OUR THOUGHTS ON:

Current Activity in Ohio's Utica/Point Pleasant Shale Play

Energy & Resources

By Jay Meglich

The first four months of 2012 have seen significant activity regarding the Ohio Utica Shale play. In addition to the dramatic increase in permitting and drilling, the Ohio Statehouse has seen a flurry of activity as well.

According to the Ohio Department of Natural Resources – Division of Oil and Gas Resources Management, 207 horizontal well permits have been issued as of April 22, 2012. Of these 207 permits issued, 26 wells are producing or have been completed; 56 wells are in various stages of the drilling process; 1 well was plugged; and there has been no drilling activity to date on the remaining 124 permits. Recently released information indicates that in excess of 2,500,000 mcf of gas and 46,000 barrels of oil were produced in 2011 from this formation. This represents approximately 3% of Ohio’s total gas production for the year. Since only 9 wells reported production, of which only 5 wells had commercial production ranging from 53 to 206 days, the initial results appear promising.

On the legislative front, Governor John Kasich has proposed revamping Ohio’s severance tax environment with the generated tax revenues being used to reduce the personal income tax burden on Ohio’s taxpayers. The proposal sought to revise the basis on which severance tax is calculated from the current amount per barrel or mcf, to a percentage of gross sales from horizontally drilled oil and gas wells. The Ohio Oil and Gas Association responded by encouraging the administration to reconsider the proposal, which, it contends, could impact companies’ decisions to develop minerals in Ohio even before the projected significant activity begins. The Ohio House of Representatives stripped the severance tax provisions from the budget bill prior to passage last week. The House indicated that given the potentially significant economic impact to the State of Ohio, including tax revenue to the State, the matter needed to be more fully understood and debated.

Stay tuned as the activity at the Statehouse will be just as interesting as the drilling activity in Eastern Ohio -- as the Utica/Point Pleasant operations continue to evolve.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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