American Oil and Gas Reporter - June 2015 - 110

ConventionSection: Kentucky Oil & Gas Association

Kentucky Updates Drilling Regulations
FRANKFORT, KY.-Kentucky's oil
and gas operators will be working under
a new regulatory framework starting June
24, as provisions of the Kentucky Oil
and Gas Regulatory Modernization Act
go into effect. The new rules cover drilling
and permitting, reclamation of well sites
and storage vessels, as well as establishing
chemical disclosure through the FracFocus.org website.
Rudy Vogt, president of the Kentucky
Oil & Gas Association, predicts the new
regulations will be uppermost on the
minds of KOGA members when they
meet for the association's annual meeting,
set for July 14-16 at the Lexington (Ky.,
Convention Center and Hyatt Regency.
KOGA Executive Director Andrew
McNeill says at the behest of Governor
Steve Beshear's administration, the state
decided in 2014 to convene a working
group of multiple stakeholders to look at
developing and adopting an updated set
of regulations to prepare for the possibility
that Kentucky would see new oil and gas
developments, especially deep shale development.
The nine-month process led to the
2015 Kentucky General Assembly's action
in passing SB 186, which was introduced
by Senator Julian Carroll, the Senate minority whip. Beshear signed SB 186 on
March 19, after the Kentucky House of
Representatives and Senate unanimously
approved it.

Working Together
Vogt says stakeholders involved in
developing the regulatory package derived
from SB 186 include KOGA, the Kentucky Farm Bureau, state regulators from
the Kentucky Division of Oil & Gas, and
environmental groups. "What is really
amazing about this is it was very well
supported by all sides," he says. "What
the work group came up with was supported by industry and the environmentalists, and the government was happy to
take it."
Vogt adds that his 2016 successor,
Maurice Royster, represented oil and gas
interests on the group. Royster, manager
of government affairs for EQT Corp. in
Pittsburgh, says getting a solution from
the diverse groups often was an uphill
battle.
"There was a lot of sweat, many hours
of work and some intense debates among

the groups on the issues," Royster says.
"We came out of there united in representing the legislation, but it was not
without a few verbal swings here and
there, and a few verbal black eyes. It was
a challenge, but at the end of the day the
debate and the fight were worth it. We
had a piece of legislation that passed
unanimously."
There were some complaints about
landowners and the public not being adequately represented, but Royster says
the Kentucky Resource Council was on
the panel, giving groups outside the government and industry several seats at the
table.
McNeill predicts the regulatory reforms
will allow Kentucky to anticipate development issues and prepare the state for
the large-scale fracturing needed to open
new plays such as the Rogersville Shale.
Vogt adds that small operators will
see SB 186's most significant impacts
on reclamation of drilling locations and
construction of roads. He says producers
have been following best practices in
both areas, but the legislation imposes
new paperwork requirements to document
the work undertaken.
"Part of what KOGA intends to do is
help to educate its members," Vogt says.
"The Division of Oil & Gas will be
holding workshops, as will KOGA. The
association will use its consultants to
help teach members how best to build
locations that avoid triggering permitting
issues. This will be a big part for our
members, and is one of the value-added
benefits the association offers."
McNeill adds abandoned wells, like
storage tanks, have presented a problem
for industry and state officials. "Kentucky
has a plugging program for abandoned
wells. The Division of Oil & Gas would
say the program is under-resourced. It
certainly lacks the resources to meet the
current challenge, but that is only if you
define the challenge as every potentially
abandoned well in the state. If you look
at only those wells that need to be plugged,
KOGA feels the program has sufficient
resources."
Kentucky's reclamation standards for
the larger well pads used for deep drilling
include bonding requirements that cover
plugging and reclamation costs, McNeill
says. Those standards were developed
after a series of negotiations with a range

110 THE AMERICAN OIL & GAS REPORTER

of stakeholders, he reports.
McNeill predicts operators will not
find the new regulations too onerous.
Kentucky, he points out, has enjoyed the
advantage of watching other states-particularly Pennsylvania, West Virginia and
Ohio-initiate legislative reforms regarding
new oil and gas techniques.

Abandoned Tanks
The Kentucky Oil and Gas Modernization Act also tackles the state's 4,000
abandoned and deteriorating storage tanks,
McNeill says. Most of those are in the
Illinois Basin. The Kentucky Farm Bureau
and other agricultural groups are working
with producers to eliminate the problem,
he says.
According to the state website, the
new Kentucky Abandoned Storage Tank
Reclamation Program defines when a
tank is abandoned and eligible for reclamation, and authorizes state agencies to
contract for services to remediate the
site.
Royster points out the Farm Bureau's
main interest was increasing attention
for reclamation of abandoned tanks, saying
it and KOGA have been working together
for several years to get more sites cleaned
up.
The source of those mitigation funds
is yet to be determined, Vogt says. Kentucky's legislature operates on a biennial
budget, and 2015 was not a budget session.
Most state revenues flow into the general
fund, so the industry has to lobby to get
a portion of that sent to the Division of
Oil & Gas for the reclamation projects,
he says. "All state governments have
cut their budgets dramatically, and Kentucky is no different. It is a benefit to the
industry if we can help bring some of
that funding back to the division," he
says.
One of the key items in those fiscal
conversations was delineating clearly
larger independent producers who potentially could develop these deep wells
and unconventional shales and formations,
while protecting Kentucky's smaller operators, McNeill recounts.
"We asked for some common sense,
and said we didn't necessarily need to
impose new bonding for reclamation and
plugging on our smaller operators, who
face a challenging set of economic conditions," McNeill says.

American Oil and Gas Reporter - June 2015

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