Ohio Senate OK?s Drilling in State Parks and Forests



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The Ohio Senate approved a bill last week allowing oil and gas drilling in state parks, forests and other state-owned lands.   The bill must return to the House for approval of changes made by the Senate but is expected to move quickly and to be on Governor Kasich?s desk soon.  Governor Kasich has indicated he supports the bill.  While the bill is likely to be approved soon, state officials say it will be a year or more before anyone starts drilling on any state lands.  

Under the bill, a new entity, the Oil and Gas Leasing Commission, would oversee oil and gas exploration and drilling on state lands.  The Commission would be headed the Chief of the Division of Geological Survey in the Department of Natural Resources and would include four additional appointees:  two members representing the oil and gas industry, one member of the public with expertise in finance or real estate, and one member representing an environmental or conservation organization.  

The bill would also create four classes of state property:  

  • Class 1 property is land owned or controlled by a state agency for which there are no deed restrictions that limit oil or gas exploration or production;  
  • Class 2 property is land owned or controlled by a state university or college or another state agency for which there is a federal encumbrance or monetary interest that prohibits oil or gas exploration or production;  
  • Class 3 property is land owned or controlled by a state agency that is not categorized as Class 2 or Class 4, that is of insufficient size or shape to meet the State?s requirements for drilling a well, and that must be pooled with other parcels to form a drilling unit to meet the drilling requirements;  
  • Class 4 property is land owned or controlled by a state agency for which the deed expressly limits exploration or drilling.   

Under the bill, each state agency must create an inventory of land owned or controlled by the agency, and assign it a class.  The Department of Natural Resources will then post a listing of each parcel and its classification on the Department?s website.  No earlier than 270 days after the effective date of the law, if finalized, anyone interested in leasing a formation underlying state owned or controlled land must submit a nomination to the Oil and Gas Leasing Commission identifying the parcel of land and paying the nomination fee established by rule.  The Commission will review the nomination and determine whether to approve or disapprove a lease on the parcel in question, taking into consideration all of the following:  economic benefit of the lease, compatibility with current land use, environmental impact, adverse geological impact, impact on visitors or users of the tract, and impact on operations on any properties owned by state colleges and universities.  

Nominations to lease Class 3 property will be disapproved.  Properties categorized as Class 2 or Class 4 may be leased only if the state agency that owns or controls the parcel notifies the Commission that a formation or formations within that parcel may be leased.  If a nomination is approved, the state agency that owns or controls the land shall submit to the Commission special terms and conditions that will apply to the lease.  

Available properties will be advertised quarterly and a sealed bid process is required.  Leases will be awarded to the highest and best bid for each formation, taking into account the financial responsibility of the prospective lessee and the lessee?s ability to perform its obligations under the lease.    

Pennsylvania, where considerable drilling has already occurred, collected approximately $128 million last year by leasing drilling rights in its forests and parks. 

Should you have any questions about this alert, please contact Kathy Milenkovski.  For general questions involving energy law, please contact the Energy Team at Steptoe & Johnson PLLC.