A True Story: How Shale Exploration Saved a Sleepy Little Ohio Town

The following is an article I wrote about ten or so years ago that I recently found archived in my computer. I thought it would be an enjoyable read in that it is a true-life story about how shale exploration literally saved a dying little town in Ohio.

Today we will discuss the Utica Shale and its impact on Carroll County, Ohio and the town of Carrollton in particular. I would like to give credit to Carroll County Auditor LeRoy Van Horne and County Recorder Patty Oyer, who have assisted in preparation of this report, and showed great courtesy to the plethora of landmen working Carroll County. I am proud that oil and gas revenues have allowed Carroll County to renovate its’ beautiful historic courthouse.

The population of Carroll County has not changed in 10 years. The 2010 census looks exactly the same as it did in 2000. The population of Carrollton appears stagnant also, hovering around 3,000 people. Visitors here can probably get a motel room – in about three years.

Income Is Rising

However, big changes are in the air. Carroll County’s unemployment rate is moving quickly in the right direction. After reaching a record high of about 16% in 2010, unemployment now stands at about 7.1 %. “This is just in its infancy,” says Glenn Enslen, Director of Economic Development. “I’m visited weekly by folks who talk about results similar to the boom in North Dakota. They have a ½% unemployment rate and the population of several counties has doubled in 3 short years. It’s an exciting time in Carroll County.”

My friend Tom Mitchell is sharing in the excitement. Tom recently purchased a truck that does everything but make you coffee and tuck you in at night. He is one of the many residents enjoying a better standard of living due to oil money. Mike Guess, GM of Guess Motors, says he has never seen such a jump in business during his 30-year career. He typically sells about 70 vehicles a month but has seen his business spike upwards in excess of 28%. “Our service has increased a lot basically from all these companies that are here with trucks and they need repairs, so we’ve done a lot more service than we have in past years.” The surge in business has enabled him to add 8 new members to his staff, purchase and upgrade office equipment, and beef up the company’s online presence. For the first time in a long time, it’s good to be in business in Carrollton.

Amy Rutledge, Director of the Carroll County Chamber of Commerce, says that Chesapeake (CHK) has already spent at least $400M in the county so far. That figure includes the cost of mineral rights, road improvements, wages, drilling expenditures and royalty payments. County roads, taking a beating from trucks servicing rigs and delivering equipment, have been repaved to the tune of $25M out of CHK’s pocket. That figure is statewide, but you can believe a substantial amount has been deposited in Carrollton.

Sheriff Dale Williams credits CHK as being responsible with regard to road repairs, explaining that other companies merely patch the damage with gravel. He also noted the downside to any substantial increase in industry-traffic and crime. Most agree that any rise in crime has been minimal, but the traffic, well, that’s a different story. Other than the unsubstantiated complaints from environmentalists, traffic has surely been the biggest problem. Carrollton has certainly not been exempt. “You can sit for quite some time now, just in an attempt to get out of a parking lot from a business,” explains Mayor Frank Leghart. “This thing has come fast and furious,” says Jeffrey Ohler, President of the Carroll County Board of Commissioners. “The county wasn’t really ready for it. Now we have all these companies that want to come here which is great but….” Gotta take the bad with the good, but certainly the benefits outweigh the few negative considerations.
Rising Sales Tax Revenue Is Filling Local Coffers

VanHorne reports that taxable sales for the first half of 2012 are up $30.8M over the same 2011 period. As a result, collections on the county’s 1% sales tax have increased $308,059 over this period. Sales were almost 2 ½ times that of 2011, totaling almost $126 M for 2012. “We are up almost $200,000 this year at this point in sales tax collection over the same period last year,” he explained. “That’s a lot of money for Carroll County.”

In addition to the courthouse renovation, Carroll County has been able to replenish its rainy-day fund that was depleted during the recent recession. Van Horne declared, “We might not have to walk on pins and needles trying to preserve every dime we have. We can probably relax - employees will see a slight increase in pay scale, which they haven’t seen in 3 or 4 years, rather than the budget being cut, cut, cut.”

VanHorne was kind enough to provide recent figures showing year to date sales tax collection through August, 2012. The amount collected, just over $218,000, is up more than $33,000 from last year. Year to date, totals are up more than $425,000. “I do credit this to the gas and oil boom as many other counties in Ohio are crying for some form of relief from the lack of revenue to operate,” VanHorne said. I have been unable to confirm the rumor that Carroll County went from worst to first in per-capita income during calendar year 2011.

Ohio Oil & Gas Regulation

The political and economic climate in Ohio has been generally friendly to drillers and residents alike. Even prior to Gov. Kasich’s election, Ohio was already described as having “laws among the most lenient in the nation”. Government spokespersons recognize the need to adopt policies that encourage, not retard, exploration. Kasich has not attempted to contain his enthusiasm for drilling in Ohio calling it a potential “godsend for our state”.

Legislation passed by the Ohio Senate May 15, 2012 was generally well-received by exploration and production companies. It requires operators to disclose their source of fracking water as well as the rate and volume at which they’ll withdraw it. It also requires disclosure of all chemicals used during the process, although not the specific amounts of each. Although some industry participants had expressed reservations about revealing their specific “recipe” most seem reasonably content with the new law.

Upon passage, Gov Kasich appeared both pleased and proud and offered these words to concerned environmentalists – “We have, without a doubt, the toughest law on fracking fluid in the nation. This piece of legislation will last 100 years in Ohio, there’s no doubt about that.” Despite a press release geared toward pacifying others, the industry in general seems quite satisfied with recent results. A rare piece of legislation that sufficiently addresses the issues of both sides, at least for now.

This happy courtship could be soured by other ideas. Gov. Kasich appears determined to impose an increased severance tax on shale oil and gas. A severance tax is one that is imposed on the extraction of non-renewable resources (i.e. oil and gas) and is charged to producers or anyone with a working or royalty interest in oil or gas operations. Traditionally, companies have paid a severance tax of 3 cents per 1000 cu ft of gas and 20 cents per barrel of oil. This has always been deemed to be sufficient to cover the cost of regulating the industry.

The governor wants it to cover more. He is proposed it as a means of income for the state which will allow a proposed cut in state income taxes. Kasich wants to increase it to a flat 4% on all production, a proposal the industry naturally opposes. “If you want less of something, tax it,” said Jerry James, President of the Ohio Oil and Gas Association, referring to the tax as “archaic”. So far, the House and Senate have stopped the measure, but the administration continues to press the idea.
James claims it will discourage oil and gas companies from coming in. A 40% income tax, as he describes it, would certainly discourage business from coming to Ohio. He believes the proposed $1 B in revenue which the boom will generate under existing tax codes should be sufficient. Further, he makes a good point in arguing that it is unfair in that in unfairly taxes eastern Ohio at the benefit of the entire state. “We are in the most economically challenged area of the state,” he explains. “It is not appropriate to ask us to provide money for tax cuts for the rest of the state.”

Opponents claim severance taxes unfairly benefit areas otherwise not impacted by drilling. They get none of the associated nuisances, but still take a cut of the pie. Many believe better methods of raising income and distributing it appropriately exist. PA has a good model, where they institute an “impact fee” of $50,000 for each horizontal well drilled. This policy raised in excess of $200M, most of which will be distributed to counties and town to fix roads, restore water supplies, and pay other local government expenses. The state takes $25 M off of the top and distributes 60% of the remainder to counties and municipalities hosting oil and gas wells. The rest of the money is split among state agencies dealing with drilling impacts.

It seems that Ohio’s recent oil and gas boom via the Utica Shale is a win-win for almost everybody. The only complaints I here are from those who have no mineral ownership. They are missing out on a once-in-a-lifetime-phenomena which is breathing new life into economies on a local, county and state level. Farmers who have been dirt-poor seemingly forever are now seen proudly in their field driving their new John Deere’s and building, or rebuilding, barns and other storage facilities. It’s a good time to be a resident of Carrollton, and that has not been said for many moons.
Also, the mantra “drill baby drill” is more popular than ever and for dang good reasons. Good for you Carrollton. Good for Ohio. And good for Chesapeake and the other E&P companies successfully drilling and completing Utica exploration, all while helping the community. I’ve always said a good deal is when both parties can shake hands and walk away smiling. That certainly seems to be the case here.