Our Industry

Background

The Ohio oil and gas industry has a rich heritage that dates back to the birth of the industry. Ohio lays claim to the first discovery of oil from a drilled well, when in 1814 a saltwater well driller discovered oil at a depth of 475 feet in Noble County. Ohio's first commercial oil well was placed into production in 1860 producing from the Macksburg sand in Washington County, preceded a few months by the famous Colonel Drake discovery in Pennsylvania. Commercial natural gas production began in 1884. Soon thereafter large-scale exploration and production of oil and gas began in Pennsylvania, New York, West Virginia and Ohio. Nowhere else in North America has commercial oil and gas production existed longer than that located within the Appalachian Basin and Ontario, Canada.

A century ago, when the Lima-Trenton field of northwestern Ohio was one of the largest U.S. producing provinces, Ohio was considered the "Middle East" of the oil and gas producing world. At its peak year of 1896, Ohio produced 24 million barrels of oil. Shortly thereafter a record was set in 1899 when 6,399 wells were drilled in the state. Obviously much has changed since the early days. But since that time a legendary entrepreneurial spirit inspired from the early explorers has been coupled with technology to open up vast oil and gas fields across the United States and the world.

Ohio is blessed with numerous reservoirs offering oil and gas potential. These reservoirs are located over the majority of the state land mass. The drill bit has tested oil and gas reservoirs at depths ranging from less than100 feet to over 11,500 feet. Many wells, particularly in southeastern Ohio, are completed in multiple reservoirs.

Oil and gas production has been found in 76 of Ohio's 88 counties. During the past two decades wells have been drilled in 75 counties. For the most part however, oil and gas is produced in the eastern half of the state. To date, there have been over 268,000 wells drilled in Ohio, ranking the state as one the most active in the nation.

Typical of the oil and gas business, Ohio's industry history is one of major "boom and bust" cycles, each the focus of a geologic oil and gas play and intrinsically tied to commodity prices and technology. This history has evolved in several notable stages.

1. Lima-Findlay Trenton Oil Boom: The Trenton limestone was discovered in 1884 at a depth of 1092 feet in Findlay, Ohio. The Trenton field made Ohio the nation's leading oil producer in 1896.That year 6,456 wells were drilled in the state.
   
   The field represented the first time John D. Rockefeller became substantively involved in the exploration and production of oil and gas wells, through ownership of oil and gas reserves.
   
   The Trenton is a vugular, highly permeable limestone that easily flushed prolific oil production. If needed, wells were stimulated by nitro-shot. Poor production and spacing practices condemned Trenton drilling by 1936.
2. Berea and Shallow Sands: During the same period, a variety of shallow sandstone plays, including the Berea, Big Injun, Cow Run, Germantown, Macksburg and Weir sands were exploited in various pools across eastern Ohio where good porosity and permeability were encountered. These wells often required nitro-shot stimulation to enhance production and well economics.
3. Clinton Phase One: In 1887, natural gas was discovered in the Clinton sandstone in Fairfield County. The discovery sparked natural gas and oil plays from high porosity Clinton fields located in the immediate area and, later, in the City of Canton field. The Clinton exhibited good economic potential. However, the Clinton generally displayed less than adequate permeability and usually required nitro-shot stimulation to produce economic production. By the late 1940s, dry hole rates approached 50 percent and most oil and gas operators believed that the Clinton was played out.
4. Introduction of Hydraulic Fracturing: During 1951, hydraulic fracturing stimulation of sandstone reservoirs met with success in Ohio. During a fracturing process, hydraulic pressure using water is applied to an oil and gas bearing rock to split the rock and create vertical drainage paths within the reservoir. These paths allow natural gas and oil to move more freely from the rock pores where they are trapped to the wellbore, where the product can then be lifted to the surface. As a result of fracturing, from 1951 through 1957 the Clinton success ratio increased to 85% completions and oil and gas producers renewed their interest in Clinton drilling.
5. Morrow County Oil Boom: In 1963, prolific oil was discovered in the Cambrian Trempealeau dolomite, primarily located in Morrow County. Several years of frantic drilling activity took place in Central Ohio, distracting attention from the Clinton. When productive, the Trempealeau is a vugular, highly permeable reservoir that traps oil within small anomaly structures that produce naturally.
6. Clinton Phase Two: Beginning in 1970 rising natural gas and oil prices, high demand for local supplies of natural gas, advances in fracturing technology, and the introduction in 1978 of the NGPA Section 107 "Tight Sands" incentive gas pricing and the Section 29 tax credit combined to create a massive drilling boom in the Clinton sands, as well as the Berea sands and Ohio Shale. Drilling activity within Eastern Ohio rivaled the early Trenton days. During the peak year of 1981, there were 6,085 wells drilled in Ohio, of which 76 percent were completed in the Clinton sandstone.
7. In 1986, the collapse of oil prices and stagnant natural gas prices challenged the survival of the Ohio industry. Even so, Ohio continued to be one of the more active drilling states. During challenging times, Ohio producers have been drilling deeper and taking on increased risks in a search for rocks that offer potential for higher rates of production. During the 1990's, new opportunities of prolific oil and gas reserves were found in the deep Ordovician Knox Rose Run sands, the Beekmantown dolomite and the Trenton Black River. Even so, the overall success rate for exploratory deep drilling is less than 50 percent.

Ohio's Oil and Gas Industry Today

Each year, the Ohio Department of Natural Resources, Division of Mineral Resources Management compiles a

summary of Ohio's oil and natural gas activity.

The most recent study states that during 2007, Ohio producers:

• have 63,654 wells in operation.
• are 5,680 registered well owners, including 4,224 registered in Ohio.
• Drilled an estimated 1,068 oil and natural gas wells in 49 of Ohio's 88 counties.
• Produced over 5.4 million barrels of crude oil
• Produced more than 88 billion cubic feet (bcf) of natural gas
• Had a combined market value of crude oil and natural gas production of over $1 billion during 2007.

Who Are Ohio's Oil and Gas Producers?

OOGA members are the ultimate upstream segment of the energy industry. All Ohio producers are "independent" producers - defined as a nonintegrated company which receives nearly all of its revenues from production at the wellhead. Independents are exclusively in the exploration and production (E&P) business.

Independents are not major oil companies. And, unlike the majors, they cannot recover production and regulatory costs by passing those expenses and overhead on to consumers through other operations, such as refining and marketing of petroleum products.

Ohio independents provide jobs for nearly 4,623 employees. To put that in perspective, the Ohio coal extraction industry employs about 2,484 people. On a national scale, the number of independents has decreased by 50 percent over the past decade from over 10,000 to less than 5,000. And, the number of drilling operators of record has also fallen from over 5,000 to approximately 2,000.

Nationally, the average independent E&P company employs 12 people. Employment in the E&P sector in 2005 averaged 270,200, an increase of 43,000 employees compared to 1999. However, over the past few decades, the American upstream industry has shed 1.1 million jobs. This loss of experienced personnel is a serious issue constraining the industry's ability to meet incremental demand challenges.

Independent producers are the people who are developing America's oil and gas resource base. Independent producers drill 90 percent of domestic oil and natural gas wells, produce 82 percent of America's natural gas and 68 percent of America's crude oil more oil if the survey did not include Alaskan North Slope oil production.

Independent producers generate income at the wellhead selling oil and natural gas into the marketplace. These American producers reinvest their income back into the ground. A John S. Herald analysis concluded that, in 2004, the top 50 independent producers were reinvesting 150 percent of their cash flow back into new exploration and development projects borrowing money to reinvest more into the United States.

It's important to understand that higher commodity prices do not necessarily translate to higher profits, particularly as producers turn to more marginal and unconventional prospects. According to recent surveys, the cost of major oil and gas projects have increased more than 53 percent in two years and no significant slowing is in sight. Meanwhile, the Producer Commodity Price Index for finished goods (food and energy) moved up 7.5 percent during the same period.

A recent Bank of America analysis shows that American producers have experienced solid production growth. Even so, return on investment employed for exploration and production fell to 13.4 percent after reaching a high of 15 percent two years ago as oilfield services have matched commodity pricing.

Ohio reflects the nation where finding and development costs have similarly increased.

Where are the wells drilled in Ohio?

In Ohio, most oil and natural gas production takes place in the eastern half of the state. This is because of ancient glacial paths creating the Appalachian Basin, which has resulted in an excellent oil and natural gas region.

The U.S. Geological Survey recently released a survey assessing the undiscovered Appalachian Basin resource base. The Survey concluded that within the Basin there was over 70 trillion cubic feet of natural gas, 54 million barrels of oil and an astonishing 872 million barrels of natural gas liquids remaining to be found and produced. (That roughly translates into 7.6 billion barrels of oil equivalents, at current commodity price levels. If only 30 percent of the resource was recoverable, still that would amount to nearly 50 percent of the published proved oil reserves available in Alaska.)

During 2005, the U.S. Department of Energy and several energy-producing states, including Ohio, released a report saying that 79 to 96 trillion cubic feet (Tcf) of recoverable natural gas and 4.8 billion barrels of oil exist in the Appalachian Basin. The two basins already have produced more than 50 Tcf of natural gas and 5 billion barrels of oil. The report concluded, "Yet, after more than a century of production, equal or greater quantities of resources are still waiting to be tapped. The Appalachian basin is the largest onshore basin in the United States in terms of area, and much of it remains relatively unexplored."

Wells Drilled and Completions Received by County - 2007

The most active county in Ohio during 2007 was Monroe County with a total of 81 wells drilled. These 81 wells accounted for 203,884 feet drilled into the ground, an average of 2,614 feet per well.

Coming in second was Geauga County with 65 wells. In Geauga County, 168,839 total feet were drilled for an average of 4,020 feet per well.

Rounding out the top three is Cuyahoga County. Cuyahoga County had 61 wells drilled comprising 146,460 total feet. The average depth of each well was 3,572 feet.

Total well depths for 2007 ranged from 510 feet deep in Harrison County to 7,838 feet deep in Guernsey County.

How Much Oil and Natural Gas Does Ohio Produce?

Crude Oil: During 2007, Ohio produced over 5.4 million barrels of crude oil. Crude oil production averaged 14,944 barrels a day in Ohio. Through 2007, Ohio wells have produced over 1.12 billion barrels of crude oil.

Natural Gas: During 2007, Ohio produced over 88 billion cubic feet (bcf) of natural gas. Natural gas production averaged 241,355 mcf a day in Ohio. Through 2007, Ohio wells have cumulatively produced over 8.26 billion mcf of natural gas.

The combined market value of both crude oil and natural gas production was over $1 billion during 2007. This marks the third straight year that the total dollar value of production has exceeded the $1 billion mark.

Who Regulates the Industry?

The Ohio oil and natural gas industry is regulated by the Ohio Department of Natural Resources, Division of Mineral Resources Management (DMRM). The DMRM has sole, exclusive control of regulating Ohio's oil and natural gas industry.

This includes the inspecting, drilling, producing and permitting of oil and natural gas wells in Ohio.

The DMRM has been regulating Ohio oil and natural gas operations since their incorporation into the Ohio Department of Natural Resources in 1965.

For more information, please visit the the oil and gas section of DMRM's website.