Texas driller offers Ohio ‘potential’ of nearly $2 billion to frack Salt Fork State Park - cleveland.com

Texas driller offers Ohio ‘potential’ of nearly $2 billion to frack Salt Fork State Park - cleveland.com

COLUMBUS, Ohio – Encino Energy offered the state a signing bonus and royalties that it claims could tally nearly $2 billion over a period of more than 15 years as it sought to be the first to frack Ohio’s largest state park, records show.

The Texas-based driller’s offer included a $115 million signing bonus for leasing rights to drill for oil and gas under Salt Fork State Park in Southeast Ohio. The proposal, which was ultimately rejected, also called for a 20% royalty payment for oil and gas sales of minerals found under the park.

Supporting documents the company provided to the state claim the combination would amount to “potential” payments of up to $1.8 billion through 2041.

Read more: Meet the Texas driller that wants the gas under Ohio’s largest state park

“I’m pleased to deliver this indication of interest of [Encino] to lease from the Department of Natural Resources the oil and gas rights located under Salt Fork State Park,” the letter, signed by Encino CEO Hardy Murchison, states.

Cleveland.com and The Plain Dealer obtained those documents via a public records request as the state prepares to open its state parks to drilling for oil and natural gas for the first time.

While Encino’s offer was rejected, it’s likely a foreshadowing of more to come after a new state law effectively forced opened the door for companies seeking to drill under Ohio’s state parks, some of which sit on Marcellus and Utica shale formations. It’s also a sign of the money and power behind a policy that leaves some of Ohio’s most pristine swaths of undeveloped land in the crosshairs of the extraction industry.

Encino made its offer Dec. 14, 2022, one day after GOP lawmakers passed legislation that forces state agencies to accept lease proposals to explore for oil and gas made by qualifying energy companies. Gov. Mike DeWine signed the bill into law in January, and it took effect last week. (Most laws take 90 days from a governor’s signing to kick in.)

Related: Environmental groups sue to block law that could force gas drilling in state parks

Encino owns leasing rights to more than 1 million acres of subterranean land in Ohio. Salt Fork would add 21,000 acres and, extrapolating from the company’s royalty projections, billions in value to its inventory. The company claims it would produce 69 million barrels of oil and 375 billion cubic feet of natural gas over 18 years from the park.

“The drilling program is estimated to last six years,” an economic analysis Encino provided to the state claims.

“Following that period, Encino would continue spending money in the Ohio economy to support production and ongoing maintenance of the relevant equipment.”

Lawmakers tucked the proposal to expand drilling rights in state parks into unrelated legislation late last year and quickly passed it without ever holding public hearings on the idea. That process prompted a lawsuit last week from environmental advocates seeking to block the bill from taking effect, claiming lawmakers skipped over constitutional requirements while passing the bill.

The materials Encino submitted to the state suggest a plan already was in motion well before the legislation was unveiled. For instance, one document is dated October 2022, months before the state parks idea was shared publicly. The offer letter says the company has “already begun securing surface locations outside of the Park.”

Cleveland.com and The Plain Dealer previously reported on Encino’s interest in capturing oil and gas under Salt Fork, although DeWine, the Ohio Department of Natural Resources (ODNR) and Encino declined to directly confirm as much. ODNR released the offer letter and supporting documents Friday.

While the new state law effectively forces state agencies to accept lease proposals from qualifying drillers, this is only true until the Oil and Gas Land Management Commission establishes permanent rules governing how to execute a 2011 state law passed with the aim of allowing for drilling in state parks. That law was never implemented, and the commission only just began to form and draft rules in earnest.

As of Friday, Encino had made the only offer to date to drill under a state park since the law passed, ODNR spokesman Andy Chow said. Mike Chadsey, a spokesman for the Ohio Oil and Gas Association, said companies the association represents are waiting for the commission to draft rules before submitting offers.

While DeWine and his administration rejected Encino’s offer, his office previously indicated in a statement that drillers should defer to the Oil and Gas Land Management Commission to draft rules.

Dan Tierney, a spokesman for the governor’s office, said the Oil and Gas Land Management Commission is expected to finalize rules controlling the leasing process in six weeks or so. He said he doesn’t expect any drillers to apply for leases until that point, and the new law allows the state to vet and negotiate leases in good faith. That would likely take enough time that the new rules would take effect in the interim.

Plus, waiting those 6 weeks for clear rules are a more favorable option for drillers than something that could be tied up in litigation, he said.

“It is possible somebody could act adversarially, but the nature of people applying for mineral rights in this timeline, there’s a likelihood they’ll act collaboratively and not adversarially,” Tierney said.

Encino spokesperson and lobbyist Jackie Stewart said the company is still pursuing Salt Fork.

“The project would provide more than a billion dollars of revenues to the state, enabling transformative investments in parks and recreational infrastructure,” she said. “It would also unlock the value of stranded minerals owned by Ohioans near the park and contribute materially to the local job market, economy and taxes.”

Ohio’s consideration of such long-term deals comes as the planet grows increasingly warmer, and scientists from the U.N.’s Intergovernmental Panel on Climate Change recently issued a comprehensive report rife with dire warnings about the planetary need to shift away from fossil fuels.

“The pace and scale of what has been done so far and current plans are insufficient to tackle climate change,” said Hoesung Lee, the chair of the climate panel, according to The New York Times. “We are walking when we should be sprinting.”

The same bill that forced the state’s hand on allowing drilling for minerals under state parks also took the unusual step of classifying natural gas, a planet-warming fossil fuel, as “green energy.”

A park surrounded by wells

In the offer and in responses to inquiries, Encino was adamant it would not interrupt surface land or water in the park.

The company would rely on a process called hydraulic fracturing, or “fracking,” in which they drill down thousands of feet vertically from well pads adjacent to the park before turning 90 degrees to reach shale formations underneath. From there, water, sand and a range of chemicals are sprayed at extremely high pressures to free methane, or “natural gas,” from the rock.

Natural gas drilling, processing, and transferring relies on significant infrastructure. But the lease proposal states Encino will not locate well pads, access roads, pipelines, or others within the boundaries of the park.

However, a map within the company’s proposal depicts a park perimeter essentially besieged by well pads (large industrial lots) on all sides.
A screenshot of a map enclosed in documents, obtained in a public records request, Encino Energy submitted to the state of Ohio in an offer to buy leasing rights to drill for oil and gas under Salt Fork State Park.

The lease term offered was three years and could be extended beyond there. Encino estimated drilling about 89 wells to capture Salt Fork’s oil and gas, per the documents.

Fracking relies on large volumes of water that can be either hauled in or drawn from a nearby source. The Encino lease doesn’t specify its water source, but Stewart said it will not come from Salt Fork Lake, the centerpiece of the park.

She said Encino would commit to “state of the art environmental practices” bearing “no impact on the surface or water of the park.”

The lease calls for Encino to “use its best efforts” to minimize the frequency of flaring – the burning of excess natural gas at the point of extraction. Flaring, light and noise population from drilling, and the constant stream of trucks hauling water to and from drill sites tend to be the most prevalent complaints among people who live near such operations.

The offer said Encino would abide by “substantially similar environmental protections” as Encino agreed to with the Muskingum Watershed Conservancy District – another arm of state government. Encino leased 7,300 acres of land under Tappan Lake (near Salt Fork) for $40 million plus 20% royalties from MWCD last year, not counting an agreement to purchase millions of gallons of water from the lake to free gas from underneath.

Besides the funding for the state, Encino’s money would flow to landowners adjacent to the park collecting royalty checks; the state and local tax base; and contractors who build and maintain the drilling infrastructure.

Despite Encino’s extensive operations in Ohio, the company only directly employs 139 workers, the documents state. However, it says drilling at Salt Fork would “support” an average of 1,680 jobs between 2023 and 2041 when you consider its contract workers.
The beach at Salt Fork State Park.

House Bill 507

The failure of the Oil and Gas Land Management Commission to form and roll out rules effectively blocked the 2011 law that first allowed state agencies to lease their lands to energy companies from taking effect.

Encino bought up land around Salt Fork and commissioned economic analysis studies and laid other groundwork before the turbo-charged introduction and passage of HB507 in December. Stewart, from Encino, said the company had no advance knowledge of the bill to come.

“Our efforts to lease Salt Fork began months before and independently of HB507,” Stewart said. “As records show, Encino did not lobby on HB507. Nor did we have prior knowledge of its introduction. The state had been legally authorized to lease state lands since 2011. Encino operates near the park, where private landowners want to have their minerals developed, so we already have surface locations and leases in the area.”

Besides allowing drilling in state parks, HB507 declared natural gas – a fossil fuel-derived, climate warming product – to be “green energy,” which environmentalists and energy attorneys described as a dubious and regressive claim. Cleveland.com and The Plain Dealer previously reported on a dark money nonprofit linked to the natural gas industry proposing similar legislative language months before HB507 was introduced.

Lobbying records show a long line of oil and gas interests lobbied on HB507, but not Encino. However, the company disclosed discussing “state lands leasing” with DeWine’s administration.

On Monday, the Oil and Gas Land Management Commission is set to hold a public hearing on a draft of its rules, which would control the leasing process going forward. Meanwhile, environmental advocates have asked a Franklin County judge to put the new law on hold while she considers their case.

Jake Zuckerman covers state politics and policy for Cleveland.com and The Plain Dealer.