29 December 2016

Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 52

Topics discussed in this week’s Report include:

  • Study found local communities benefit economically from hydraulic fracturing.
  • Pennsylvania poised to approve new oil and gas disposal well permits with additional earthquake protection measures.
  • Ohio legislators approved $264 million energy sector tax incentive.
  • Oklahoma proposed new hydraulic fracturing guidelines designed to reduce earthquakes.

Study finds local communities benefit economically from hydraulic fracturing. A recent study from the University of Chicago’s Energy Policy Institute, led by Milton Friedman Professor in Economics Michael Greenstone, analyzed the economic impact of hydraulic fracturing operations around the country between 2000 and 2013. The study concluded that communities receive, on average, more economic benefit than harm from local hydraulic fracturing operations. The research team considered a number of factors including income, employment, traffic, criminal activity and anxiety regarding adverse health and environmental effects but concluded that the benefits outweighed those costs. On average, the study estimates, local hydraulic fracturing reduces a household’s quality of life by approximately $1,000 to $1,600 annually. However, these are offset by benefits that include a 10 percent increase in employment and six percent increases in average income and house prices. The researchers caution that each region may be affected differently due to wide variability in the size of oil and gas operations, but generally they believe that the study provides useful information to local and state leaders considering whether to permit oil and gas operations in their communities.

Pennsylvania poised to approve new oil and gas disposal well permits with additional earthquake protection measures. The Pennsylvania Department of Environmental Protection (PADEP) plans to issue permits to Pennsylvania General Energy Co. and Seneca Resources Corp. for new wastewater disposal wells, despite an extraordinary degree of local opposition. Highland Township and Grant Township, where the wells will be located, recently adopted home rule charters to prohibit oil and gas waste disposal within their townships and have been embroiled in litigation with the oil and gas companies regarding the bans. PADEP plans to proceed with plans for the permits but has added conditions to address concerns over increased seismic activity that has occurred in Oklahoma. Well operators will be required to monitor seismic activity around the wells and make the data publicly available. Wells that cause microearthquakes of magnitude 2.0 or greater will be forced to shut down. Pennsylvania currently has approximately 15 operating or permitted disposal wells compared with over 4,000 in Oklahoma, and PADEP believes that proper operation of these permitted wells should not cause any seismic activity.

Ohio legislators approve $264 million energy sector tax incentive. Ohio legislators voted to expand an energy provision of a tax exemption to cover additional oil and gas operations. The exemption previously applied to equipment and property directly used in producing oil and gas and would now apply to all purchases used in all operations. The provision is retroactive and would cover tax bills beginning in 2010. The Ohio Department of Taxation indicated it expects it would have to issue $215 million in refunds; local communities would be responsible for the additional $49 million. The Ohio Oil and Gas Association disputes these figures and contends that the $264 million estimate is merely theoretical, arguing it has never been paid and therefore is not owed as a refund. The provision is under consideration by Ohio Governor John Kasich.

Oklahoma proposes new hydraulic fracturing guidelines designed to reduce earthquakes. On Dec. 20, the Oklahoma Corporation Commission’s (OCC) Oil and Gas Conservation Division and Oklahoma Geological Survey announced new guidelines for oil and gas activity in the state. The guidelines require producers to develop and implement mitigation measures following a magnitude 2.5 earthquake and suspend operations following an earthquake with a magnitude of 3.5 or greater. The guidelines are voluntary, and OCC reports that producers have been fully cooperative, but earlier this year Oklahoma gave the OCC authority to mandate compliance if necessary.