CONSTRUCTION & PERMITTING ISSUES FOR PADS & IMPOUNDMENTS AUGUST 28, 2013

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1 CONSTRUCTION & PERMITTING ISSUES FOR PADS & IMPOUNDMENTS AUGUST 28, 2013

2 W. Jonathan Airey Vorys, Sater, Seymour and Pease LLP

3 OIL AND GAS IN OHIO Ohio well spot map shows significant development in three of four Ohio quadrants, with a total of 264,232 oil and gas wells drilled in Ohio by year end And, while geology dictates that eastern Ohio is dominant, in modern times wells have been drilled in 79 of 88 counties. Source: Department of Natural Resources, Division of Mineral Resources Management

4 AREA OF GREATEST UTICA POTENTIAL IN OHIO As of August 17, 2013: Total Utica horizontal wells drilled in Ohio 505 Total Utica horizontal wells on production 125 Total horizontal Utica permits to date 840 Utica rig count 36

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6 One Investment Banker This Month Described the Southern Utica Area as A String of Gushers

7 MIDSTREAM COMES TO OHIO

8 MIDSTREAM CONSTRUCTION

9 MIDSTREAM FRACTION CONSTRUCTION

10 NORTHEAST GAS PRODUCTION IS STARTING TO EXCEED NORTHEAST GAS DEMAND

11 Source: RBN Energy, Bentek Data Rest of U.S. Northeast 2 0 Bcf/d Northeast (Marcellus) Bcf/d Everything Else NORTHEAST PRODUCTION GROWTH SUPPORTING TOTAL U.S. PRODUCTION NUMBERS

12 OHIO REGULATORY UPDATE FOCUS ON THE PROCESS Budget Bill HB 59 Signed June 30, 2013 Effective September 29, 2013 Four regulatory updates: 1. No surface spreading of brine produced from horizontal wells 2. Quarter reporting of horizontal well production

13 OHIO REGULATORY UPDATE OFF DRILL PAD FACILITIES 3. R.C Division of Oil and Gas has sole and exclusive authority to regulate off well pad facilities that are: Produced brine recycling facilities Drill cutting collection points TENORM materials collection points Allow testing before moved to approved disposal site Permit fee of $2, Must obtain permit by January 1, 2014

14 OHIO REGULATORY UPDATE 4. Drill cuttings are NORM TENORM material is only regulated by Ohio EPA at the landfill Testing for TENORM levels at Division regulated sites

15 RULEMAKING 1. Interim rules and forms expected for off drill pad locations by September 29, year update Rules drafted but not proposed for comment 3. SPCC Proposed Rules 4. Water impoundment rules being developed 5. Spacing waivers for toe and heel being discussed as a possible rulemaking

16 Mark J. Bonifas, PE Hull & Associates, Inc.

17 PERMITTING ODNR Pads/Access Roads - sole and exclusive authority for permitting operations at the wellhead Impoundments a dam permit may be required for impoundments based on volume and/or dam height Ohio EPA/ACOE Only involved if surface water permitting is necessary Practice avoidance

18 PERMITTING Prepare Constraint Maps with GIS to quickly assess area of lease with least surface constraints Follow up with field work for confirmation

19 DESIGN Prepare construction drawings Specifications for earthwork, compaction, etc. Existing and proposed contours Pad surface material and preparation Subsurface drainage Storm water management Slope stability Sedimentation and erosion control plan Spill planning

20 DESIGN Geotechnical Issues Failure of constructed slopes Low bearing capacity from mine spoils on reclaimed land Shallow bedrock Local soil does not work well for impervious impoundment liner Underground mines

21 CONSTRUCTION Appalachian climate can shorten the construction season for earthwork Consider scheduling appropriate type of work from January to March Stay at least 6 months ahead of drill rig schedule Appalachian topography can be challenging Significant volumes of earthwork can be required to construct safe locations

22 CONSTRUCTION Stormwater management Sediment and erosion control BMPs Easy to manage Easy target for regulators

23 WHAT TO EXPECT ODNR Rules for pad design Rules for freshwater impoundments Will be same for regional or pad impoundments Rules will be performance-based Will require a competent person to prepare the plans Considering submittal of plans before the site review with a field inspector Will likely require an as-built certification that the construction was in conformance with the approved plans

24 WHAT TO EXPECT SPCC Rules Will supplement the federal rules Will give ODNR inspection and enforcement authority SPCC Plans will be required for drilling, hydraulic fracturing, completions and production operations These rules are farthest along in draft process

25 QUESTIONS Mark J. Bonifas, PE Hull Civil Engineering Practice Leader W. Jonathan Airey Vorys Partner