Our World

By: Thomas Stewart, Executive Vice President

Today in the United States a relentless societal attack on the oil and gas exploration and production industry is underway. The attack is promoted by richly funded organizations opposed to oil and gas development. They own the Congress, the Presidency and, for the most part, the media. They own the American mind.

As I write this column, the U.S. House of Representatives has just passed Cap and Trade legislation, a proposal designed to transform how energy is produced and controlled in this country. The Obama Administration is pursuing legislation to eliminate long-standing tax treatments for oil and gas, saying without compunction that to do so is necessary because public policy should not encourage the production of oil and gas in the United States. Two bills have been introduced in Congress to federally regulate hydraulic fracturing. These proposals shamefully rely on contortions of the truth by leading people to believe that the well stimulation procedure regularly contaminates ground water with a "witch's brew" of chemicals and has escaped federal regulatory oversight. "Frac-madness" is the leading edge of the onslaught to reinvent environmental law in order to pursue a political agenda.

In Obamaworld, the political agenda is not to regulate the industry; it is a plan to put oil and gas out of business. The attack is on two-fronts. One front modifies the federal tax code treatment of intangibles and depletion in order to deprive industry of necessary risk capital. The second front would corrupt long-established regulation specific to the unique nature of oil and gas development as found in the landmark federal environmental laws.

Anti-development forces aggressively promote both fronts. They foresee a day when public policy constrains traditional energy resource to the point where alternatives - their preferred energy sources reliant upon firm government control - finally achieve semblance to economic reality. There is no compromise in Obamaworld, there is a goal.

The noise level from the anti-development crowd has become deafening. Their ranting sends a message of mistrust for state-based regulation and a preference for a federal command and control structure. In play are the landmark federal environmental laws that shape the modern industry, such as RCRA and the Safe Drinking Water Act. These statutes rely in large part on the rational principle that state regulation is the preferred forum to regulate the industry. That's because geology and production practices vary greatly from region to region. Instead, the critics screech that states lack the necessary moral fiber and resources to regulate the industry. Better to have a one size fits all solution that relies on a heavy federal hammer.

At the heart of the national debate over all oil and gas development are two themes: 1. whether it is in the public interest that regulatory policy appropriately manages risks associated with oil and gas development or should these risks simply be eliminated; and 2. whether state-based regulation or centralized federal control best serves the public. These themes form the crucible that distinguishes within federal law how regulation over oil and gas differs from that regulating heavy industry. On this fulcrum a debate will soon be waged in Ohio that will determine the future of this state's oil and gas law.

That brings us to Our World.

Ohio reflects the nation. The Ohio oil and gas industry is engaged in war with critics who say that the risks associated with developing Ohio energy resources outweighs the benefits citizens receive from local supplies. National anti-development organizations, such as the Colorado-based Oil & Gas Accountability Project, have established chapters in Ohio and other states. They are busy generating misinformation designed to feed the media frenzy and create public distrust.

This war is currently being waged in the press and is galvanized, in part, by urban drilling in northeast Ohio. Clearly, the Bainbridge Incident was a serious event which our critics have exploited. In a recent Sun Messenger newspaper article, industry critics celebrate Bainbridge's ascension to national notoriety. In some respects, Ohio has become a poster child for the war on oil and gas.

The war will soon move to a more serious forum - the Ohio General Assembly. For some time, your Association has been engaged in serious negotiations with the Ohio Administration and State Senator Tom Niehaus on ways to improve Ohio oil and gas law and address the public's concerns with oil and gas development. The Association has pursued two goals. The first is to affirm good reasons for public faith and trust in the Ohio regulatory program. The other is to sustain the superior working environment for oil and gas development in Ohio. Both are intrinsically bound together.

The legislative proposal has three components. The first looks back on the urban drilling experience and proposes ways to better address concerns raised by local governments since House Bill 278 was enacted. It will not overturn House Bill 278 nor corrupt the legal principles that underpin that legislation.

The second theme proposes to generally update Ohio law as an Ohio response to the current issues being debated nationwide regarding oil and gas development. Issues to be addressed include well construction, well stimulation, enforcement procedures, and improved oversight of non-producing wells.

The third component seeks a funding solution to adequately support the Ohio oil and gas regulatory program. In dealing with this issue, the Association's core principle was to negotiate a funding solution directly based upon proven regulatory need and not tied to gross production value or the economic fortune of risk-takers. It was by taking this road that we had success in dealing with bad ideas such as a gross receipts-like "energy extraction fee" which was recently removed from the biennium budget bill, much to the frustration of some who saw it as a way to punish the industry while extracting value for other social agendas.

Our critics already say that this proposal is industry-driven and fails to go far enough. Of course they would. Their agenda is not directed to the public good or reasonable compromise. Their agenda is to stop oil and gas development. The Northeast Ohio Gas Accountability Project has joined forces with State Senator Tim Grendell, a Republican, to propose legislation that essentially overturns current Ohio oil and gas law. It is absurdly unreasonable. You want to read it? Go to www.neogap.org. I'm not wasting time or ink writing about it.

I believe that Ohio has the best oil and gas operating environment of the oil and gas producing states. Even so, the Ohio regulatory agency has twice been critiqued by experts including environmental advocates with sincere intent. They have concluded that Ohio has an excellent regulatory program governing this industry when compared to national guidelines describing the elements often found in such a program. This benefits Ohio citizens.

The Ohio industry has an exceptional work setting because over time good people using common sense have constructed first-rate law that balances the industry's needs with the public's interests to protect health, safety, the environment and the orderly conservation of resources. We see both principles as mutually dependent on each other. Our enemies do not. We must take care of this. We can do that by developing an Ohio solution that sincerely embraces the authentic debate and offers solutions to the enormous policy challenges that confront this industry. The Niehaus proposal does that.

Finally, as always the devil is in the details. Over the past several weeks, I have traveled the state meeting with the membership to talk about the Niehaus proposal, the Association's participation in the process and the wider issues driving the proposal. Much was discussed during those meetings that for good and circumspect reasons I have left unsaid in this column. Later in the summer, the Association will hold two larger regional meetings to once again go through the issues. I hope this benefits those who missed the recent meetings as well as those who did attend but seek additional discussion.

Click HERE to view a copy of Senate Bill 165 (Niehaus)

Our World