Much has been said in the news over the last year about the decline in the oil and natural gas industry in Ohio. The most significant factor impacting the level of drilling activity has been the price of a barrel of crude oil. In early 2015, the spot price for a barrel of crude oil was below $50. That price, except for a brief period during the recession in late 2008 and early 2009, had not been seen since late 2004. Such low prices make the investment necessary to bring a well online much less attractive. A second factor impacting the level of new drilling was a lack of infrastructure necessary to deliver product to market.
According to information made available by the Ohio Department of Natural Resources – Division of Oil and Gas Management, the active Utica formation rig count as of May 16, 2015 was 25, 1,902 horizontal permits had been issued, 1,484 wells drilled, and 896 wells in production. From a historical perspective, as of June 1, 2013, 693 horizontal well permits had been issued with 102 wells in production. In the 2 years since that date, just over 1,200 permits have been issued with just under 800 wells being placed in production. The majority of that activity occurred through the end of 2014.
Midstream activity has continued and the temporary slowdown in the exploration or upstream activity has allowed that segment of the industry to begin catching up to demand. Significant investment in developing the needed infrastructure to allow producers to move their product to market has had a positive impact on wells being put into production. The need for infrastructure will expand exponentially once again when the commodity price for oil increases and the corresponding permitting and drilling activity resumes.
Exploration companies have invested billions of dollars securing leases to allow them to drill for oil, natural gas, and natural gas liquids for a finite period of time. The natural resources remain where they have been for millions of years. If and when commodity prices rise and the economics of exploration improves, expect to see an increase in the number of permits issued and wells drilled and completed.
Debate continues over the future of the severance tax structure in Ohio. Governor Kasich has been adamant in his call for an increase in the amount of severance tax charged to producers of oil and natural gas using horizontal drilling techniques. Ultimately, the final outcome is still uncertain pending what the state legislature passes.
All things considered, there is no doubt that the last five years has seen significant activity in the oil and natural gas industry in Eastern Ohio and has had a positive economic impact on the region. It will be interesting to see what the next five years bring.
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