New Ohio Drilling Policy May Be Good for Oil & Gas, Insurance Industries

Ohio in mid-April 2014 enacted stricter regulations for oil and gas drilling near faults or areas of past seismic activity, a move that some, including insurers, may view as a step in the right direction.

The Ohio Department of Natural Resources said the new regulations, which require the installation of seismic monitors for drilling that occurs within three miles of a known fault or area of seismic activity greater than a 2.0 magnitude, apply to new drilling permits issued by ODNR.

Ohio regulators and those in many other states in which previously inaccessible oil and gas reservoirs are being tapped as a result of technological advancements in the technique of hydraulic fracturing, or fracking, are increasingly concerned about the connection between drilling activity and seismic events.

A 600 percent jump in earthquakes in the central United States in this century has governmental entities taking notice, said Swiss Re Vice President Michael Diggin.

“The U.S. Geological Survey is studying whether those quakes are caused by the sudden, high pressure injection of millions of gallons of wastewater miles below the surface,” Diggin said during an Advisen/ Swiss Re-sponsored webinar on hydraulic fracturing.

The ODNR said the new monitoring requirement is in response to recent seismic events in Poland Township, in Mahoning County, that show a probable connection to fracking — a process that involves the injection of fluids into a well — near a previously unknown microfault.

The data from the monitors will be directly linked to the Department of Natural Resources, said Jim Bolz, chief underwriting officer at the Peabody, Mass.- based insurer, Energi.

“It doesn’t go to the operator; it goes right to the regulatory body,” Bolz said.

He said Ohio wants to monitor the smallest of seismic events because “there is a concern that that could evolve into bigger things. When you have minor tremors, minor tremors sometimes can be a predictor of bigger issues.”

In its announcement, the ODNR said that if a seismic event in excess of 1.0 magnitude is detected, “activities would pause while the cause is investigated. If the investigation reveals a probable connection to the hydraulic fracturing process, all well completion operations will be suspended.”

“ODNR’s directives are a sensible response to a serious issue that regulators across the country are closely examining,” said Gerry Baker, associate execu­tive director of the Interstate Oil and Gas Compact Commission, which works with Ohio and other states to share scientific data in order understand the relationship between seismic activity and oil and gas drilling.

The new regulations in Ohio, which has seen an uptick in drilling activity in the Marcellus and Utica shale regions, make sense for regulators, oil and gas operators, and insurers, according to Bolz, a geologist who worked in the oil and gas industry before he entered the insurance business.

More than 800 wells have been drilled in Ohio’s Utica and Marcellus shale regions, and there have been as many as 16,000 hydraulic fracturing stages from those wells, according to the ODNR.

“If you think about it, a company is not going to want to spend millions of dollars on prospecting for a resource to come out of the ground, knowing full well that they’re doing it somewhere where it’s going to cause a problem, and it’s going to provoke the regulators to shut them down,” Bolz said.

“What they’re going to do is they’re going to be real careful about where they’re going to drill and where they’re going to provide these operations, and know full well that, if they screw up, there’s a good chance that they’re going to get shut down, or they are going to get at least a moratorium on that particular production well,” he said.

Most drilling operations are sophisticated and have the resources in place to comply with the Ohio regulations, Bolz said.

“It’s one less control that they have to worry about. The same goes with the insurance industry. … It’s one less control, one less exposure that the insurance companies need to worry about,” Bolz said.