Don’t Take the Utica Shale for Granted
Less than three years into Ohio’s Utica shale development and it is becoming apparent that we are in the midst of a once in a generation opportunity for Ohio. But, even though there is plenty of reason for optimism and excitement, we must be careful not to take this emerging industry for granted – it is not a bottomless source of public revenue, impervious to all regulation.
Oil and gas companies have already spent billions of dollars in Ohio, but the industry will need to spend billions more before Ohio can cement its position in modern oil and gas development. Officials considering new regulations, taxes, and laws may be mistakenly treating those billions of dollars of additional investment a foregone conclusion.
As an attorney who has been privileged to see the shale play develop from both sides of the bargaining table, I know from experience that even multibillion dollar companies agonize over details that might affect their return on investment before committing resources to an oil and gas play. I also know that Ohio can be an intimidating place for oil and gas companies to make a significant investment because of risks associated with unproven geology and an unpredictable legal and political environment.
Fundamental to any company’s decision to commit resources to an oil and gas play is geology. Some companies have reported tremendous results in Ohio’s Utica shale play but Ohio’s shale resources remain largely unproven and our understanding of the play is continuously evolving. The vast expanse of real estate that companies once clamored to lease has been shrinking, or at least shifting, as companies drill wells and gather data. Not all companies have been winners. It would be a mistake to regard the Utica shale with the same esteem as the proven reserves of Texas or North Dakota.
The oil and gas industry is more vulnerable to the law than many other forms of industry. Unlike businesses that acquire physical inventory, factories and other assets, the staple of the oil and gas industry is oil and gas leases and other contracts that depend on the law for their value. For these reasons, it is important for our legislature and other officials to work with the industry to craft laws that strike a balance between competing interests.
Our state officials should also be mindful that Ohio has more competition than ever before. Even casual industry observers will recognize well established competing plays like the Bakken shale of North Dakota or the Barnett and Eagle Ford shale of Texas. But in recent years exciting new plays have emerged, including the Monterey shale of California and dozens of other small plays throughout the United States.
Likewise, scores of international plays with the potential to change world markets have been discovered, including the Duvernay shale in Alberta Canada and the Vaca Muerta in Argentina. More so every day, Ohio is competing for the attention of oil and gas companies and even though Ohio has much to offer, it is not the only show in town.
Ohio should strive to allow the oil and gas industry to thrive because of its laws, regulations, and political environment, not in spite of them. If Ohio is fortunate enough to have the right geology and wise enough to foster a mutually beneficial business climate, this state could realize an opportunity we have only just glimpsed.
Chris is a Senior Associate in Porter Wright’s Columbus office. He focuses his practice on matters pertaining to the oil and gas industry. Chris has extensive experience with a broad range of oil and gas related disputes and transactions, including the Ohio Dormant Minerals Act, lease forfeiture actions, disputes and litigation involving lease terms, oil and gas well construction issues, seismic surveys, water testing, division orders, pipeline easements, eminent domain and appropriation. In addition, Chris serves as co-editor of the Firm’s Oil & Gas Law Report blog.