for people with dif-fering abilities.

Information provided by Ohio Oil and Gas Energy Education Program indicates field posi-

tions may require either technical studies related to petroleum ge-ology, or petroleum, mechanical, or electrical engineering, etc., or a two- or four-year or higher degree that is industry specific. Entry-level jobs include: automation technician, derrickhands (three- to five-person person drilling or well servicing crew); equipment operator in cementing, coiled tubing, fracking and acidization, logging, and service tools; facilities operator; floorhands (three- to five-person workover rig crew); lease operator (well tender/pumper); records coordinator; roust-

about (unskilled tasks); supervisor at workover rigs; truck drivers; welders. Some of these positions require a high school diploma or GED, while others require technical schooling.Degree and higher education positions include: Attorney; business analysis or development; unit vice president; com-munity relations; completions engineer or superintendent; construction; controller; development; division order analyst or coordinator; drilling engineer, superintendent, or techni-cian; environmental advisor or field coordinator; electrical and instrumental technician; electronics technician; engineer-ing technician; facilities or field engineer; drilling engineer; field operations; financial, fundamentals or gas balancing analyst; natural gas controller or marketing; geologist; geo-physicist; geoscience technician; government affairs; human resources; accountant; land coordinator; land mapping; land negotiator; landowner relations; lease analyst; lease records; mechanic; diesel mechanic; mud engineer; office services; petroleum engineer; plant coordinator; procurement; produc-tion coordinator, services or technician; regulatory or rental analyst; reservoir engineer; revenue accountant; technical services; transaction analyst; water systems engineer; welder.For job descriptions, locations, and education required, visit www.oogeep.org.

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Oil&Gas21

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Photo/Kevin GraffWorkers in Mahoning County pour concrete around the

sheath at a new well in Beloit to help protect the local water.

Oil&Gas22

Minimize the ‘footprint’ of development

Drilling for gas and oil is not something new in the Beloit/Sebring

area in Mahoning County. Neither are the names Greg New or Dorfman Productions. New, who is vice president of Dorfman Productions, has been in the gas and oil busi-ness for more than 30 years. With the recent upsurge in drilling in Ohio, hy-draulic fracturing (frack-ing), once a somewhat ob-

scure term, has become a hot topic. However, according to New, hy-draulic fracturing is a part of the drilling process; a part of the pro-cess that started in the 1950s. New explained some oil field termi-nology, which he said is very basic.

“When a derrick is standing up on a site, that is called a “drilling rig” on a drilling location or site, not a station or oil drilling station,” he said. “Drilling and fracking are two completely dif-ferent operations. Drilling operations use a drilling rig to drill the hole and run production casing. It then is disassembled and removed from the site. The frack-ing process, which usually occurs weeks later, does not involve any drilling equipment or rig. Fracking equipment or “frack” trucks are trucks that have pumps mounted on them that pump water. There is no such thing as a horizontal fracking rig.” During a recent visit to a drilling site just north of Beloit, New explained the compo-nents and procedure of drilling an oil and gas well. In this application, a portable drilling rig that was approximate-ly 100 feet high was set up. Two drilling pits were constructed and lined with plastic to ensure no leaks. The pits are used to hold and circulate water that carries cuttings from the well bore. At this particular site, there are 13 water wells within the area. In the drilling process, the pipe or casing is sur-rounded by concrete to protect the fresh water supply. “The process of fracking makes cracks in rocks underground that creates avenues for oil and gas to return to the pipe,” New said. New stressed that the fracking process does not have an ad-verse affect on the environment. Common materials are used, including guar, a friction reducer and jelling agent when mixed with the water and pumped down the well. Guar is a

common ingredient found in foods such as chewing gum and is used as a thickening agent in foods. Play sand and surfac-tant, which is similar to dishwashing soap, are added to it. Also, New’s type of well minimizes the impact on the environ-ment.

“The footprint is a lot smaller,” New said. When the drilling and fracking process are done, natural gas and oil are produced from that well. The gas can be used to heat a home and the oil produced from the well is sold by the drilling company.

“This is Penn 10 grade crude oil, which is high in lubricating value and refined in Pennsylvania and West Virginia,” New said. Anyone who has leased their land to a gas and oil compa-ny will also receive royalties from the sale of the oil. Many landowners have been approached by gas and oil companies

that want to purchase drilling rights. However, the landowner must under-stand that the lease should specify depth. The type of wells that New’s company drills would be stipu-lated in the lease as shallow-well drilling rights. Up to three lay-ers can be specified for drilling. In any case, the landowner would receive a signing bonus and a stipulated dollar amount per acre. Due to state and federal laws that

drilling companies must adhere to, if a landowner has the op-tion to lease land to a drilling company, it can be a good situ-ation for both parties. Land owners are encouraged to seek professional advice.

Gayle Agnew Dix Communications

“This is Penn 10 grade crude oil, which is high in lubricating value and refined in Pennsylvania and West Virginia,”


Oil&Gas23

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Building a pipeline to the Future

MarkWest Energy will be building up to 140 miles of pipeline in three eastern Ohio counties during the next two years to transport natural gas to its process-

ing facility being built in a Cadiz industrial park.Denver-based MarkWest announced earlier this month that

it has reached a definitive agreement with Gulfport Energy of Oklahoma City to provide gathering, processing, fractionation and marketing services in the Utica shale area of eastern Ohio. The project will be handled by MarkWest Utica EMG, a joint venture between MarkWest Energy Partners and the Energy and Minerals Group, a management company for a series of private equity funds.

Under the agreement, MarkWest will develop natural gas-gathering infrastructure primarily in Harrison, Guernsey and Belmont counties beginning this year. The company hopes to have 60 miles of pipeline completed by the end of this year and up to 140 miles by the first quarter of 2014.

MarkWest will process Gulfport’s natural gas at its complex under con-struction in Cadiz.

Gulfport has concentrated its leas-ing efforts obtaining at least one Uti-ca permit filed in Guernsey County, two in Belmont County and two in Harrison County.

According to a “meet and greet,” Gulfport said its focus would be in these three counties with 30 wells drilled this year and 50 in 2013 and 70 in 2014.

The company has already reportedly drilled two wells in Harrison, two in Belmont and one in northwestern Guernsey County.

For an in-depth look at drill sites/permits in the Marcellus

and Utica Shales, visit the ODNR Division of Oil and Gas Re-sources Management’s Shale Development Resources page.

In addition, MarkWest also is going to build a fractionator in Harrison County, but the site has not been disclosed yet, nor has the site of a similar facility in Noble County.

The company is reportedly continuing to look at privately-owned sites in both counties.

Natural gas liquids will be extracted from the natural gas at the processing plant, using a cryogenic process, and then the natural gas liquids will be broken down into their base com-ponents so they will be commercially useful through a process called fractionation at the fractionators.

A pipeline will also reportedly be constructed to connect the Harrison and Noble facilities.

The company is also reportedly purchasing office space in Harrison County.

In addition to construction jobs and then jobs when the facilities are brought online, taxes generated off these facilities should help the schools and townships in counties where ac-tivity takes place, officials said.

That’s good news for counties with high unemployment rates.

Noble County’s jobless rate in April was 10.4 percent, compared to 8.5 percent in Harrison County, 8.4 per-

cent in Guernsey County, and 7.1 percent in Belmont County. By comparison among the state’s 88 counties, the April 2012 unemployment rates ranged from a low of 4.5 percent in Mer-cer County to a high of 13.5 percent in Pike County

For updated statewide historical jobless data visit http://ohi-olmi.com/asp/laus/vbLaus.htm

MarkWest will develop natural gas-gathering infrastructure primarily in Harrison, Guernsey and Belmont counties beginning this year.


Oil&Gas25

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‘Don’t be Greedy’Everyone’s better off with common sense

When it comes to ad-vice about questions related to the oil and

gas industry, Gerald Benson, owner of Mattmark Drilling Co., has been in the business for 40 years and knows from whence he speaks.

“My interest is oil and gas leasing, and with drillers,” Benson said. “Landowners need a lease they are comfortable with. And they need to know that not one word can be changed without the landowner’s consent. Every lease is 20-plus pages, it spells out the commitment of the oil company. But we don’t want to make it too difficult for them to operate within the agreement.

“Don’t be greedy.”“In order for this (drilling) to flourish, we need model terms

and conditions in the lease, which refers to the operation. We don’t want to re-write the original lease. Royalties can be changed because they are unique to each property, but the language relat-ing to the operation should be stan-dardized. If we use common sense, everyone will be better off.

“The Utica Shale Play is being compared — by geologists and other industry gurus — to the three other major plays in the U.S: The Barnett and Eagle Ford in Texas and the Bak-ken in North Dakota, which has just surpassed Alaska as the second larg-est oil producing state. Texas is nu-mero uno. They believe that the Utica has that same potential, and could be the biggest shale play in the world!” said Benson.

“People are very excited to receive their bonus money and royalties. But, remember, bonus money is taxed between 35 and 40 percent. As an example: If you are paid $4,000 an acre for 50 acres, that’s $200,000, of which $80,000 will go to the federal government. You are better off to pay it up front,” he said. “Landowners should also be aware of the oil and gas by-products that are stripped from the gas, right on their property. So, make sure you get your share when production begins.”

And, he said repeatedly, talk to an accountant, financial advi-sor, banker ... Just make sure they are someone familiar with the oil and gas industry.

“Before you talk to anyone make sure the person(s) is a member of two or three of the following organizations: Ameri-can Association of Petroleum Landmen, Society of Petroleum Engineers, Independent Petroleum Association of America, American Association of Petroleum Geologists, Ohio Oil and Gas Association, or the International Association of Drilling Contractors,” he said. “Ask a lot of questions. If the people you talk to — legal advisors, accountants or investment bankers — are not card-carrying members, don’t waste your time talking

to them.“We must also remember that

the Utica Play is the focal point of the world. We must be responsible in all we do and whatever we say. And, don’t worry so much about the license plate on their vehicle, be more cautious of their creden-tials.

“The bottom line is, we are in for one heck of an economic stim-ulus.”

In reference to the proposed in-crease in the severance tax, Benson said, “With the stroke of a pen in Columbus, it could be over.”

Benson was born in Manchester, England, and has been a resident of Guernsey County for 42 years. He became a naturalized citi-zen in 1977. He emigrated to the U.S. in 1971; his first employer was the Gossett Oil Co. in Texas.

In 1972, together with a group of investors he formed the Benatty Corp. and drilled the company’s first well, the E.K. Reed No. 1, in Renrock, south of Cumberland, which has pro-duced in excess of one billion cubic feet of gas, and is still producing to-day. The Reed well and 146 acres was

purchased from the East Ohio Gas Co. for $3 per acre.In 1989 Benson purchased two drilling rigs and equipment

and formed Mattmark Drilling, named after his two sons. As a contract driller, Mattmark drilled 252 wells for other oil and gas producers in Ohio.

“Throughout the years, the Benatty Co. drilled and complet-ed 452 wells as an oil and gas producer before the partnership wells were sold to the Belden and Blake Corp. in 1998. At this time, Mattmark sold its drilling equipment and acquired the remaining assets of the Benatty Corp. Since then Mattmark Drilling has been active in maintaining its oil and gas assets, primarily mineral leases, oil and gas royalties and working interest production. The company continues with its 40-plus years of experience by actively acquiring oil and gas leases in the Utica Shale Formation,” said Benson.

“Mattmark Drilling, a division of Mattmark Partners, Inc., is a 100 percent family-owned business. The Benatty Corp. was founded and located in Cambridge, and Mattmark runs its busi-ness through offices in Byesville.”

Mattmark, Gerald Benson and Mark Benson are current members of the SouthEast Ohio Oil and Gas Association and the Independent Petroleum Association of America.

Gerald BensonOwner, Mattmark

Drilling Co.

“Ask a lot of questions. If the people you talk to - legal advisors, accountants or investment bankers - are not card-carrying members, don’t waste your time talking to them.”

Oil&Gas26



Oil&Gas27

OhiO Well Activityby the numbersMArcellus shAle8 Wells Permitted

146 Wells Permitted39 Wells Drilling49 Wells Drilled16 Wells completed10 Wells Producing1 Well Plugged

0 Wells Drilling

3 Wells Drilled

4 Wells Producing15 total horizontal Permits 261 total horizontal Permits

uticA shAle

Data as of 6/18/12 Source: Ohio Department of Natural resources


Oil&Gas28

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NeedInformation? Here’s Help

Searching for informa-tion on the oil and natural gas industry

in Ohio? There are a num-ber of professional groups and government agencies that can assist:

OhIO OIl & GAS ASSOCIATION

The Ohio Oil & Gas Associ-ation (OOGA) is a trade as-sociation boasting a mem-bership of more than 2,600 involved in all aspects of the exploration, production

and development of crude oil and natural gas resources within Ohio.The group’s website at www.ooga.org/ includes informa-tion regarding the oil and natural gas industry, market in-formation and job postings and opportunities within the industry.OOGA offices are located at 1718 Columbus Road SW, Granville. The mailing address is P.O. Box 535, Granville, OH 43023-0535. Telephone number is 740-587-0444.OhIO OIl & GAS ENERGY EDuCATION PROGRAMThe Ohio Oil & Gas Energy Education Program, formed in 1998, provides a number of programs throughout the state focusing primarily on teacher workshops, scholar-ships, education, firefighter training, industry and work-force training, research, landowner and guest speaker programs.The group’s website at www.oogeep.org/ includes in-formation regarding the oil and natural gas industry, job postings, educational programs, land leasing and fire-fighter training programs.OOGA offices are located at 1718 Columbus Road SW, Granville. The mailing address is P.O. Box 187, Granville, OH 43023-0535. Telephone number is 740-587-0410. Fax number is 740-587-0446.

SOuThEAST OhIO OIl AND GAS ASSOCIATIONThe Southeastern Ohio Oil and Gas Association is a non-profit organization of local producers and businesses involved in the natural gas and oil industry. Formed in 1978 by local gas/oil producers, SOOGA addresses is-sues unique to the mid-Ohio river valley. Membership has steadily grown from the 64 companies participating in the inaugural organizational meeting.

The website at www.sooga.org/ lists information about upcoming events and services offered through SOOGA.The mailing address for the SOOGA office is P.O. Box 136, Reno, OH 45773. Telephone number is 740-374-3203. Fax number is 740-374-2840

OhIO fARM BuREAu fEDERATIONAmong the stated goals of the Ohio Farm Bureau Feder-ation is to protect property rights of owners and to assist property owners with gas and oil issues.The website at www.ofbf.org/ lists resources and news items.The Ohio Farm Bureau Federation office is located on the sixth floor at 280 N. High St., Columbus, OH 43215. Telephone number is 614-249-2400. Fax number is 614-249-2200.

OhIO ShAlE ENERGYOhio Shale Energy is an online database of businesses offering goods and services critical to the natural gas and oil industry.The website at www.ohioshaleenergy.com/ includes a searchable map listing such businesses and informa-tion regarding upcoming industry conferences and other events.Email address is [email protected].

ENERGY IN DEPTh, ThE OhIO PROJECTFormed by the Independent Petroleum Association of America (IPAA) three years ago, Energy In Depth (EID) is a “research, education and public outreach campaign focused on getting the facts out about the promise and potential of responsibly developing America’s onshore energy resource base — especially abundant sources of oil and natural gas from shale and other “tight” reservoirs across the country. It’s an effort that benefits directly from the support, guidance and technical insight of a broad segment of America’s oil and natural gas industry, led in Washington by IPAA, but directed on the ground by our many affiliates — and IPAA’s more than 6,000 members — in the states,” reads the group’s website at www.ener-gyindepth.org/.The local contact is Shawn Bennett, email is [email protected]. The local office is located at 1919 Maple Road, Cambridge. Telephone number is 614-738-6220.

AMERICA’S NATuRAl GAS AllIANCEAmerica’s Natural Gas Alliance is an alliance of nearly three dozen natural gas and oil producers.The ANGA website at www.anga.us/ provides industry information, both technical as well as market and finan-

Dan DavisDix Communications

Oil&Gas30


cial. The ANGA office is located at 701 Eighth Street, NW, Suite 800, Washington, DC 20001. Telephone number is 202-789-2642. Email address is [email protected].

OhIO DEPARTMENT Of NATuRAl RESOuRCES The homepage of the Ohio Department of Natural Re-sources website at www.dnr.state.oh.us/ has a link to “Shale Development.” The website provides information on several relevant nat-ural gas/oil industry topics, including hydraulic fracturing, waste water injection wells, leasing and environmental is-sues. Contact information for regional offices is also avail-able on the website. The gas and oil offices of the ODNR are located at 2045 Morse Road, Building F, Columbus OH 43229-6693. Tele-phone number is 614-265-6922.

OffICE Of ThE OhIO CONSuMER’S COuNSElThe Office of the Ohio Consumer’s Counsel is a residen-tial utility consumer advocate that serves as a resource for residential consumers with questions, concerns or com-plaints regarding their utility services, including natural gas providers.Among the categories under the “Natural Gas” menu on the website homepage at www.pickocc.org/ is a list of several natural gas companies operating in Ohio. Several have links to company websites are listed.The office is located at 10 W. Broad St., Columbus. The mailing address is 10 W. Broad St., Columbus, OH 43215. Telephone numbers are 614-466-8574 or 877-742-5622 toll free.

Photo/Kevin GraffA tri-cone dril bit with tungsten carbide inserts used for

drilling oil wells in the area.

Oil&Gas31

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MAC Trailer adds 400 Jobs with Gas and Oil Growth40% Growth in business due to Gas and Oil

After struggling with sales when hard eco-nomic times hit in

2008 and 2009, Mike Conny, owner of MAC Trailer Manufacturing, of Alliance, scaled back and held on.

One has to act quickly to capitalize on the oil and gas indus-try as it sets up in the state of Ohio, and through pure persever-ence, Conny was poised to do exactly that. As a result, he grew his business by 40 percent.

“In 2008, no part of my business was in oil and gas. Now, a big part of my business is serving the oil and gas industry,” Conny said.

Conny and one of his executives, Jim Maiorana, flew to Germany to look at designs for a pneumatic tank because with sales sagging, he wanted to infuse their trailer line with a new product. The pneumatic tank was a good choice, he said, be-cause of the market it served in sugar, flour, cement — and sand for horizontal well drilling (fracking).

“In 2008, I had no idea the oil and gas business was going to take off like it did across the country,” Conny said. “In the beginning of 2010, we saw a huge demand for a pneumatic tank to haul fracking sand, and the market has been wide open since then. They want as many as we can build, as fast as we can build them.”

Conny partnered with Maiorana to buy an existing 200,000-square-foot facility in Kent for an expansion in Janu-ary. MAC also has a facility in Salem and is now making a tank to haul crude oil and is moving into trailer repair. Governor John Kasich visited the Kent and Salem plants, and U.S. Sec-retary of the Interior Ken Salazar toured the Kent plant as well, citing it as proof of the fact that industry is making a comeback.

“MAC grosses $250 million per year (sales), with about one half of that (and 400 new employees) being due to oil and gas,” Conny reported. He added he believes the future in the area looks good because, “The oil and gas reserves in Columbiana and Carroll counties are some of the best in the world.”

Laurie HuffmanDix Communications

Photo/Gayle AgnewMichael A. Conny, president and owner of MAC Trailer,

stands beside a trailer built at the facility that is used for hauling fracking sand. MAC manufactures many types of

trailers used in the oil and gas drilling business.

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Checking Facts. Busting Myths

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Can Farm and Lease Coexist?

An oil and gas lease can change the life of a farmer, but for many

in the agriculture business, en-suring the productivity of farm-land is a priority.

Craig Sweger a landowner, consultant and farmer from Avella, PA has been helping farmers and landowners in Ohio and West Virginia. Pennsylva-nia preceded Ohio in hydraulic facturing activity and Sweger learned first hand about the

impact and mineral leases. Sweger now helps lessors protect their land while embracing the drilling opportunities at hand. Sweger encourages all landowners to take their time with the lease and ask questions.

“Don’t feel obligated to sign, and only sign when you have a good understanding of what is in that lease,” Sweger said. “Take as much time as you need until you’re comfortable.” Leases detail the parties involved, a description of the land be-ing leased, the duration of the lease, activities the company is allowed to perform in the lease, the amount of the compensa-

tion and an addendum section. “A lease is a contract; you’re pretty much bound by it.

You want to make sure you can live with it,” Sweger said. The lessor can specify the provisions he or she is in-sisting upon in the addendum. Sweger recommends giving the addendum section authority over the rest of the lease in case any conflicts are found later. During lease negotiations, Sweger advises that farmers make sure the lease permits the activity at hand and leaves no room for additional projects. In the addendum, landowners can spec-ify that they are not signing a lease for pipelines, compression stations or frack ponds. Sweger also suggests that lessors sign leases with limited time frames and no “held by production” clauses to avoid surprises.

“If the company wants to, they can come back and talk to you in five years,” Sweger said. Any provisions on the reclamation process should be included in the addendum as well. Reclamation is the conversion of leased land back into productive, arable land. Farmers may want to consider the size and scope of the drilling impact. A typical well site and road take about 10 acres of land. After reclamation, a farmer can expect the disturbances to be smaller, but there will still be a presence of tanks and wellheads on the property.

Malory EvansDix Communications

“Originally, I thought that gas could be the end of agriculture as we know it…But I’m seeing people invest in milking parlors and newer farm equipment. It seems to be having a positive impact on the farming community.”

Continued on pg. 44


Oil&Gas35

4 Great Office Locations Zanesville (740) 455-3730 - Dresden (740) 754-1162

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Museum among nation’s largest for oil and gas tools

Fifty-three years after the late Ken Miller opened his first shop in Wooster,

Ken Miller Supply, Inc. has evolved into a multi-million dol-lar operation by maintaining a strong foundation supported by dedicated family members and employees.

Ken Miller grew up learning about the oil and gas industry from his father who worked for the Ohio Fuel Co. “swabbing” wells and working on a casing gang. Swabbing is another word for cleaning out the steel casing in a well. Casing is large diam-eter pipe that is assembled and inserted into a recently drilled section of a borehole and typically held into place with con-crete.

Ken and Lois Miller founded the business in 1959 when they began renting “frac tanks” — a generic term for mobile steel storage tanks used to hold liquids — and buying and selling used pipe and production equipment.

Today, the business has solidified the legacy of its founders as a “hands on” supplier of quality tubular products and ser-vices for the oil and gas industry: equipment for well, rotary, portable well, soil and hole drilling, and as a threader and hy-drotester of oil country tubular goods.

Ken Miller Supply employs 150 people, including 15 family

members in office, yard, field, and part-time positions. Since the second generation of the Miller family assumed leadership roles, with current CEO, Jack Miller, at the helm, and Max Miller as treasurer and credit manager, the business has ex-panded to 11 supply stores and pipe yards located throughout


Ken Miller Supply, Inc.Wooster, Ohio


Oil&Gas37

“You can’t go wrong withthe WRIGHT fuel.”

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Ohio, Pennsylvania, West Virginia, Virginia and Kentucky. Several members of the third generation of Millers have al-

ready made their mark in the business: Kirk Miller, vice president; Brooks Miller, sales; Lindy Chandler, human resources; Brandon Grosjean, field operations; and Cole Miller, field operations.

Vice President Kirk Miller said the recent influx of oil and gas companies into the region has been a boon to the business.

“It has had a very big impact, and is responsible for the majority of business at the various locations,” he said. “The longer I am in this industry the more I realize how huge this is for our state and the job market in general.”

Ken Miller Supply, Inc. is at 1537 Blachleyville Road, Wooster.The family’s heritage is showcased at the Ken Miller Supply

Museum, a private oil, gas, car and truck museum in Shreve. Ken Miller began collecting old equipment and storing it in

barns until the mid-1980s when he built a structure large enough to accommodate his acquisitions. He continually added to his col-lection until his death in 2006.

The museum has grown to be among the largest U.S. collections of oil field tools, machinery and photos on display. One of most interesting pieces is a car with four engines, at one time considered to be the fastest in the world.

The Shreve Historical Society is the museum’s curator. Admis-sion is free on the Saturdays the museum is open.

The museum is north of Shreve, 15 minutes south of Wooster on State Route 226 (7920 Shreve Road).

For more information, call (330) 496-4024 or (330) 378-2121.

Ken Miller Supply Museum Wooster, Ohio

Floorhand Floor•hand noun: Laborer responsible for the overall maintenance of the rig.


Oil&Gas38

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‘Organized chaos’ Gas and oil surge busy for county recorders

Faced with the arduous task of researching deeds for oil and gas companies, abstractors

armed with laptops and surge protectors have been lining the hallway leading to County Recorders’ offices almost daily, said Guernsey County Recorder Colleen Wheatley.

But, in spite of this organized chaos, Wheatley said she and her staff of four have garnered kudos for their efficient and prompt handling of the sought-after documents by landowners and by people associated with the oil and gas industry.

“It’s been a continuous flow of activity and excitement about what’s going on in Guernsey County,” Wheatley said. “And there seems to be to no end.”

What has become a familiar topic of discussion in eastern Ohio is still somewhat of a mystery to many counties not immersed in the Marcellus/Utica Shale conversation. Wheatley said this was evident at the biannual Ohio Recorders’ Association Seminar held recently at the Salt Fork Lodge and Convention Center.

“When I told some of the recorders how crowded we have been at the courthouse since last November, they get this quiz-zical look on their face. It wasn’t until after the seminar was over and I took them to my office that they understood what I was talking about,” said Wheatley. “Approximately 50 people a day, on average, visit the recorder’s office.”

Recorders from several counties in the region offered insight into their role of providing information to landowners and oil and gas company workers at their respective offices.

Carroll County Recorder Patti Oyer said her offices serves between 30-35 people a day; Paul McKeegan of Jefferson County, Lori Smith of Tuscawaras County and Ann Block of Monroe County all said they are “very busy” attending to 50 to 75 people a day. Tracey Wright of Washington County said she is hoping for a resurgence because activity at her office has actually dropped off dramatically in the past couple of months.

The county recorder and staff has the tremendous responsi-bility of keeping, recording and organizing all documents per-taining to real estate ownership, and any encumbrances or liens on the property. Each document must be indexed for easy ac-cess so persons searching land records can find necessary docu-ments to establish a history of ownership, and ensures any debts or encumbrances against the property are evident.

“The process begins when the land owner hires an attorney to first do a mineral search,” Wheatley said. “The attorney pre-pares the abandonment document that is filed and indexed in the present surface owner’s name, and against the person that reserved the minerals years ago. The attorney places the ad in the newspaper for public notice for the prior heirs or compa-


Continued on pg. 44


Oil&Gas39

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County recorders and guest speakers at the Ohio Recorders Association Seminar at Salt Fork Lodge & Conference Center June 11-12. Back row, l to r, guest speaker Dale Arnold, Ohio Farm Bureau; Washington County Recorder Tracey Wright, guest speakers David Hill, of David R. Hill, Inc. and Rhonda Reda of the Ohio Oil & Gas Energy Education Program; ORA President Rick Campbell, Jefferson County Recorder Paul McKeegan; seated, Monroe County Recorder Ann Block, Tuscawaras County Recorder Lori Smith, Guernsey County Recorder Colleen Wheatley and Carroll County Recorder Patti Oyer.


Oil&Gas40

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The perfect business area with high traffic, located on the corner of SR 36 and SR 416 near Gnadenhutten. Real Estate taxes are currently on CAUV. Frontage and lot sizes are estimated as well. Two parcels to choose from, one with river frontage, 6 to 7 acres each.

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Developers take a look, almost 86 acres of PRIME Flat Land! 4,000 feet of frontage on State Route 36 and rail site with own rail road crossing. Endless possibilities here! 1,000 feet of frontage on the Tuscarawas River with over 6,000 feet of road frontage!

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50 x50 all Metal Building, on 1 acre located in New-comerstown. Two 14 ft. overhead doors with 200 amps electric service. City water and sewer available.

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If You’re Thinking of Buying or Selling Commercial, Call Ron Today!

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Office: 740-498-5275 Cell: 330-204-1025 10045736


Oil&Gas41

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Knowledge to FuEL the futureRecognizing the need to prepare for the influx of workers in the oil and gas industry, several local colleges and universities offer a number of programs and courses:

YOuNGSTOWN STATE uNIvERSITY (YOuNGSTOWN)The university has announced it is opening a Natural Gas and Water Resources Institute, to be lead by Martin Abraham, dean of the College of Science, Technology, Engineering and Mathematics. The institute provide undergraduate courses and a gas technologies minor.

For program information, call 330-941-2314 or visit www.ysu.edu

STARK STATE TEChNICAl COllEGE (NORTh CANTON)Stark State Technical College offers an Applied Industrial Technology Program that specializes in the oil and gas indus-try as a degree program. It also offers a two-week Welding Program, corporate services training specializing in the oil and gas industry, and an Engineering, Industrial, and Emerg-ing Technologies Division for students majoring in the oil and gas industry.For more information, call the college at 330-494-6170 or visit www.

starkstate.edu

ZANE STATE COllEGE (ZANESvIllE)The Natural Gas Engineering Technology associate degree program includes classroom, laboratory and field experiences.A sample course curriculum covers: Natural gas distribution and compression; petroleum geology; oil and gas reservoirs; formation evaluation; industrial mechanics; drilling methods/operations; field services; natural gas production; mineral rights and leases; world regional geography; physics; introduc-tion to mechanical modeling; and general chemistry. Curricu-lum also includes an internship.For program information contact Engineering and Energy Science

Professor Daniel Durfee, 740-588-1282 or [email protected]. College website is www.zanestate.edu.

BElMONT TEChNICAl COllEGE (ST. ClAIRSvIllE)

NGT 100 - Introduction to the Oil and Gas Industry is a 5 1/2 week 4-credit course beginning on July 3 and meeting Tues-days and Thursdays from 5:30 to 9:30 p.m. at the main cam-pus. End date is Aug. 7.This course provides a survey of the oil and gas industry, its history, development, influence on society and work politics, and its current state. The course will cover concepts of petro-leum discovery, geology, production, transportation, refining, marketing, and economics.Course learning outcomes include: To introduce the petroleum industry from inception to the present; to review the history of petroleum and natural gas development as a function of changing society and technology; to explore the discovery, geologic development, and technology of oil and gas produc-tion; to introduce the techniques of modern on and off shore

exploration and production; to review domestic and world mar-kets for oil, gas, and their many derivative products; to explore current world use, future demand, and alternatives; and to in-troduce U.S. and state regulations on the industry.

For registration information call 740-699-3809. College website is www.btc.ed.

WAShINGTON STATE COMMuNITY COllEGE (MARI-ETTA)

New programs and courses offered for credit include: Geosci-ence; Geotechnical Drafting; Private Security Academy; and Introduction to the Oil & Gas Industry.Existing programs and courses to support the oil and gas in-dustry include: CAD Drafting; Electronics; Industrial Machining & CNC; Instrumentation, Control & Electrical; Process Techni-cian; Chemical Operator Online; and Diesel Truck Technician.For program information contact Dean of Business, Engineer-ing & Industrial Technologies Brenda Kornmiller, 740-374-8716 or [email protected]. College website is www.wscc.edu.

MARIETTA COllEGE (MARIETTA)Bachelor of Science degree offered in petroleum engineering. Courses required of all petroleum engineering majors include: Petrophysics; Core Analysis Laboratory; Drilling and Comple-tion Fluids; Well Control and Casing Design Laboratory; Hy-drocarbon Phase Behavior; Reservoir Engineering; Drilling Engineering; Production Systems Engineering I; Production Systems Engineering II; Formation Evaluation; Enhanced Re-covery; Natural Gas Engineering; Transient Pressure Analysis; and Senior Capstone Design Seminar.

For program information contact Dr. Robert W. Chase, 740-376-4776. College website is www.marietta.edu

KENT STATE uNIvERSITY (KENT)The Oil and Gas Management Certificate is designed to en-able industry executives, senior budget-holders and decision-makers in investment banks, consultancies, government agencies and large multinational corporations to evaluate and manage risk and exploit business opportunities in the global oil and gas industry.The course includes three modules: Module I, Project Man-agement in Oil and Gas – Managing Resource; Module II, Oil and Gas Accounting – Oil and Gas Operations and Costing; and Module III, Essentials of Leadership.Cost includes an Apple iPad2TM pre-loaded with course ma-terials.The course is offered during the summer and fall to suit an organization’s schedule. May be arranged for a group of 20 or more.

For further information, contact Dr. Pratim Datta at [email protected] or Pam Silliman at [email protected]. College website is www.

kent.edu.


Oil&Gas43

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“It’s going to limit the use of about five acres of land forever,” Sweger said.This is one reason Sweger advises farmers to try maintain-ing as much control as they can on well placement. If a farmer has 50 acres of crop ground and 50 acres of pasture, landown-ers can try to have the well placed in the pasture to preserve available cropland. Sweger estimates that a well site can usu-ally be moved 500 to 1,000 feet from the proposed location.The oil and gas industry may change the business of farming for many, but Sweger said the relationship between agriculture and drilling can be mutually beneficial.

“Originally, I thought that gas could be the end of agriculture as we know it,” Sweger said. “Who would keep milking cows twice a day and working this hard if they didn’t have to? But I’m see-ing people invest in milking parlors and newer farm equipment. It seems to be having a positive impact on the farming community.

nies to come forward within the 60 days of the ad being filed and also the abandonment document. The heirs or companies in that time frame can come forward and file a Notice to Preserve the minerals. If they do not, then the surface owner retains the mineral rights and is able to lease the land. After the 60 days has expired the attorney files a document for the recorder to memorialize the record. The Preservation of Minerals is the document the heirs would file to keep the mineral rights. That is a separate document that is filed within the time frame the abandonment gives notice.

“The task of researching can result in deeds that were recorded centuries ago when Ohio was part of the Northwest Territory in 1787,” she said. “But, the only enforceable deed is the last one signed, dated and notarized, and that is on file at the office.”

Daily requests for copies of a variety of documents has resulted in a significant increase in revenue.

“We make copies for the public, the oil and gas companies make their own copies. The charge is $1 per page,” said Wheatley.

Figures reported by the Guernsey County Recorder’s Office for 2011, for copies alone, totaled $110,865. The office issued 2, 560 new leases. Total income for all documents filed and recorded in 2011 was $564,533.

According to current figures, the office is having a banner year. Fees for copies of documents from Jan. 1, 2012 through June 13, 2012 are $191, 975 — just for copies. Total of all fees for the same time period is $475,353, which includes 1,540 new leases recorded.

[email protected]

“Recorders” from pg. 38 “Farm and Lease” from pg. 34

Ginzel Gin•zel noun: Slang term for a worker even lower on the food chain than a worm. A ginzel would be someone just starting out that has no oilfield experience whatsoever.

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Farm Bureau looks at severance taxOn May 16, the Ohio Oil

and Gas Association called into question an analysis by

the Ohio Business Roundtable, a conservative think tank, on Gov. John Kasich’s proposal to increase tax rates on oil and gas produced through fracking. The trade association, which rep-resents 2,500-plus drillers and others involved in the industry, said the study underestimated the up-front cost of developing horizontal wells and assumed larger-than-realistic production volumes from such wells, among other issues.

“We’re also very curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would sup-port a tax increase on another business, particularly when they pay a commercial activity tax rate of just 26 cents per $100 in revenue, while asking one industry to pay a rate nearly 16 times higher,” the association wrote.

In Pennsylvania, impact fees are charged in place of sever-ance taxes. These fees will add thousands of dollars to town-ship budgets. The amount is calculated based on when drilling began, the age of the well and the average price of natural gas that year.

According to the nonpartisan National Conference of State Legislatures, Pennsylvania is the largest natural gas-producing state that does not impose a severance tax. At least 36 states currently have some type of severance tax in place.

Severance taxes are excise taxes taken when natural resourc-es are “severed,” or removed, from the earth. Currently, Ohio imposes a resource severance tax of 20 cents per barrel of oil and three cents per thousand cubic feet of natural gas.

Governor Kasich’s proposal raises the severance tax on the oil and gas industry by up to four percent over time (1.5 per-cent in the first two years) and uses those funds to cut income taxes for Ohioans. The proposed tax rates differentiate between horizontal fracturing (fracking) wells and conventional vertical wells. Conventional wells would experience no change or even possible tax reductions.

The greatest fear within the industry is that higher taxes will stifle Ohio’s recent shale-related job growth. Industries gener-ally oppose higher taxes, but some analysts suggest that taxes will not discourage companies that have already spent money on land leases, given the leases are contractual.

Ernst and Young was engaged by the Ohio Business Round-table to study the taxation issue, comparing total taxes (state and local) on gas and oil activities. This study looks at the combined tax burden on a productive well, using specific oil and gas outcomes, comparing seven states that have or will ex-perience significant horizontal drilling and production.

This study concluded for the drilling examples it used that Ohio was the most competitive state on its “effective” tax rate, meaning Ohio had the lowest total tax burden. Jerry James, president of The Ohio Oil and Gas Association, indicated that the Ernst and Young study did not properly take into consider-ation Ohio’s income tax rates and gas tax abatements that are available in other states. Furthermore, the study did not use the actual production results from the eight wells currently reporting their production to the Ohio Department of Natural Resources. This caused them to overstate the revenue by 300-400% and understate the costs being experienced in the field by 50%.

Staff ReportersDix Communications

“We’re also very curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would support a tax increase on another business, particularly when they pay a commercial activity tax rate of just 26 cents per $100 in revenue, while asking one industry to pay a rate nearly 16 times higher”


Oil&Gas46

1. Carroll County 882. Columbiana County 40

3. Jefferson County 264. Monroe County 21

5. Harrison County 206. Belmont County 12

Stark County 12 7. Noble County 11

8. Mahoning County 109. Guernsey County 910. Portage County 7

11. Tuscarawas County 612. Muskingum County 3

Coshocton County 313.Trumbull County 2

Knox County 214. Geauga County 1 Ashland County 1 Medina County 1

Wayne County 125 50 75 100

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LEASING TIPS: “Dormant Mineral Act” May Impact YouDRIVING: Will Ohio be Driving on Natural Gas?

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