FRANKLIN

PICKAWAY

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methane

Grouped by stratigraphic

interval

MADISON

DELAWARE

UNION

green | BUSINESS FIRST | MAY 20, 2011

27

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report

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Yield of dreams?

With new drilling technology,

geologists are saying Ohio has

the potential for massive

oil and gas production.

At what cost?

Ohio’s shale formations harbor an unknown but potentially large amount of crude oil and natural gas deep underground.

The types of resources pulled from drilling activity in various areas of the state:MAP COURTESY OHIO DEPARTMENT OF NATURAL RESOURCES

Key to map

28 | MAY 20, 2011 columbusbusinessfi rst.com | BUSINESS FIRST | GREEN REPORT |

BY ROBERT CELASCHI | FOR BUSINESS FIRST

Ohio produces about 5 million

barrels of crude oil and 88 bil-

lion cubic feet of natural gas

each year. Th at’s nothing com-

pared with what could come

out of the ground in a few

years using a combination of

new and old technologies.

Th e new technology is horizontal drill-

ing into shale formations. Th e old tech-

nology is hydraulic fracturing, known in-

formally as “fracking.” Together they could

open up 5 billion barrels

of crude oil and 15 tril-

lion cubic feet of gas, ac-

cording to estimates.

“Th ose are astound-

ing numbers. You are

talking Prudhoe Bay

numbers of gas produc-

tion,” said Tom Stewart,

executive vice presi-

dent of the Ohio Oil and

Gas Association trade

group, referring to the

largest oil fi eld in North

America in Alaska.

But horizontal drilling and fracking also

have the potential to cause unprecedent-

ed damage to the state’s water supply, en-

vironmental groups warn.

“When we look at the history of the

problems that have happened in all of the

other states where this is going on – and

specifi cally at Pennsylvania – and the re-

cord of contamination, explosions, fi res,

surface spills, as well as problems under-

ground, we think the record shows real is-

sues that need to be addressed,” said Ellen

Mee, director of environmental health for

the Ohio Environmental Council, a coali-

tion of nonprofi t environmental advocacy

groups based in Grandview Heights.

So while the industry is itching to get

started in Ohio, opponents across the

country want a moratorium on such drill-

ing until the federal EPA studies the risks.

A preliminary report is expected next year,

and a fi nal report perhaps by 2014.

WHAT’S CHANGED?Considering that companies have

drilled more than 273,000 oil and gas wells

in Ohio since the mid-19th century, and

that fracking has been a standard practice

since the 1950s, it’s important to under-

stand what’s changing.

Until now oil and gas wells have been

much like water wells: Drill a hole straight

down to a pocket of liquid or gas, put a cas-

ing around the shaft and start pumping.

Companies pump in a mixture of water,

sand and chemicals to fracture the rock

and make it easier for the liquid or gas to

fl ow out of the well.

In the deep shale of Ohio’s Marcellus

and Utica formations, oil and gas don’t

sit in pockets. Rather, they are trapped in

broad sheets, like pages in a book. In re-

cent years the oil and gas industry has fi g-

ured out how to send a pipe thousands of

feet down and turn it 90 degrees. Th e hole

then might run for a mile along the layer.

Th e well then can be fracked in 10 or so

places. Th at means using a lot more fl uid

than in a conventional well. Th e volume

of fracking fl uid – and what to do with it

when the fracking is done – is one major

concern of environmental groups.

Fracking fl uid is mostly water. About 1

percent consists of chemicals to enhance

its eff ectiveness. But with millions of gal-

lons pumped into horizontal wells, 1 per-

cent is a lot of chemicals, Mee said.

“Th ere’s a certain percentage, and it var-

ies widely, that’s left underground,” she

said. “It can and does continue to come to

the surface over the life of the well.”

Th e bulk of the fl uid, called produced

water, is pumped back out, but that has to

be put somewhere. Some companies are

recycling it. Th e law also allows for it to be

pumped into wells designed for the waste

water containing hazardous materials.

Environmentalists shouldn’t be alarmed

because the industry is fully regulated,

Stewart said.

“Under the ( federal) Safe Drinking Wa-

ter Act, the Ohio Department of Natu-

ral Resources had primacy delegated to

them,” Stewart said. “In the state of Ohio,

you are not allowed to put produced wa-

ters in rivers or streams.”

Statements like that do not placate crit-

ics, who say accidents happen too often.

“We hear this theme over and over: It

can’t happen, it won’t happen. But pick

Oil and gas drilling calls for balancing act with environment, revenue

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up the paper and you see in Pennsylva-

nia that it is happening,” said Jack Shaner,

deputy director of the Ohio Environmental

Council. For example, an accident in April

saw thousands of gallons of fracking fl uid

spilled in Bradford County, Pa., causing an

EPA inquiry and the Maryland attorney

general to say he would sue for contami-

nation of his state’s water supply.

HOW OHIO DIFFERSBut Ohio is not Pennsylvania. In Penn-

sylvania, for instance, waste fracking wa-

ter can be sent through treatment plants.

“One of the biggest diff erences is that

Ohio is encouraging re-

cycling of wastewater or

injection of wastewater”

into the ground, said

Heidi Hetzel-Evans, a

spokeswoman for the

Ohio Department of

Natural Resources. Th e

wells used to store old

fracking fl uid keep the

material safely away

from the water table,

she said.

Th e Ohio Environ-

mental Council wants the state to put

monitoring wells nearby.

“Forgive us if we are trust-but-verify

about this. We’re talking about our drink-

ing water,” Shaner said. “You only get one

chance to get it right with clean water.”

Last year the Natural Resources Depart-

ment volunteered to have its hydraulic

fracturing program reviewed by State Re-

view of Oil and Natural Gas Environmental

Regulations Inc., an Oklahoma City-based

nonprofi t that consults wth states on drill-

ing regulations. It commended Ohio for

its reporting requirements, enforcement

tools and increased staffi ng.

Of more than 80,000 conventional wells

that have been fractured in Ohio, contam-

ination of groundwater has never been re-

corded, Hetzel-Evans said.

State law also requires drilling compa-

nies to post a data sheet on each com-

ponent used in the fracking fl uid. About

100 such sheets are on the department’s

website. Some cover basic materials such

as sand and baking soda. Other chemicals

pose more health risks, such as hydrochlo-

ric acid. Each sheet spells out the risks and

how to treat overexposure.

Th ere might be better access to infor-

mation on fracking fl uid in Ohio, but that

doesn’t mean the state shouldn’t be wary

of the process, said state Sen. Tim Gren-

dell, R-Chestlerland. Grendell is planning

to introduce a bill putting a moratorium

on the use of hydraulic fracturing in Ohio,

as has been done in New York, he said.

“Th ere’s a time and a place for oil and

gas drilling, but we need to be very care-

ful,” he said. “Th is fi xation with drill baby,

drill in Ohio needs to slow down until we

understand how it’s going to aff ect ground

water and private property owners.”

But Grendell acknowledged his views

are in the minority at the Statehouse. He

said he thought there would be a “con-

certed eff ort” to wrap language allowing

drilling in state parks into the state budget

bill, which has to be passed by June 30.

RICH OVERNIGHT?One of the big players in the industry,

Chesapeake Energy Corp., has plans for

the Utica shale in eastern Ohio. Th e com-

pany has leased about 1.2 million acres,

and may go to 1.5 million, CEO Aubrey

McClendon said in a letter to sharehold-

ers. None of that land is near Columbus.

Th e company might drill as many as

12,000 wells.

“Because we are in the early stages of

exploration, it would be impossible to

estimate a volume or dollar fi gure,” said

company spokesman Jacque Bland.

It’s important that landowners under-

stand the leases they sign, said Ron Prosek,

vice president of the Network for Oil and

Gas Accountability and Protection.

“When you sign a lease for oil and gas

development, you are signing your min-

eral rights away. Th ey can come back and

drill that well deeper at a later time,” he

said.

Th e leases also may allow the compa-

nies to tear down buildings and construct

roads on the property.

Leases are negotiable, but if the land-

owner insists on too many things, a com-

pany might not want to sign. If enough

neighbors sign up, it may not matter,

though, thanks to the concept of “manda-

tory pooling.” If a driller needs to combine

lots from several property owners and one

holds out, the company can appeal to the

state and force the inclusion of the land.

ROBERT CELASCHI is a freelance writer.

BUSINESS FIRST | columbusbusinessfi rst.com MAY 20, 2011 | 29 | GREEN REPORT |

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GAS: Shale potential in Ohio compared with that of Alaskan oil fi eldsFROM PAGE 28

JANET ADAMS | BUSINESS FIRST

Jack Shaner and Ellen Mee of the Ohio Environmental Council have spent time this spring in hearings at the Ohio Statehouse on allowing oil and gas drilling in state parks, which they oppose.

R. Reda: Ohio Oil and Gas Energy Education Program

30 | MAY 20, 2011 columbusbusinessfi rst.com | BUSINESS FIRST | GREEN REPORT |

COURTESY PROGRESSOHIO

Protestors demonstrated against hydraulic fracturing April 26 outside a shale drilling symposium at Ohio State University for legislators, oil and gas industry officials and environmentalists.

BY ROBERT CELASCHI | FOR BUSINESS FIRST

Only a few horizontal test wells have

been drilled into Ohio shale, and

it could be six months before the

state can report production numbers. But

the industry already is calling deep-shale

drilling a game-changer.

“Th e oil fi eld rumors about it indicate

pretty spectacular results,” said Tom Stew-

art, executive vice president of the Ohio

Oil and Gas Association, of the Utica shale

formation that stretches over the eastern

half of the state.

Old estimates put Ohio’s reserves at

about 1 trillion cubic feet of natural gas

and 60 million barrels of oil, Stewart said.

Now state geologists say those totals could

be closer to 15 trillion cubic feet of gas and

5 billion barrels of oil.

If 150,000 acres of state parklands are

opened up to drilling, as proposed by Gov.

John Kasich, that alone could generate

a royalty stream of $300 million a

year, Stewart said.

NEW ERA?Horizontal wells require

heavy investment. One well

takes $5 million to $7 million

to drill, compared with per-

haps $300,000 for a stan-

dard vertical well. Large

companies will domi-

nate drilling at fi rst,

but over time smaller

independents drill

90 percent of wells,

Stewart said.

Environmental

concerns aside –

and they won’t be

shoved aside easily

– the new era of ex-

ploration and drilling

could touch on a wide

range of jobs skills

and industries.

A well itself in-

volves about 75 jobs,

said Rhonda Reda,

executive director of

the industry-funded

Ohio Oil and Gas En-

ergy Education Pro-

gram. Some jobs are

highly skilled, such as

seismologists, engineers

and geophysicists. Oth-

ers are more mundane,

such as people to check meters and tend

the wells. Land must be cleared for the

well sites, and roads must be built to pro-

vide access.

Th en there are the materials needed

to build a well: structural steel, concrete,

pipe and more.

Steel companies already have begun in-

vesting. Last year, V&M Star began build-

ing a $650 million pipe mill in Youngstown

because of demand in the Marcellus shale

fi elds, which lie on the eastern-most edge

of the state, extending into Pennsylvania

and beyond. Th e mill is expected to be

up and running later this year. In nearby

Brookfi eld, TMK Ipsco leased an existing

mill, launching a $10 million pipe-produc-

tion eff ort. Combined, the two mills are

expected to create about 470 jobs.

Someone has to get the materials to

the drilling sites. Th e last miles require

trucks, but heavy equipment would ride

the rails for much of the trip. Th e Norfolk

Southern Railroad may need as many

as 2,000 more people to move oilfi eld

equipment in and out, Stewart said,

though a Norfolk Southern spokes-

man wouldn’t confi rm a specifi c

number.

LOWER NATURAL GAS PRICESBecause deep shale

requires a new kind

of technology, drill-

ing companies are

swapping prop-

erty depending on

whether they want

to stick with tradi-

tion or try some-

thing new.

“Th e problem

with deep wells is

that they are very

expensive, and the

local companies

can’t aff ord to drill,”

said Scott Chap-

man, a partner with

Copper Run Capital.

His company arranges

deals that allow the locals to

partner with larger players,

or to sell assets outright

as a means of raising the

capital to go it alone.

In one recent deal, Di-

versifi ed Resources Inc.

of West Virginia bought

You’d think fi nding domes-

tic energy sources would

make most people happy,

but when it comes to natural gas

and crude oil drilling these days,

tempers fl are.

And they’ve been fl aring in

Ohio, a state with the fourth-

highest number of such wells

drilled and more to come. As geologists

and industry forecast huge potential

from the Marcellus and Utica shale

formations that span the eastern half

of the state, environmentalists warn

about the new, more complicated

horizontal drilling technology – as

opposed to traditional vertical drill-

ing – necessary to access resources

deep underground. Explosions. Fires.

Drinking water contaminated by the

chemicals used in hydraulic fracturing.

Such incidents have been documented

by news reports, lawsuits and govern-

ments in other states where drilling is

going on, though whether drilling is to

blame has not been settled. A debate is

taking place in Congress and at the U.S.

EPA on the safety of the practice.

In late April at Ohio State University,

a symposium for Ohio legislators, state

agencies, conservation groups and oil

and gas industry executives sponsored

by the Ohio Department of Natural

Resources and OSU was the subject of a

protest by a coalition of environmental

groups calling itself No Frack Ohio.

Similarly, hearings this spring in

the Ohio Statehouse on a bill to allow

drilling in state parks have been long –

some going until 2 a.m. – and punctu-

ated by emotional testimony.

Being challenged face-to-face while

out in public is nothing new to Tom

Stewart, executive vice president of the

Ohio Oil and Gas Association. His fam-

ily has been in the industry for three

generations, and horizontal drilling

technology is a boon to him.

“People should applaud it instead of

criticizing it,” he said. “It stuns me they

don’t think that’s amazing.”

Environmental groups are using

“fear, uncertainty and doubt, and they

usually get it wrong when you look at

the facts,” Stewart said. He maintains

hydraulic fracturing does not harm the

water table because the process used

by companies is designed to avoid that.

He said people are afraid renewable

energy sources such as solar and wind

will fall by the wayside if vast reserves

of oil and gas are available.

“So much gas has been found so

effi ciently here that prices of natural

gas are dirt cheap,” he said. “We have

a plentiful ... and reliable resource out

there that just happens to be a fossil

fuel. Th at makes other forms of energy

less competitive even if they’re subsi-

dized to the max. And that’s a problem

for some people’s vision of the future.”

Th e industry created the Ohio Oil and

Gas Energy Education Program to get

the word out about its promise in Ohio

and to dispel what it calls myths about

damage done by the extraction process.

“Without hydraulic fracturing we’re

certainly not going to develop any of

these shale formations,” said Rhonda

Reda, program executive director.

An example of “how ridiculous it

has gotten out there” happened when

a protester told Reda the industry was

putting “califragilistics” in the water.

Natural gas drilling companies use

hazardous chemicals in the hydraulic

fracturing process such as hydrochloric

acid and methanol, but industry repre-

sentatives euphemistically refer to the

solution as “brine” or “salt water.”

In testimony before the Ohio House

of Representatives, Ellen Mee of the

Ohio Environmental Council said

industry assertions that the process

does not cause serious environmental

consequences were akin to saying “my

boots don’t track mud.” She said that’s

so especially after some of the indus-

try’s largest players told shareholders

in regulatory fi lings that the risks for

environmental damage, accidents and

the like were greatly increased with

horizontal drilling.

“Experiences from other states where

horizontal hydrofracturing is occur-

ring have left a muddy trail. Maybe

Ohio’s industry has magic boots, but I

don’t think so,” Mee said, according to a

transcript.

KATY WATERS is associate editor for Columbus Business First and editor of the Green Report.

614-220-5468 | kwaters@bizjournals.com

m of $300 million a

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FILE PHOTO BY JANET ADAMS | BUSINESS FIRST

Columbia Gas’ Jack Partridge said Ohio’s potential to produce natural gas could touch off a ‘renaissance’ in the state’s economy.

Gauging potential diffi cult, but

early indications point to jackpot

Drilling issue has emotions running high

SEE SHALE, PAGE 31

Perspective KATY WATERS

316 oil and gas wells in Ohio from Deep

Resources of Lancaster. Diversifi ed Re-

sources likes the verifi ed production of

existing wells, Chapman said.

But even companies that have nothing

to do directly with exploration and drilling

are looking at Marcellus and Utica shale

with anticipation.

“We are very excited about potential

power generation opportunities,” said

Jack Partridge, president of Columbia Gas

of Ohio. “I believe it could be a key part of

a renaissance in Ohio.”

Ohio customers already had benefi t

from Pennsylvania shale gas, he said.

“Our prices are the lowest they have

been for eight to 10 years. What also has

disappeared is the volatility,” he said. “We

really do attribute the bulk of this condi-

tion to shale gas.”

In May 2008, gas cost $1.22 per hundred

cubic feet. Today it’s at 63 cents. Th e in-

dustry doesn’t attribute the drop entirely

to shale drilling, but considers it a big fac-

tor.

With lower, more predictable prices,

large business customers can make more

accurate plans. Local production also

means easier distribution for Ohio, which

traditionally has had to bring 98 percent of

its gas from the Gulf Coast.

“We dodged a bullet with hurricanes Ka-

trina and Rita,” Partridge said “We came

very close to being crippled in terms of

keeping the gas fl owing to the Northeast.”

Columbia and its parent company,

NiSource, also are excited about the pos-

sibility of getting electric utilities to switch

from coal to natural gas for generating

power, he said.

Wells typically continue producing for

decades. It’s hard to pin down how many

jobs could be created overall, Reda said. In

Pennsylvania, estimates have ranged from

26,000 to 111,000. With such a big discrep-

ancy, Reda’s organization has begun its

own economic value study.

In his State of the State speech this past

March, Gov. John Kasich said drilling into

Marcellus and Utica shale could transform

Ohio.

“I don’t want to be saying it’s going to

happen, because we’ve not had enough

testing to this point. But I’ll tell you, the

people who are the smart businesspeople

are investing like you cannot believe,” he

said.

ROBERT CELASCHI is a freelance writer.

SHALE: Investors ready, hovering FROM PAGE 30

GAS-OLOGY

Geologists estimate the Marcellus and Utica shale formations in Ohio stretch over the eastern half of the state. While Marcellus has seen a good bit of drilling for natural gas and crude oil in Pennsylvania and far eastern Ohio, the older, deeper Utica shale is just now getting its first horizontal test wells.

MAP SOURCE: OHIO DEPARTMENT OF NATURAL RESOURCES

COURTESY MARCELLUS CENTER FOR OUTREACH AND RESEARCH, PENNSYLVANIA STATE UNIVERSITY

The staging area for drilling operations at a site in Pennsylvania.

OHIO’S OIL AND GAS INDUSTRY

4TH State’s rank nationwide in number of wells drilled.

4,000 Direct jobs in the state from the industry.

10,400 Indirect jobs in the state from the industry.

5,664 Registered well owners in Ohio.

64,378 Wells in Ohio.

CUYAHOGA Most active county for oil and gas drilling, followed

(in order) by Knox, Trumbull and Licking counties.

$126M Royalty payments each year to landowners and holders of mineral rights.

$74M Free natural gas each year for landowners and holders of mineral rights.

$57.5M Taxes paid a year by the industry.

$1.5B Gross state product supported by the industry through its expenditures.

$3.1B Sales per year by the state’s industry.

$1B Spent in state annually by companies buying natural gas and crude oil produced in Ohio.

Source: Kleinhenz & Associates economic impact study “Ohio’s Natural Gas and Crude Oil Exploration and Production Industry,” performed for the Ohio Oil and Gas Energy Education Program, 2008; and 2010 Summary of Ohio Oil and Gas Activities, 46th edition, Ohio Department of Natural Resources – Division of Mineral Resources Management.

columbusbusinessfi rst.com

Green Report online | Extra content, past issues

Marcellus shale

Utica shale

BUSINESS FIRST | columbusbusinessfi rst.com MAY 20, 2011 | 31 | GREEN REPORT |