Issuu

SHALE www.SHALEmagazine.com

summit 2013

Recipe for

Growth The Utica’s Hotels and Restaurants are gearing up for a big season

Crain’s Summit Winter OOGA Meeting

Tackling issues and drawing crowds!

spring 2014

Growing the workforce From unions to local colleges, there’s a push on to train more workers for the oil and gas industry.

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When you do a publication about something as important, and sometimes controversial, as shale drilling, you expect some feedback — and we got a lot after our Winter issue. Most people weren’t calling and writing to champion drilling, or to complain about it. Far and away, most of the calls and emails we received had to do with one thing: our directory of shale businesses. People want their companies in it. So, because the reader is always write (right?), we’re going to expand that section in our next Winter issue. If you’d like to be included, I invite you to tell us a little about your company. We can’t promise that everyone will get on the list. While we realize

Dan Shingler Editor

Shale Magazine

that barber shops, restaurants, dry cleaners and others all get some business from the oil and gas industry, we will have to pick businesses for our listings that are the most directly involved with the sector. But, we will try to include as many as we can. So, if your business relies on the oil and gas industry and you’d like it to be considered for the next directory, please drop us a line. Tell us where you’re based, what you do, and about what portion of your business comes from Ohio’s newest industry, shale gas and oil. We’ll try to make the best and most comprehensive directory that we can, and then grow it. Who knows, we might even write a whole story about you. Please contact me directly at dshingler@crain.com. Thanks, and we look forward to working with you.

letter to the editor

’d like to compliment you on your winter issue of Shale magazine featuring some of the “power players” central to Ohio’s shale drilling industry. I was especially pleased to read it because it provides me an opportunity to give credit to one of the men you featured from the perspective of a commonplace homeowner in Ohio who took the fracking leap almost a decade ago. My three neighbors and I (all on well water) stitched together 20 acres eight years ago for a gas well drilled by Dave Hill’s company in Byesville. The culture Dave has established throughout his company, and the ongoing relationship we’ve had with his employees, has been something for a highlight reel of what it’s like to go into a business venture with the right person. From drilling to operating the well, Dave’s people have been nothing but professional and fair with us in every aspect of our relationship. They are responsive, careful, caring, honest and knowledgeable and on at least one occasion (which we uncovered only after the fact), Dave even directed them to follow a course of action that put our financial interests ahead of his own. Dave’s clearly committed to living his life and running his business in a way he believes (and we all wish) others should run their lives and their business. As you pointed out in your introduction to the winter issue, “you can’t understand this or any industry without knowing the people and businesses that manage and participate in it.” I hope Shale continues doing all it can to combat the media caricature of people guiding the fracking industry as selfishly greedy, reckless spoilers of the environment by getting the word out about truly decent, scrupulously professional and skilled influential “power players” like Dave Hill who, I know from personal experience, put people and the safety of the environment first and foremost. Sincerely, Stanley Hanover Chesterland, Ohio

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table of contents spring 2014

Cooking with gas

The Utica is fueling up eastern Ohio’s hospitality industry

Crain’s Shale Summit 2014

Nearly 300 crowd Landerhaven to hear experts on drilling, economics and environmental safety

Salt of the Shale

10 12

Canton’s new Utica U

Barges! Barges?!

Maverick Man

Water Redux

Drillers in Ohio can recycle and re-use their water, thanks to Sherrodsville plant

No Chill for OOGA

Partners

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Art Director

Rebecca Markovitz FREELANCE GRAPHIC DESIGNER

Staci Buck

PRODUCTION MANAGER

Craig Mackey

ADVERTISING DIRECTOR

Nicole Mastrangelo Jessica Snyder

MARKETING STRATEGIST

Michelle Sustar

CONTRIBUTING WRITERS

Dan McGraw Chrissy Kadleck

SUBSCRIPTIONS

Will the Ohio River become the best and cheapest way to transport drilling water?

Community

EDITOR

Dan Shingler

Lindsie Bowman John Banks Dawn Donegan Andy Hollander Mike Jansen

Stark State College is expanding to train new oil and gas workers

Ohio’s top oil and gas association had 1,500 show up at its Winter Meeting

John Campanelli

ACCOUNT EXECUTIVES

Kiko Auctions has added valuable mineral rights to its latest offerings

Aubrey McClendon continues to pioneer new trends in the Utica shale

PUBLISHER/EDITORIAL DIRECTOR

SPECIAL EVENTS

Duck Creek Energy’s brine based de-icer is keeping roads safe

Sold!

www.SHALEmagazine.com 700 West St. Clair Ave., Suite 310 Cleveland, OH 44113 (216) 522-1383 • (877) 824-9373

Dirty Business

The Operating Engineers Union is growing and providing trained workers for shale development

To start receiving Crain’s Shale, please purchase a subscription to Crain’s Cleveland Business for one year at $64 or two years at $110. For subscribers outside Ohio, one year is $110 or two years is $195. Call the Crain’s Cleveland Business Customer Service team at 1-877-824-9373 or email them at customerservice@crainscleveland.com. You may also purchase a subscription online at www.crainscleveland.com/shale REPRINTS AND PERMISSION

Reprints: Call 1-800-290-5460 ext. 125

OUR KNOWLEDGE OF THE OIL AND GAS BUSINESS KNOWS NO BOUNDARIES. $W 9RU\V RXU H[SHULHQFH LQ WKH RLO DQG JDV EXVLQHVV LVQÂˇW FRQĂ€QHG WR D FLW\ D VWDWH RU HYHQ D UHJLRQ ,Q IDFW ZH KDYH D KLVWRU\ RI LQĂ XHQFLQJ WKH ODZV WKDW JRYHUQ WKH LQGXVWU\ on a national level, setting standards and helping producers and midstream companies throughout the country. Weâ€™ve negotiated pipeline safety issues on behalf of the IPAA. Weâ€™ve helped develop guidelines to review and assess oil and gas regulatory programs. $QG ZKLOH RWKHU ODZ Ă€UPV DUH WU\LQJ WR NHHS XS ZLWK FKDQJHV LQ WKH LQGXVWU\ ZH DUH helping to create them. Which, of course, helps our clients â€” wherever they may be.

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Crain’s Shale Hundreds flock to Landerhaven to hear experts from Ohio and around the country discuss the Utica Shale

Ohio Oil and Gas Association Executive Vice President Tom Stewart updates the crowd on the status of drilling in the Utica, and on legal wrangling over the industry in Columbus.

Dave Kaminski of the Canton Chamber discusses how Ohio will manage the water needed for drilling with experts Jeff Dick, Ryan Mastowski, Brian Lutz and Bill Rish.

Oil, gas and water

How Ohio can manage the thirst of its new industry By Dan McGraw

hen the subject of horizontal drilling comes up, so, too, in many cases does the topic of water. Water is, after all, the reason the process is called “hydraulic” fracturing. It is the main component of the fluid drillers use to fracture the shale, and they use millions of gallons of it for each well they frack. Anti-drilling groups claim that surface water sources and aquifers are put at risk by shale wells, while drillers always are looking for ways to get it to their well pads more efficiently. So it’s little wonder that a distinguished panel of water experts was a popular session at the Crain’s Shale Summit 2014 in February. A standing-room-only crowd heard some surprising facts about water. Among them: Horizontal hydraulic fracturing uses water more efficiently than conventional vertical drilling, and the disposal of used water into injection wells is the most efficient, and among the safest, ways to deal with drillers’ wastewater at this time. Brian Lutz, a biochemistry professor at Kent State University who studies the environmental impact of

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energy extraction, said permitting more disposal wells is a better environmental policy than just injecting more fluid into existing injection wells. That keeps underground pressures down, which in turn increases the safety of injection wells, he said. “The big issue in groundwater contamination is in seismic activity,” Lutz said. “It has long been known that if you inject too much and at too high a pressure, you could have seismic activity.” So Lutz expects and welcomes more of the wells in Ohio. “We will probably see an expansion of injection well permits in Ohio,” Lutz said. “That will be better on many levels than to just increase the amount of waste fluid injected into existing wells. The big issue with wastewater is public misperception, and we have to do a better job informing the public that the waste disposal method is safe and that there is an adequate capacity (of water) for natural gas production now and as we move forward.” Joining Lutz on the panel were Bill Rish, a principal and vice president with Hull & Associates; Ryan Mastowski, a project manager with Rettew’s water treatment group; and Jef-

frey Dick, chairman of the geological and environmental sciences department at Youngstown State University. The panel was moderated by Dave Kaminski, director of energy and public affairs for the Canton Chamber of Commerce.

A matter of economics The group addressed a number of key issues, including whether it is better to get water to a well pad by truck or pipeline. For now, all agreed that moving water by truck is the most economical method. “The average truck holds 100 barrels of water and costs $100 an hour to operate,” Mastowski said. “So it costs $1 an hour per barrel of water,” which he said is the cheapest route for drillers to take at the current pace of drilling. “Right now there are not the economies of scale for pipelines, and even if they ever do use pipelines for water for part of the transport, we are going to need highways and trucks on them to get the water to each individual pad,” Mastowski said. “That’s why I have to think that water pipelines will not be economically feasible.” OIL continued on page 26

Summit 2014 Utica or bust?

There are still questions to answer before Ohio’s shale play can prove its potential, expert says By Dan McGraw

hen longtime and well-respected energy industry analyst G. Allen Brooks began his keynote address at the Crain’s Shale Summit 2014 in February, he led off with some quotes from former U.S. Secretary of Defense Donald Rumsfeld. In 2002, Rumsfeld told the media that nuclear proliferation in Iraq was in some respects part of the “unknown unknowns — things we do not know we don't know.” Brooks was using the Rumsfeld quotes to help explain the “certain uncertainties” he saw in the Utica shale play. “If we believe the forecasts, the U.S. market will change dramatically in the long term,” Brooks said. “Right now, the future is unknown, but encouraging. “The biggest problem is that we don’t have a lot of information yet in this formation,” he continued. “The geology is turning out to be not as uniform as everyone was thinking. We are getting a better idea of what is physically possible, but what is politically possible is often difficult to predict.” Brooks was speaking to political issues such as environmental regulations and export policies that impact the sale of gas and oil to markets in Europe and Asia. But Brooks also said he expects the changes in the U.S. end market — natural gas used more in automobiles and electric production — to catch up eventually with production and make natural gas a better investment. “Natural gas is still a fuel looking for a market,” Brooks said. “The sea change in production of natural gas will come when profitability is more certain, and that is when more investment will come in for the long term.” During his career as a Wall Street oilfield service securities analyst, Brooks has been recognized as an “all-star analyst” by The Wall Street Journal. He publishes a highly regarded energy newsletter, “Musings From the Oil Patch,” and has worked more than 40 years in the energy

and investment fields as an energy securities analyst, an oilfield service company manager, and a consultant to energy company managements.

The future changes fast In front of an audience of more than 250 attendees the Shale Summit at Executive Caterers at Landerhaven, Brooks used charts and graphs to show that growth for oil demand likely will remain flat in the country, while there is expected to be a sharp increase in natural gas production and usage by 2040. Things already have changed quickly, even since the 1990s, he said. “To many in this business, 15 years is ancient history,” Brooks said. “But it has been significant what shale has done in the U.S. production market in a very short time. We’ve learned how to drill faster, we have more drilling in pads, and huge changes in the dynamics of drilling. “The energy business is a very difficult and complicated business to deal with,” he said. “Because the changes in production often come quickly, the changes in the uses and the profitability of the product sometimes have to catch up.” UTICA continued on page 26

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(330) 453-7633 • www.hallkistler.com Call for Consultation Oil and gas industry analyst and keynote speaker Allen Brooks spent extra time talking with Summit guests during a break.

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Cooking with gas W

By Chrissy Kadleck

From early morning cocktails to late-night breakfasts, Ohio restaurants and hotels are gearing up to cater to a new crowd of oil and gas workers

Restaurants like Smoke the Burger Joint (top) are expanding with new locations and there’s been an increase in new hotel construction, especially near places like Carrollton (above) as the hospitality industry heats up in eastern Ohio.

ild game weekends, special discounted rates, strategically placed boot scrapers and opening for dinner – and drinks – at 7 a.m. Welcome to the world of running an establishment in Ohio’s shale country. Savvy restaurants and hotels in the state’s Utica shale region are taking creative measures, hopeful they can set themselves apart by catering to the needs and expectations of oil and gas professionals traveling to the state for either short- or long-term projects. Their customers often are from places like Texas, Louisiana or Oklahoma, and they bring their oil-patch tastes with them. It’s been a tough winter. Record low temps and heavy snowfalls caused travel delays and even kept some folks away. But hoteliers and restaurateurs say they are still optimistic about the rest of 2014 and are preparing accordingly. Take Alan Waters, owner of Prime Steak and Seafood in Marietta. He and his wife, Lisa, each work 100 hours per week at the upscale eatery they opened in September, inside what has been the Comfort Inn on Pike Street. (The hotel is changing its name to Quality Inn this spring.) When fewer oil and gas workers were coming in, Mr. Waters had to cut staff during the slower holiday and brutal winter months. He’ll have tailored services for them when they’re back, though, and he said the industry’s professionals account for “every bit of 50%” of his business. That includes opening his restaurant and lounge early to serve hungry workers coming off the 6 p.m. to 6 a.m. shift, who tell him they are excited about having a place to unwind after a long day with a nice meal and perhaps a couple drinks, before heading to bed at noon. It could end up being Ohio’s earliest happy hour. “I approached the guys with this idea and I told them to find out how many guys that are interested and I would make it happen for them,” Waters said. Over the winter, business was down from the summer before. Waters estimated that he was down $1,800 to $2,000 a day during the week because the oil workers weren’t out in full force. But he saw the signs of future growth popping up all around him, even through the deep Ohio snow. “If you go up and down the road, you see all the gas pipelines ready to be laid. The boom is ready to start; as soon as this weather breaks, I think it’s going to be full go. It’s going to be crazy, what’s going to happen in this area,” Waters exclaims. COOKING continued on page 21

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One law firm for all energy-related legal needs The City of Green, near Akron, is one of the local governments using AquaSalina de-icing solution to keep its roads safe. Green was able to use its existing trucks to spread the liquid.

Salt of the Shale Brecksville-based Duck Creek Energy is making a business out of brine By Dan Shingler

ot everyone was unhappy when Ohio’s winter turned particularly cold in January. Take Dave Mansbery, for instance. Mr. Mansbery wasn’t just happy because cold weather means higher gas prices for drillers and landowners — though he might have been pleased at that prospect as well. To him, the conditions were perfect for selling the road de-icer that his company makes from the brine that comes out of oil and gas wells in and around Northeast Ohio. “We’ve been very happy. We’ve seen some broad acceptance of the product now,” Mr. Mansbery told Shale in early January, when temperatures in Ohio were dipping well below zero. “Certainly this cold snap gave us an opportunity to give it a trial at a temperature colder than other products can work in.” Mr. Mansbery’s company, Duck Creek Energy in Brecksville, takes brine from gas and oil wells and repackages it as a road de-icer that he, along with independent laboratories, say works better than traditional road salt. Sold under the brand name AquaSalina, the brine solution prevents ice from forming at colder temperatures than rock salt. It also does not corrode metal rebar, bridgework and other metal infrastructures — or the cars that are coated every winter with salt water in Ohio and other cold-weather states. “We advertise it to work at minus-15 (degrees),” Mr. Mansberry said. “However our laboratory tests show it working to minus-40 degrees.” That’s a substantial improvement over plain rock salt, which only works to about 15 to 20 degrees above zero, or even magnesium chloride, which prevents ice from forming down to about minus-5 degrees. A recent study conducted by the Western Transportation Institute at Montana State University found AquaSalina to be one of two products effective for road de-icing down to minus-20 degrees. It also found that AquaSalina accomplished the task at lower concentrations than competing products, and it reduced the need to plow roads that had been pretreated with the solution.

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Way down under The secret, Mr. Mansbery said, is that AquaSalina is made from seawater that has been trapped deep underground for millions of years. During that time, both calcium chloride and magnesium chloride dissolved in the water — along with the sodium chloride most folks think of when they think of saltwater. SALT continued on page 27

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! d l So After decades of selling homes, businesses, farms and everything it takes to run them, Canton’s auction house has found a brand-new business that is growing fast in eastern Ohio

Mineral rights are now an important component of real estate transactions in eastern Ohio and they are just one more thing to sell for auctioneers at Canton-based Kiko’s popular sales.

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Utica f o s n o i t c u A rive d s t h g i r l a miner iko’s K t a s s e n i s u new b

By Dan Shingler

ou can teach an old auction house a new trick. Just ask Dick Kiko. He’s the third generation of his family to help folks from all around Canton sell estates, real estate, and what’s known in his business as “chattle,” which basically means everything else — cars, tractors, guns, coin collections, antiques, you name it. The firm conducts about 1,000 auctions a year. “Basically, we convert stuff into cash,” Kiko succinctly sums up, describing a business as broad in its scope as almost any you could find. It’s even broader lately. With the shale boom all around him and especially to the east, Kiko has found one more category under which he can connect buyers and sellers: mineral rights. Business at Kiko Auctioneers already was growing when he arrived at the family firm more than 10 years ago. Kiko came to it in 2001, after working in the consumer goods realm at Procter & Gamble and then in finance at KKR and GE Capital. It was as much a homecoming as a career move, and he joined five uncles and 32 cousins who are still in the business with him. Kiko started using his business experience to broaden the marketing efforts of the auction house, and his financial background and auctioneer’s eyes told him mineral rights were becoming extremely important to area residents and to the new oil and gas industry. He saw the rights could become an important new element of his business as well. “We were growing and growing and growing and then all of a sudden here comes the Utica and the Marcellus,” Kiko said. “I did a little research and

guess what? Mineral rights are, by law, real estate. And I have a real estate license.”

Suddenly worth selling It isn’t that Kiko Auctioneers hadn’t sold mineral rights before. Kiko’s father, grandfather and their crews of staccato hawkers sold everything imaginable and legal. It’s just that no one really much cared about mineral rights before shale drilling came to town. “They’ve been selling mineral rights for 65 years — they just didn’t have much value. Mineral rights in Carroll County? Ten years ago I could have sold you mineral rights in Carroll County for $200 an acre,” Kiko said. But by 2012 the game had changed, and it wasn’t just the value of the rights that had increased, but the amount of land involved. The mineral rights business Kiko saw developing no longer was something involving a few dozen or a hundred acres, with rights sold on the cheap to a local vertical driller like in the old days. It wasn’t even drillers who were the big bidders. Shale drillers prefer to lease their rights, Kiko said, while those that buy the rights outright today tend to be big, out-of-state investors and speculators. They have money and enough confidence in their own expertise to spend it, Kiko said. These buyers hope the rights produce more money in future royalties than they spend buying them, or that they’ll be able to resell them later for an even higher price. It’s a bit like buying an occupied apartment building — the leases remain in place if the building is sold, the tenants just pay a new landlord. KIKO continued on page 24

Water Redux Rettew and Iron Eagle join up to recycle flowback in Sherrodsville

HAULING FOR OIL AND GAS?

By Dan Shingler

ron Eagle’s “Sherrodsville Terminal No. 1” — one of Ohio’s first water recycling sites built to process flowback water from shale drilling — is up and running. The facility began recycling in January and has been recycling water since then, said site manager Ryan Mastowski of Rettew Associates. Rettew designed, built and will operate the plant for its owner, Youngstown-based oilfield services company Iron Eagle Associates. “We received our official approval to operate on Jan. 3, 2014,” Mastowski said. “We had written approval to start a little bit before that, so we started accepting some water (into storage tanks) the last week of December. We were up and fully operational in January.” The plant can recycle up to 310,000 million gallons of water per day, running with an initial single, 12-hour shift, and up to twice that amount if a second shift is added. It also could be scaled up with more equipment, if needed, Mastowski said. Perhaps more importantly, the plant also can move. Once its equipment is cleaned — a process that could take one or two weeks — the entire operation can be disassembled and loaded into three tractor trailers in about 48 hours, according to Mastowski. Rettew Field Technician That capability may or may not be Ryan Shradely with one important. The plant is about 10 miles of the thousands of southwest of Carrollton, which has been samples of flowback an early-stage hotbed for drilling in the that will be tested before Utica, so it’s aptly located for now. But the water is recycled if drilling continues to shift south, as it and re-used by drillers. has in recent months, the plant could be moved, Mastowski said. Whether that happens likely depends upon factors that include future well results near the plant and even the price of natural gas, which would spur drilling if it rises significantly. The facility will test water as it comes in, tailoring its processing for each batch so that none is over- or under-processed, which will allow the plant to operate as efficiently as possible, Mastwoski said. It won’t recycle drillers’ waste into drinking water, but that’s never been its intended purpose. Instead, it will take flowback, process it so that it’s clean enough to be reused and then return it to the drill cycle. “Once it’s waste, it’s always waste, from cradle to grave,” Mastowski said. However, the plant will decrease drillers’ demand for pure fresh water, and should reduce truck traffic, he said. That’s in part because water haulers will be able to bring waste water to the facility and also get a tank of new water before they leave, rather than go to two locations. They’ll get recycled water when it’s available, but the plant also has an on-site well to provide additional water, Mastowski said. The facility also has a washing system to clean out truck tanks before they take on new water to ensure that old drilling waste does not contaminate new water. The plant also can remove radioactive material, which is found underground and brought to the surface with well flowback. If drillers use the facility as much as is hoped by Iron Eagle, it will be expanded or second plant could be built. “We could do either, and we’ll probably do both,” Mastowski said.

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Canton’s new Utica U Stark State’s new campus in Canton will be a shale education center By Dan Shingler

anton is not losing a major driller — Chesapeake Energy, city officials note, is only moving its headquarters a few miles east of town and still will have plenty of economic impact. But it is gaining a college. That’s because Stark State College is taking over Chesapeake’s offices at Third Street and Cherry Avenue, and is building a $1.3 million well-site training lab across the street to boot. It’s all part of the school’s efforts to take advantage of Ohio’s shale boom, not to mention prepare students for what appears to be a long-term source of jobs for candidates with the right training. “We’re seeing a lot of interest,” Kathleen Steere said. “I’m very happy with it so far. Steere is coordinator of Stark State’s oil and gas programs and herself a petroleum engineer. “And a geologist,” she adds, smiling. “That way, I can argue with myself.” Stark State isn’t waiting for its new digs to start its curriculum. It’s already in place with about 70 students enrolled in one- and two-year programs in subjects such as pipeline technology, and another 20 or so enrolled in non-credit classes that will train them to be rig hands, welders’ helpers or other entry-level workers. The college began its new oil and gas program in the spring of 2012, when it joined ShaleNet, a national network of four training centers. They’re all geared toward helping to train more workers for the nation’s shale energy boom, with backing from the industry and the U.S. Department of Labor, which ponied up almost $15 million in grant money for the ShaleNet program. The federal money is split among four schools across the country. Of the total, $2.7 million goes to Stark State, Steere said. The state of Ohio also gave Stark State a grant of $10 million to help with construction costs. On the private-sector side, Canton’s Timken Foundation added another $500,000 to those funds, while Chesapeake ponied up $44,000 in scholarship funds and Access Midstream donated safety clothing and equipment, Steere said. For veterans or out-of-work Ohioans, there is 100% tuition financing available from the American Natural Gas Alliance, she added. “This is really becoming a community initiative to make this work, so it’s going to continue on,” Steere said. Much of the new grant money is covering the costs of creating training labs equipped with realworld oil and gas equipment and instrumentation,

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Stark State student Michael Swanson is learning how to run pipelines and processing equipment and was one of about 90 students to enroll in the college’s new oil and gas programs, which are expanding rapidly with state and federal backing.

or computer systems that simulate the operation of pipelines or natural gas processing facilities. The school wants to make sure students are as prepared as possible for real-world jobs, and that means training on real-world equipment, Steere said. So students learn how to work and manage the same equipment used at wellheads, on pipelines and even in natural gas process- Steere ing centers. Sometimes they use a wrench, and sometimes they use a computer — often running sophisticated process simulation software — depending on the task and system involved. The site in downtown Canton will have its own wellhead, though it won’t be doing any drilling, Steere said. “We want them to be able to see how everything works on the inside, how it works on the outside — the full system, including tanks and compressors,” Steere said.

Jobs in the pipeline The program costs students about $1,200 per semester, assuming they do not receive tuition assistance, and the programs Stark State is offering provide credits that can be used toward four-year degrees. So, if a student thinks he or she wants to work on a pipeline in the field, but later decides they want to become a petroleum engineer, they can still use the coursework from Stark State, Steere said. So far, the school is offering two-year degrees:

Pipeline, Process, Instrumentation and Mechanics. A fifth is awaiting approval from the Ohio Board of Regents. It’s attracting a lot of interest from area students, even though the program is not yet that well-known or established in its permanent facilities. On a recent visit, young students were eager to get to work on pipelines and drilling rigs, while older, more established ones were training for second careers and hoping not to have to move around quite as much as a rig worker. “I’d like that,” said student Michael Swanson, when asked if he hoped to work in the area. “But I’m open,” he added. So far, the school has not had problems finding jobs for the new graduates of its non-degree courses, and Steere said she thinks others will quickly find work as well. Stark State not only trains students in the technologies used by the oil and gas industry, but prepares them for industry expectations, ranging from showing up on time to maintaining a clean driving record and passing drug tests. Steere said she’s confident there are plenty more jobs in the pipeline for Ohio. Not only is the shale energy industry still expanding, she said, but many workers in Ohio’s traditional oil and gas industry are getting older and nearing retirement. “You’re going to see a lot of turnover, and a lot of opportunity, over the next 10 years,” Steere said.

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Barges like this currently move oil and gas equipment via the nation’s rivers, but drillers hope they can also be used to move well flowback to disposal sites.

Barges? Barges?! We don’t need no sinkin’ barges! By Dan McGraw

hen GreenHunter Resources, a Texas company that provides water management and disposal services for oil and gas drillers, bought a 10-acre barge terminal on the Ohio River last year, few thought much about the deal. GreenHunter was going to use the facility in Wheeling, W. Va., as a transportation hub, as well as a treatment and recycling center, for drillers’ wastewater. But the purchase apparently has started a debate that might determine how and if wastewater from drilling can be transported in a manner many say is the most efficient but which others say is among the most dangerous — by barge on the nation’s waterways. A big part of GreenHunter’s plan has been to use barges on the Ohio River to transport hydraulic fracturing wastewater from the Utica and Marcellus shale plays. Along with the

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Wheeling facility, the company also acquired another barge terminal on the Ohio River in New Matamoras, Ohio, about 50 miles downstream from Wheeling. The company’s stated strategy is to provide drilling companies with “one-stop shopping” for liquid waste disposal. The terminal would allow drillers to recycle water at GreenHunter’s facility or transport it to disposal sites cheaply via river barge, truck or train from a single location. That setup might reduce the traffic in shale drilling country caused by the thousands of trucks that now haul wastewater and also might save some roads and bridges from the wear and tear of heavy truck traffic. Perhaps more importantly to the oil and gas industry, it would provide another way to deal with vast quantities of wastewater, which is a major expense and logistics challenge for drillers. But navigating the Ohio River might prove difficult.

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Transportation of wastewater from shale drilling by barge is not as simple, bureaucratically speaking, as doing it by truck. Because the Ohio River is designated a federal national waterway, special permits are needed to move wastewater on the river by barge. The fate of GreenHunter’s plans now is in the hands of the U.S. Coast Guard, which is conducting a review of regulations for barge traffic on the river and is considering public input in the matter. The Coast Guard’s task might not be simple, in part because not all wastewater from drilling is the same. Fracking waste can vary greatly from well to well, due mostly to the proprietary chemicals used by each company. Also, the underground geology of each well site, along with the age of the well, can affect the quality and contents of the well’s flowback. Finally, to make matters even more complicated, fluids from different wells containing various mixtures would be mixed together. BARGES continued on page 23

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McClendon still a maverick The man who kick-started the Utica still bucks the trends with his ongoing investments in the play By Dan McGraw

hen Aubrey McClendon agreed to step down as Chesapeake Energy chairman and CEO last year, there was a mix of views on the longtime energy company executive. He was among the first to see the potential of horizontal drilling, and Chesapeake invested heavily in shale plays, starting with the Barnett-Shale in North Texas in the late 1990s. He was particularly important in Ohio, where he and his company were among the first to lease mineral rights in the Utica shale play, which McClendon said would be “the biggest thing to hit Ohio since the plow.” But while he always was considered an innovator, McClendon had problems with some basics at Chesapeake, most notably with the company’s much-criticized debt-to-asset ratio. Add to that his sometimes arrogant attitude — fueled by a huge CEO salary and washed down with expensive wine — and some assumed his time had passed. Those who knew him, however, didn’t think he’d be on the sidelines long. And that has proved true, as McClendon is leading a group called American Energy Partners LP, which quickly has acquired the mineral rights to 260,000 acres in the southern portion of the Utica Shale. Their biggest deal was buying the rights to 74,000 acres from Hess Corp. in January for $924 million. In McClendon addition, American Energy Partners has acquired 56,000 acres of drilling leases in the Utica shale from Exxon Mobil Corp. and Paloma Partners LLC for an undisclosed sum. “It’s obvious that Aubrey is going to get very active again,” longtime energy player and McClendon friend T. Boone Pickens said in a February interview with Bloomberg News. “We’ll see where we go from there.” Once again, McClendon is bucking the prevailing trends. While most Utica drillers and investors have focused on the play’s coveted wet-gas sweet spots, the Hess leases McClendon bought were mostly dry gas leases. Not many wanted the dry gas leases, especially with natural gas prices relatively low — including Hess. “While our wells in the dry gas portion of the Utica were highly productive, we concluded that the potential returns from such an investment, at current and projected natural gas prices, no longer justified retaining this acreage as a strategic part of our overall liquids-based asset portfolio,” CEO John Hess said in a statement announcing the big deal.

A wild wildcatter But then, McClendon never has been one to swim with the current. He resigned from Chesapeake in April after a shareholders’ revolt led by activist investor Carl Icahn. A board inquiry into McClendon’s use of personal stakes in company-owned wells to obtain more than $800 million in private loans cleared him of wrongdoing a year ago. But the criticism went beyond the use of private loans; many thought McClendon was doing more land-flipping than actual energy production. As CEO of Chesapeake, McClendon pushed hard for Utica investments by the Oklahoma City-based company, making it by far the largest player in Ohio’s nascent shale play. But the Utica hasn’t yet produced on the large scale predicted, primarily because of the economics of dry gas and the wait for downstream infrastructure.

American Energy Partners might help that situation to change. The company has announced plans to drill and participate in about 2,700 wells over the next decade. It reportedly has secured about $2.2 billion in equity commitments and loans from investors to finance the acquisitions and drilling plans. With McClendon’s controversial years at Chesapeake still fresh in people’s minds, some are questioning his current drilling company, especially its partnership arrangements and McClendon’s lead role. “If McClendon happens to round up a bunch of acreage in a new, untested play, he can sell a piece to the partnership, then use the partnership’s capital to drill a bunch of expensive test wells,” Christopher Helman wrote in Forbes in December. “This could potentially unlock huge value in his own adjacent acreage, at no cost to him. If the test wells turn out great, McClendon would have no incentive to sell any more acreage to the partnership. But if they are lackluster, he could sell it all to the partnership and cut his losses.” Helman further wrote that “there are so many uncertainties and potential conflicts of interest between McClendon and the partnership that any investor would have to be crazy or naive put his money into this thing.” American Energy Partners did not return calls for this story. But crazy or not, some believe in McClendon — strongly. Andrew Weissman is a senior energy adviser for the Texas-based national law firm Haynes and Boone LLC and publisher of the well-regarded Energy Business Watch, a market advisory service that analyzes the U.S. and global oil and natural gas markets. He thinks McClendon still will be a big player in horizontal well drilling and the natural gas industry. MCCLENDON continued on page 25

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(Clockwise from top left) OOGA Executive Vice President Tom Stewart (left) and DeLeone & Associates lobbyist Matthew Forney. Dan Petno of CESO Inc. (left) and David Kaminski of the Canton Chamber. Craig Stallman of Graybar Services. One of many white pickups. OOGEEP’s Rhonda Reda with her organization’s chairman Eric Smith.

No chill

for OOGA’s Winter Meeting

By Dan Shingler

he Ohio Oil and Gas Association drew a robust crowd of about 1,500 people to its annual winter meeting, which was held March 5-7 in Columbus. The gathering included 1,300 attendees who registered in advance and another 200 or so who showed up at the door, said OOGA spokesman Mike Chadsey. It also marked an uptick from the approximately 1,000 guests who registered for last year’s event, as Chadsey and others at OOGA said their organization continues to grow with the state’s shale gas industry. “It was bigger this year than it was last year and it was bigger last year than it was the year before,” said Mike Eberhart, an OOGA member and a CPA specializing in oil and gas issues at the Canton accounting firm, Hall, Kistler and Co. The number of exhibitors was also up, to 80 this year from about 60 last year, Chadsey said. Guests got the usual updates on the industry, its progress in Ohio and the status of state poli-

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tics surrounding the issue of shale drilling from speakers, including OOGA executive vice president Tom Stewart. Those from Northeast Ohio who didn’t make the trip might have already heard much of that message, though. Mr. Stewart said he previewed much of this year’s OOGA speech at Crain’s 2014 Shale Summit on Feb. 20. He continues to express optimism in the potential of Ohio’s shale play, and staunch opposition to efforts to increase taxes that he said would slow the industry’s expansion in Ohio. He also stressed the need for the industry in Ohio to remain unified, in order to stave off efforts both in government and the public sphere that could result in laws and taxes that would stifle its growth. Exhibitors were a mix of in-state and out-ofstate companies that provide a broad range of products and services to the industry, from drilling and midstream infrastructure equipment to surveying, legal and insurance services. Many of the out-of-state participants at this year’s show were from Pennsylvania, where drilling

for that state’s dry gas has slowed as some drillers moved their rigs to Ohio. The Utica shale play in Ohio contains more liquids — other hydrocarbons, such as ethane, that are more valuable than natural gas — that have attracted drillers’ attention. Several exhibitors said this year’s show was a success for them, as they were able to expose their companies to a large number of potential customers and partners. The association also elected 12 new members to its Hall of Fame, including Mr. Stewart — who is the first to represent the second generation of his family to receive the honor. The elections are held ever four years and Mr. Stewart’s father, William Stewart, was elected to the Hall in 1989. Others elected to the Hall of Fame this year were Fred A. Badertsher, Robert D. Barrick, Thomas P. Giusti, Steven L. Grose, James Halloran, Carl Heinrich, Dr. William Hlavin, Angela Howard, Thomas E. Niehaus, Richard C. Poling and James R. Smail.

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Moving dirt is a big part of pipeline and infrastructure development, and doing it requires engineers able to operate dozers and other heavy equipment.

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Operating Engineers Local 18 is training workers for the oil and gas industry – and growing its ranks

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t was Jan. 28 and the temperature was minus-9 degrees, just before 9 a.m. Pretty much every school within a hundred miles was closed, along with many businesses. Not a day for lamp-post licking. But it was just another school day at the Operating Engineers Local 18 training center in Richfield — a perfect day, in fact, for extreme weather training, and school certainly was in session for the 30 or so students enrolled that day. “There’s no such thing as a snow day here. The weatherman doesn’t ever shut us down,” joked Michael Bertolone, the union’s business representative for energy projects and the guy in charge of partnering with area companies and finding jobs for the center’s new graduates and other union members. His job has gotten a bit easier of late. Or harder, depending upon how you look at it. He’s finding more employers to work with, but that only means the number of union members he’s working with has gotten bigger. “We’ve doubled the size of our training classes in the last two or three years, since the shale stuff started,” Bertolone said. There’s a boom in the excavation and construction trades, thanks to oil and gas drilling and the pipeline and infrastructure development that goes with it. “I don’t think there’s been this much work since maybe the ‘50s or ‘60s, when they were building the interstate,” says Don Black, the union’s administrative manager, who was up from Dayton that day. The Richfield site is one of four around the state where the union teaches new workers how to operate heavy equipment, ranging from entry-level fork lifts to more difficult pieces like bulldozers and backhoes, and even very sophisticated cranes and graders. The site is the smallest, in terms of size, but the largest in terms of students. About half of the union’s new trainees go through it — about 200 a year, as of late. UNION continued on page 19

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It was minus-8 degrees, but that didn’t stop apprentice Juan Rangel from practicing his excavation skills at a covered, but not enclosed facility in Richfield in early January. UNION continued from page 18

The program is paid for by the union and union contractors who use its members. Apprentices attend 160 hours of construction per year, for two years, on their own time. They’re placed with working companies for paid work while they are being trained. If you’ve driven on an Ohio interstate, you’ve probably seen members of Local 18 at work, since they work on virtually all of the state’s highway projects. They also work on about half the state’s major commercial construction projects, including high-profile projects like the new convention center in downtown Cleveland, Black said. Now, they’re working in the Utica shale play as well, where Local 18 members put in roads, install pipelines, build drilling pads and work on major construction projects that require excavation and heavy equipment. It’s this last sector that is driving the union’s growth, say Black and Bertolone. As recently as 2011, the union steadily trained about 100 new operating engineers a year, because that’s how many new positions it could count on filling. But those numbers have been ramping up steadily since then, and they hit 200 last year, as the local had its biggest training class since it started teaching operators in 1965. “We took more apprentices in last year than any year since the beginning of the program,” Black said, adding that he expects to equal or top the 200 mark again this year. UNION continued on page 20

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UNION continued from page 19

It does not have a lock on the shale business. Far from it, as only about half of the contractors working in the Utica actually are union shops, the local estimates. But it counts among its signatories some of the larger companies chasing shale business, such as Canton-based Beaver Excavating, Cleveland’s Kokosing Construction and some of the companies that built Chesapeake Energy’s new Utica headquarters just east of Canton. The union hopes to expand in the field, in part because of the tight schedules and high demands put upon excavation companies by drillers, pipeline companies and midstream developers. Like other unions in the construction trades, it offers a simple proposition: If a company works with the union, the union will guarantee it will provide employees who are trained and tested in the skills required for the job. In a world where missing a deadline or having to redo part of a job can cost a company its next big shale project, that’s a selling point, Bertolone said. So far, it’s not having any trouble finding new

Operating Engineers Local 18 Business Representative Michael Bertolone is having a field day working with new and existing companies in need of trained equipment operators, while he helps grow his union.

applicants, though. Black said that even though the school is only training about 200 new people a year, it gets applications from about 1,000. But it only trains as many as it knows it can find jobs for, Black said. “And we want the best,” he added.

They’re a mix of young people who weren’t that interested in college or desk jobs and older workers who are training for new careers. On the day Shale visited its training center, we met students like Andrew Bentz, 19, of Canton and 40-year-old Layla Hemsoth of Medina. Bentz was training for his first real job, while Hemsoth was transitioning from a job driving equipment for long and irregular hours as a teamster. Both already have begun working on pipeline projects in the Utica, they said. Bentz said he was first inspired by a crane operator who explained that he was an operating engineer, and since then he’s learned to operate small tractors, marookas (tracked haulers) and excavators – so far. “They’re not toys, but they’re pretty fun,” Bentz said. Black hopes the applicants keep coming, along with more shale work. So far, so good, he said; about 4,000 of the Local’s roughly 14,000 members are already working on shale-related projects. More work seems likely, Black said. “I’ve been in this 30 years and last year was as exciting as I’ve seen it,” he said.

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COOKING continued from page 8

Surrounded by several hotels — none of which offer sit-down dining — Waters said his eclectic fare of high-quality meats, seafood, pizzas, and unique items such as wild boar, elk and duck, hit the sweet spot for oil and gas workers who have a big appetite and a healthy daily allowance for food. “We have tried to make a nice filling meal with a huge steak,” said Waters, a lifelong resident of Marietta. “Guys are usually responsible for their own alcohol, but I have had some companies come in and say they would pay for two drinks a day. For 30 days I had one company with 12 to 15 guys and one guy had the company card and he took care of everything every night. Those groups will be back.”

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Oil and gas workers account for at least 75% of the business at the attached hotel during non-tourist months, said Shelbi Welsh, assistant general manager at the Comfort Inn. The hotel offers a discount to oil and gas workers and takes special steps to welcome them. “We have redefined our role as a hotel for the oil and gas industry and retrained our staff to gear more to meeting their needs and expectations,” she said. For example, the breakfast attendant at the hotel comes in early to set out cold foods and cereals so the workers can grab something on their way out to work. She expects measures like that, along with increased drilling activity, will drive more business to the 120-room facility. She also tells her staff to expect a different type of guest — and to be accommodating. “I have a lot of guys who come in here, and they look real scared when they ask if we have rooms,” she said. “They will come in with mud and dust, and a lot of hotels will turn them away because they don’t want their towels or sheets ruined. When we tell them we have rooms for them, they are so relieved.” December was a slow month, due to the holidays, but the hotel was again averaging 70%-80% occupancy in late January. “In 2013, our hotel averaged an 84% occupancy rate, which was the highest in Marietta,” Welsh said, adding that one of biggest attractions is Water’s onsite restaurant. “It’s a huge thing for them because they are tired after they come in from the day and they don’t have to go out and go somewhere to eat. They can have the food delivered to their room. They can also sit at the bar for a couple drinks with their buddies.” Overall bed taxes were up nearly $110,000 in 2013 over the previous year, said Jeri Knowlton, executive director of the Marietta-Washington County Convention and Visitors Bureau. She expects those numbers to continue to increase with the addition of two new hotels this year. The Comfort Inn & Suites opened a 102-room facility in January and a Red Roof Inn will open its 48-room facility this spring. “It kind of felt like a rollercoaster ride in 2013,” Knowlton said. “The year started off really strong, then it dipped and it came back up. It wasn’t like 2012 when it was going like gangbusters,” she said. “I think it was the different market segments in the oil and gas industry catching up to each other. I am hoping that once this weather breaks that we see it hit and hit hard.” She said the county is “still trying to wrap its head around” what the impact of the new industry ultimately will be, but that she believes the area is on the cusp of “a perfect storm of opportunity.” “There’s all this exciting stuff that is happening in the business market — the oil and gas industry — and we are starting to see the resurgence of corporate travel and we’re also seeing a resurgence of leisure travel,” Knowlton said. “There is incredible opportunity for growth and increased quality of life in our area because of jobs and increased revenues from bed tax, sales tax and property tax.”

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Business is up at the restaurants and hotels in Carroll County, too, said Amy Rutledge, director of the county’s Convention and Visitors Bureau and its Chamber of Commerce. COOKING continued on page 22

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Here’s the beef — Smoke the Burger Joint hopes oil and gas workers will be a good customer base for its gourmet hamburgers and is opening new locations in the Utica. COOKING continued from page 21

“All of the restaurants in general are doing better, and all of them have experienced an uptick because there are just more people in town,” she said. In addition to new restaurants such as Smoke the Burger Joint, which opened its first restaurant in Carrollton in October, established local favorites such as Donna’s Deli and Ponderosa have been doing an excellent business thanks to oil and gas. Fast-food chains like McDonald’s and Wendy’s are “crazy busy all the time,” Rutledge said. Smoke the Burger Joint is located along State Route 43, where traffic counts used to be 1,700 cars a day and now it’s 1,700 cars (and trucks) an hour, said Brian Bailey, president and CEO of Ichor Restaurant Group, which also opened a second Smoke location in North Canton at the end of last year. “The concept has been well received and at our Carrolton location about 30% to 40% of the business is driven by the oil and gas activity,” he said. “Business slowed down at the end of 2013, but it’s kicking back up now. The other thing we’re dealing with in the cold and snow is that people don’t want to go out on those country roads.” With two new hotels under construction — a 79room Microtel set to open in April and a 100-room Candlewood Suites slated to open late summer — Carroll County will have close to 350 rooms available for industry workers by year’s end. “By the end of 2014, we’ll have doubled the number of hotel rooms in the county,” Rutledge said. “And we’ve experienced a dramatic increase in bed

tax over the last two years with the return of Atwood Lake Resort & Golf Club, which reopened in 2012. We were up more than 100 percent in 2013.” Currently there are 59 rooms at the Carrollton Days Inn, which recently added two, five-room villas. There are 103 rooms at Atwood Lake Resort in Sherrodsville. “Days Inn is running well above 80% capacity,” Rutledge said. Atwood Lake Resort, normally a summertime attraction, was still running at about 50% capacity over the winter, said Gene Rudolph, general manager of the full-service facility. The resort is close to industry work sites and offers more than sleeping accommodations. Atwood boasts an onsite lounge and restaurant, indoor heated pool, fitness center and a park-like setting. “Business has been good. We have been very pleased with where we are at, at this point, and it’s similar to where we were at last year,” Rudolph said. “It seems for us, regardless of what day of the week it is, we’ve got oil and gas professionals staying with us. Some companies will send workers to stay for three or four weeks at a stretch. Others dispatch workers to the area for a week or two to finish assignments and move on. And there are also some companies that have workers stay Monday through Thursday and check out on Friday.

What’s at steak However, James Buxton, general manager of Carrolton’s Ponderosa, said business last year at

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this time was much stronger, especially in terms of outside workers and new people coming in the area. He’s hoping that will change. “They are supposed to release a lot more (drilling) contracts this spring,” he said. He’s hoping that drilling will pick up, so his restaurant can regain some of the momentum it had in 2013. “Out of 330 Ponderosas in the U.S., this store ranked anywhere from eighth to 12th (in sales), and when the oil boom came in here it took us to the No.1 spot last year,” he said. “With those guys working out in the cold and working hard all the time — I can hit their appetite right because of the variety of (menu items) and it’s an all-you-can-eat concept — so they get a bang for their buck.” Buxton said most days it’s not hard to figure out who the pipeline guys are because “the mud can get pretty thick. Most of them are pretty considerate, but one thing you’ve got to provide is boot scrapers outside.” He said most oil and gas workers come in later in the evening. During the day, it’s usually business people who are in the area to serve the industry, such as equipment sales people. Like other attentive operators, Buxton said he’s preparing for business to pick up again by doing all he can to get to know his new customers. “When you are in a small town of 3,000 people and you’ve done what I’ve done for 35 years, you just about get to know everybody,” Buxton said. “I see new faces, and I make a point of getting to know them. That’s just good business.”

Jann Adams, Southeast Ohio Fracking Interest Group member BARGES continued from page 14

“Shale gas extraction wastewater is not a bulk cargo currently listed in the Code of Federal Regulations, so it currently cannot legally be transported upon navigable waters of the United States without Coast Guard approval,” Coast Guard spokesman Carlos Diaz said in email correspondence with Shale. “The U.S. Coast Guard, in consultation with other agencies and federal laboratories, has determined safe carriage requirements for shale gas extraction wastewater,” he added. In other words, water probably can be barged on the river, but not easily, simply or cheaply. The Coast Guard’s “safe carriage requirements” include about 20 pages of proposed chemical testing requirements that would be applied to wastewater barges. Each load would be required to be chemically analyzed based on standards approved by the Coast Guard. Barge operators also would be required to ensure that the covered, double-hulled barges are vented properly to prevent worker exposure to harmful levels of radon gas and other pollutants that may have carcinogenic properties. However, the Coast Guard rules have not been finalized. Federal policies governing the shipping of hazardous waste require public input and the Coast Guard still is reviewing more than 70,000 comments it received on the issue of barging wastewater. The comment period ended on Nov. 29 of last year, but the Coast Guard has set no timeline as to when the comments will be evaluated and the final policies set.

‘‘

No one plans on an accident, but if this stuff gets in the water, it is creating a huge area of contamination — all the way from the accident to the Gulf of Mexico. Barge proponents hope for a ruling soon, but they might need to be patient. Spokesman Diaz said the Coast Guard still is going through the comments and does not know when the final regulations will be made public. “At this point we have to be thorough, and we have to be in consultation with the (U.S. Department of Transportation’s) Pipeline and Hazardous Materials Safety Administration, the EPA, Argonne National Laboratory and DOE,” Diaz said. “The available data has to be examined for composition of the shale gas extraction waste water to develop guidance for its safe maritime transport.” Whatever the Coast Guard decides, the issue likely will remain contentious. The drilling industry contends transportation of wastewater by barge is safer, less costly, and a better alternative, environmentally, than transporting the same fluids by truck on highways. Environmentalists say even if there are fewer accidents with barges than with trucks, spills into the river are impossible to clean up, while spills on land can be contained. They remain opposed to barging wastewater. “The people who pay for their water coming from the Ohio River expect a quality we can serve to our children, not a chemical residue and radioactive residue from the waste that’s drilled in the fracking wells of Pennsylvania, Ohio and West Virginia,” said Jim O’Reilly, a professor of public health and law at the University of Cincinnati.

Damn the torpedos Drilling proponents hope the Coast Guard veers off course from its current proposal. The Marcellus Shale Coalition, a pro-drilling organization based in Pennsylvania, said the Coast Guard does not need a special policy for the wastewater because it already has one that has covered oil field wastes since 1987. In a letter to the Coast Guard dated Dec. 6, coalition president David Spigelmyer said the proposed new standards “are too restrictive and would effectively preclude the barging of typical shale-gas-produced water.” Barge proponents also have maintained that moving wastewater by river barge is safer than transporting it by truck, citing lower accident rates and less contact with human populations. Therefore, they say, the proposed, more restrictive regulations are not needed. There is strident opposition from environmentalists, however, many of whom submitted their comments to the Coast Guard seeking to ban barges from carrying wastewater on the river. “The concern is, of course, the content of the chemicals used in this disposal is unknown,” said Jann Adams, a member of the Southeast Ohio Fracking Interest Group. “No one plans on an accident, but if this stuff gets in the water, it is creating a huge area of contamination — all the way from the accident to the Gulf of Mexico.” Such fears likely have been compounded of late, since a January spill of chemicals used in coal mining contaminated West Virginia’s Elk River, captured headlines and enraged many. That accident left about 300,000 state residents without water for drinking or bathing for weeks, and cities downstream on the Ohio River shut down their water intakes as the spill passed by on its way to the Mississippi. GreenHunter Resources would not comment on the Coast Guard’s proposed new rules, but the company obviously hopes to break new ground with a ruling that will fit with its business model.

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You’ve got people who have just been hanging on to their farms by their fingertips — they don’t have the time to wait. Or, they’re getting up in age.

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Bryce Custer, NAI Spring Realty Group

KIKO continued from page 10

While the rush to lease mineral rights in eastern Ohio took place mostly in 2011 and 2012, Kiko’s biggest sales of mineral rights took place in 2013. They included 1,100 acres in western Pennsylvania that sold for $9 million — $4 million for the land and $5 million for the mineral rights. Closer to home last year, a mineral rights-only auction for 2,000 acres in Carroll, Stark and Portage counties fetched $6 million from buyers in Texas and Oklahoma. The big numbers represent huge swaths of land, which are what buyers want most, so Kiko tries to bundle acreage into larger lots, because they get the attention of larger buyers. It isn’t always thousands of acres at a time, but hundreds of acres at a time are becoming a starting point. “There are big guys out there who want to buy thousands of acres of mineral rights, so we’re thinking it’s better to put them together,” he said.

Home field advantage Sellers count on Kiko to find the best buyers and attract them to his auctions. But the key to the auction trade is getting the sellers to begin with, and Kiko’s longstanding good reputation with area landowners is helping in that regard, say both Kiko and area observers who know his firm well. “Kiko is a long-established, family-owned, reputable auction company,” summed up David Kaminski, director of energy and public affairs at the Canton Regional Chamber of Commerce. Bryce Custer, a real estate broker with Cantonbased NAI Spring Realty Group, said Kiko “has really put the whole auction thing on the map in Ohio, especially for things like farm auctions.” “They have a stellar reputation,” said Custer, who himself has made a specialty out of dealing in real estate, and especially commercial real estate, across the Utica shale play in Ohio. Custer said he even has used the Kiko firm himself on occasion to help sell more difficult properties. He isn’t at all surprised to see the auction house expanding into this new field. “Kiko was really smart to come in and auction

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Signs of Kiko’s prominence — not to mention its reputation for farm auctions — are easily found across eastern Ohio’s Utica Shale region.

the mineral rights — it makes perfect sense,” Custer said. The firm’s reputation, especially among area farmers, was what got it into the mineral rights business initially and it’s also what’s driving its growth in the auction category. “How it evolved was we had farm owners who wanted to liquidate their real estate, because they wanted to get out of farming,” Kiko said. “Carroll County was probably where it started for us.” Selling the mineral rights separate from the land at the surface allows the seller to market them separately and, potentially, more effectively. “What we’re finding is folks who say, ‘Let’s sell the surface today and hold the minerals until we have a bunch of other farmers’ mineral rights, and then have a big mineral (rights) sale later,” Kiko said. It’s one more way for farmers and other landowners to raise cash quickly, which Custer said is a goal of many rural landowners in eastern Ohio these days. “You’ve got people who have just been hanging on to their farms by their fingertips — they don’t have the time to wait. Or, they’re getting up in age,” Custer said. It creates an extra selling opportunity for Kiko, but also some extra hassles and headaches. The title to a piece of land is easily researched and will be guaranteed by a title company. That’s not the case with mineral rights, which must be researched separately. And, while the title to the land was probably at least verified the last time the land was sold, the ownership of the mineral rights usually has no such helpful paper trail to follow. So, Kiko does a lot of extra

work to provide buyers the assurances they need and demand.

Messy, but satisfying As Kiko explains to sellers, taking land and mineral rights apart is a little like disassembling a peanut butter and jelly sandwich. “The top half, at the surface, is the land. That’s the peanut butter,” he said. “The bottom half is the mineral rights, and that’s the jelly. When you keep the two pieces of the peanut butter and jelly sandwich together, it’s pretty easy to work with. But you know what happens when you pull a PB-and-J sandwich apart — it’s pretty messy.” But it can be done, and both buyers and Kiko himself often see reasons to make it worth the trouble, especially when the surface land and the mineral rights have significant value separately. It can be easier to sell land in smaller individual parcels, while the more mineral rights that are bundled together, the better, in the eyes of many buyers. Plus, separating the two can yield more revenue to the seller. “It depends on the situation,” Kiko said. “If you own a farm in Belmont County, say 100 acres, and you believe you own the mineral rights, I’m going to say, ‘You have some valuable real estate underground, as well as on the surface for the farm itself, because the land is tillable.’” The sale of mineral rights is a small portion of the business Kiko does today, but he thinks it will represent half his sales within a few years, at least in terms of dollars. KIKO continued on page 25

KIKO continued from page 24

“We could literally double our business because of the number of zeros on this stuff,” Kiko said. In the meantime, he expects to start auctioning more mineral rights leases as well. “Those (auctions) would be from a producer to a producer,” Kiko predicts. Kiko Auctioneers has little competition, he said, and it won’t be easy for another auction house to come in and build a reputation like Kiko spent decades doing, say observers. So Kiko is planning to keep growing. “It will be a substantial part of our business,” he says of the mineral rights business, “because it’s become a substantial part of our local economy.” At the same time, Kiko’s traditional real estate business is growing because of the oil and gas business. There is growing demand for commercial property near railroads, interstate highways and other transportation infrastructure, and even for residential property near oil and gas drilling and processing activity. “The closer you are to the demand, the closer you are to the activity, the more interest there is,” Kiko said.

MCCLENDON continued from page 15

“He understands the shale drilling opportunities and risks better than anyone, and I fully expect him to use that experience,” Weissman said. “He moved shale drilling forward in some quick fashion, and he has a passion to work on getting natural gas for use in power production and vehicles and lower heating costs and in manufacturing.”

The name of the game As with almost everything with McClendon, a certain amount of controversy has followed him to his new company. American Energy Partners and McClendon has been sued by an Ohio coal mining firm, which owns the name American Energy Corp. and claims the former Chesapeake Energy CEO is using the name in eastern Ohio, improperly and without its consent. The plaintiff, coal magnate Robert Murray, founder and CEO of St. Clairsville, Ohio-based Murray Energy Corp., sued McClendon in U.S. District Court in Ohio last August for “misappropriation and infringement” of the American Energy Corp. trade name. American Energy Corp. is a subsidiary that Murray uses to operate mines in southeastern Ohio, and he claims McClendon is violating the Ohio Deceptive Trade Practices Act and the Ohio Common Law of Unfair Competition. McClendon has countersued Murray in Oklahoma, saying in a filing that he does not believe Murray should have the exclusive right to the “American Energy” name. McClendon also is trying to transfer the Ohio case to the Oklahoma venue. But Murray also is playing a big public relations game in his suit, emphasizing that McClendon has been against coal mining in his years at Chesapeake, citing his involvement in the “Coal is Filthy” ad campaign of 2007 and Chesapeake’s more than $50 million in donations to the American Lung Association and the Sierra Club during his time as Chesapeake CEO. McClendon has never backed away from a fight, or controversy, and there’s little reason to think he’ll start now. “I’ve always been comfortable thinking things through and doing it, more or less, my way,” McClendon told Reuters in 2011. “You can be as creative as you want, but if you’re … unwilling to work on the details, to see those put into action, then creativity is just dreams, or worse, hallucinations.” Time will tell if he continues to find new and creative ways to make money from Ohio’s shale play — as well as how many feathers he ruffles along the way. It also might tell whether McClendon is the most successful business person to come to Ohio since the state’s first plow salesman.

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Ohio Oil and Gas Association President David Hill and Ohio Environmental Council Deputy Director Jack Shaner had a spirited but respectful discussion of balancing the needs of drillers with protecting the environment.

OIL continued from page 6

As far as recycling water to be re-used in the drilling process, the technology is still in its early stages, but makes sense in some instances. “Re-use makes even more sense if industrial uses are going on nearby” that compete with drillers for local water, Rish said. “There is huge growth potential in the Utica Shale (for water recycling), but it is still very young,” he said. Unlike shale plays in more arid climates, such as the Eagle Ford play in Texas, the Utica shale is surrounded by numerous sources of water, from the Ohio River to aquifers and municipal water systems. That availability could give Ohio’s shale play a leg up over some others, because water is a major cost and logistics concern for drillers. “Our surface water is an abundant resource, and the economics of it will make the Utica a better investment option for that reason,” Dick said. “And the use of that renewable resource in shale gas development will stimulate all sorts of research on water usage and we’ll see the benefits of that very soon.” One question from the audience was whether air or other gases might one day take the place of water in the fracking process. “We’re at the beginning, and there will be new technology,” Rish said. “Water is now the safest and best use. But water is expensive, and that may be the driving force to find something that is better.”

Who do you trust? But, as with many topics related to shale drilling, the discussion of water kept coming back to the public relations battle waged by drillers and anti-drillers. Lutz said the shale energy business has some

Crain’s Cleveland Business Publisher John Campanelli at the keynote address by national oil and gas analyst Allen Brooks.

facts it might be able to use to its advantage in that regard. It’s true that a single horizontal well uses more water than a vertical well, he said, but it produces even more gas than a vertical well.

In other words, each cubic foot of gas gained by a hydraulic well requires less water than if it that same amount of gas came from a vertical well. “The reality is that there is far less wastewater produced in horizontal hydraulic fracturing wells than conventional wells, when you factor the amount of oil or natural gas produced from the wells,” Lutz said. For Rish, the issue has become somewhat personal. “I’m on a mission to get the good science out there and to get the bad science—– and there is plenty of that out there — out of the public’s minds,” Rish said. “Matt Damon and Yoko Ono seem to have greater science credibility in the public minds than I do,” Rish said. “And I’ve been doing this for 30 years. “But I am confident if we get the good science out there consistently, the public will eventually come around, because they will see all the claims that have been made will have no merit over time,” Rish said.

UTICA continued from page 7

While speaking of the unknowns, Brooks brought up the famed 2011 quote by Aubrey McClendon, then CEO of Chesapeake Energy, who said the Utica Shale play would be the "biggest thing economically to hit Ohio since maybe the plow" and that it would be worth a “half a trillion” dollars. Brooks said McClendon’s estimates may never be hit, but he also noted that McClendon still sees the Utica’s potential, as he now is back in Ohio drilling with his new company, American Energy Partners. Some of Brooks’ comments could inspire optimism in places such as the Utica’s northern tier, where drilling has been a disappointment. “What we have to realize is that there are students and younger brilliant minds working on innovations in this industry that no one even

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sees right now, and geological formations everyone is ignoring,” Brooks said. “And what are now areas that we don’t think have much potential, in a few years those same areas could be high-producing.”

Ohio’s energy cocktail Brooks’ assessment was seen by audience members as a good explanation of why investment in the Utica play must be long term and can serve regional and national interests. “What impressed me about his message was that we have to see energy independence as a collaboration of many different energy sources,” said David J. Copeland, an attorney with the Cleveland law firm Good & Good LLC. “And a lot of the investment in shale will stay in Ohio because of the variety of energy sources

we have, from coal to the possibility of wind energy and natural gas and oil,” Copeland said. Gary B. McClurg, CEO of Parsons Terminal Co., a Cleveland-based drilling waste and water resource transportation firm, echoed those sentiments. “We are just at the beginning of this shale play, and I am enthusiastic about the fact that we will have 25 to 30 years of huge growth opportunities from the energy industry,” McClurg said. “We have the chance to make Ohio one of the most important energy places in the whole world. “The only concern I have is that we don’t drop the coal sources we have in Ohio too quickly,” McClurg said. “We have to see all these energy options we are developing here as related to one another, and if you drop one too quickly, it is very hard to go back.”

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Dave Mansbery, Duck Creek Energy

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We have had great success with the AquaSalina. When we experienced the below-zero temperatures, the product performed without freezing while using it down to minus-9.

SALT continued from page 9

“If you were to try to manufacture that, the chloride tends to settle out of the manufactured product,” he said. “If you don’t keep mixing them, they separate like salad dressing.” Some other commercial de-icers also use calcium or magnesium chloride, but to work they have to be stirred or agitated nearly constantly. “Nature has done for us what couldn’t be done at the surface without constant agitation,” Mr. Mansbery said. So far, the product has gained acceptance among users who have tried it, Mr. Mansbery said, including cities, transportation departments, universities and large commercial users. “We’re up to 21 municipalities, organizations and private contractors using it now,” he said. The product was being tested over the winter by the Ohio Department of Transportation, which Duck Creek hopes will be a large future customer. The product works well, says Paul Oberdorfer, deputy director of public service for the city of Green, just south of Akron. The city began using AquaSalina this winter and was planning to order more in January, he said. “We have had great success with the AquaSalina,” Mr. Oberdorfer said. “When we experienced the below-zero temperatures, the product performed without freezing while using it down to minus-9.” Green used the product to replace its other de-icers when temperatures were at 17 degrees or below. The city was able to apply it using its existing trucks. Mr. Oberdorfer said Green normally makes it own brine from rock salt, but it found AquaSalina to be comparable in terms of cost. That’s just the kind of report that Mr. Mansbery wants to hear. He’s hoping to expand and to take more brine from gas wells and sell it to a growing list of transportation departments and other users. The particularly cold weather is helping toward that end, he said. “We’ve had other communities call us, and we sent them out some loads, because the brine that they were using was freezing in their tanks,” Mr. Mansbery said. “We’ve probably tripled the number of accounts and our sales are 10 times what they were a year ago.” he added.

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Looking for the ‘next level’ The operation, which is not particularly labor-intensive to begin with, is still small. AquaSalina only employs about 10 people, Mr. Mansbery said. But that might change soon if the product continues to gain in popularity. For now, Duck Creek uses only brine from wells in Ohio — old, vertical-style wells that have been in production for a year or more. But with all of the shale drilling going on, Mr. Mansbery knows the supply of brine is going to increase, as is the supply of drillers looking for cheaper ways to get rid of their liquid byproduct. There is interest from western states, Mr. Mansberry said, and in January he learned that drillers in the Dakotas’ Bakken shale were going to send him brine for processing and testing. The AquaSalina product is manufactured exclusively in Ohio, but that likely would change if drillers and transportation departments in far-away states want to work with the company. Either way, an expansion is likely in the company’s future. “We have enough people and equipment to do what we’re doing now, but after this winter we’ll do an evaluation to determine how best to reach the next level,” Mr. Mansbery said.

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MY BENESCH “I work with Benesch because of their ability to get to the core of an issue and then develop the strategies to resolve it, whether an everyday matter or something out of the ordinary.” DAVID I. MANSBERY President Duck Creek Energy, Inc.

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David considers himself a “serial entrepreneur” and has relied on Benesch for a multitude of business needs. From handling real estate, leasing, litigation and general business matters for Duck Creek Energy to navigating the successful sale of a prior business and its intellectual property to incorporating a new venture, Benesch has the breadth and depth to help David go wherever his ideas take him.

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