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Baker Hostetler Launches Shale Blog

Alerts / March 21, 2012

Baker Hostetler is pleased to announce the launch of the Utica Marcellus Shale Monitor, a new blog focused on news, regulatory issues and other developments in the Utica and Marcellus shale plays. Included below are two recent posts from the blog. These posts discuss the results of federal testing of well water in Dimock, Pennsylvania, and examine a proposed severance tax for oil and gas production that will be part of Ohio's Midterm Budget Review Bill. Visit the blog often for the latest legal news, legislative updates and information regarding these regional shale plays.

Please feel to share information about our blog with your colleagues. The blog supplements our Utica and Marcellus Shale Plays Update, which will continue to be published periodically.

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USEPA Testing of Dimock, PA Well Water Finds No Contamination
Posted by Jason Yearout on March 20, 2012

The U.S. Environmental Protection Agency ("USEPA") disclosed in a March 15, 2012, statement that samples of well water at 11 homes in Dimock, Pennsylvania (where residents claim to have suffered health problems from shale drilling operations) "did not show levels of contamination that could present a health concern."

In mid-January, USEPA Region 3 announced that it would sample water from approximately 60 homes in the area "to further assess whether any residents are being exposed to hazardous substances that cause health concerns" as a result of shale drilling operations that commenced nearby in 2008. Region 3's action memorandum for the testing regime identified the contaminants for which it would be testing, including arsenic, manganese, DEHP, glycol compounds, and phenols. According to USEPA's statement (copied below): "Samples from six of the 11 homes did show concentrations of sodium, methane, chromium or bacteria, but concentrations were all within the safe range for drinking water." Moreover, some of these compounds (such as sodium and chromium) occur naturally in groundwater in this part of the country.

Sampling results also revealed the presence of arsenic at two locations; USEPA indicated that it would re-test those locations even though the levels of arsenic found were below area water quality standards. Region 3's sampling regime will continue as planned for the remaining homes.

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Kasich To Fund Ohio Income Tax Cut with Tax Increase on Oil & Gas
Posted by Lori Herf on March 14, 2012

On March 14, Ohio Governor John Kasich announced that he plans to "change Ohio's severance tax for oil and gas production" in his Midterm Budget Review Bill and use the additional revenue to fund an across-the-board income tax cut.

The current severance tax is 20 cents on a $107 barrel of oil and 3 cents per $2.62 MCF of natural gas. These figures are based on the February 29, 2012 closing prices for crude oil and natural gas on the NYMEX futures exchange.

The Governor's proposed changes to Ohio's tax system for oil and gas production are intended to complement upcoming revisions to Ohio's environmental, health and safety regulations that are designed to keep pace with new technologies for high-volume horizontal oil and gas wells in Ohio's shale formations. The Governor added that updates to Ohio's severance tax policies will keep rates competitive with other oil and gas-producing states while generating new revenue that will go directly to Ohio taxpayers, in the form of an income tax cut.

Specifically, small natural gas wells producing less than 10 MCF per day would no longer pay any severance taxes on natural gas production. This eliminates taxes for approximately 90% (44,500) of Ohio's conventional natural gas wells. For conventional natural gas wells producing above this level, the new 1 percent rate would apply, with a cap of 3 cents per MCF.

High volume horizontal wells would be subject to a low initial severance tax rate of 1.5 percent or both natural gas liquids and crude oil. This rate would apply for the first year to allow producers to recoup their drilling costs, which can range from $6 to $12 million per well, and can be extended for one additional year if drilling costs haven't yet been recovered in the first year. After the initial cost-recovery period expires, the standard rate of 4% would go into effect for both natural gas liquids and crude oil.

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Baker Hostetler has extensive experience serving clients in the energy industry. Please contact any member of our Utica and Marcellus Shale Plays Team for questions regarding legal issues related to any of the major shale plays throughout the United States.

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