Fracking supporters announce well fees, tax rates - Shale Reporter : Government

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Fracking supporters announce well fees, tax rates

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Posted: Friday, March 15, 2013 8:18 am

SPRINGFIELD, Ill. (AP) — Backers of a measure to regulate high-volume gas and oil drilling in Illinois announced Thursday they have agreed on the fees and extraction taxes.

Drillers will have to pay the state if lawmakers approve a plan to regulate the practice.

The rates were presented during a meeting of the House Finance and Revenue Committee, which is expected to vote on the measure Friday.

The proposal calls for industry operators to pay $13,000 per well upfront, with $11,000 going to the Illinois Department of Natural Resources and the remaining $2,000 going to the state's Environmental Protection Agency.

The DNR would use the money for a new regulatory program spelled out in the legislation. The vice president of the Illinois Manufacturers' Association, Mark Denzler, said the money for the EPA would be put toward any pollution complaints.

"If somebody calls and maybe they think something is happening with the well that may or may not be related, the EPA has to go out and investigate, and we just have to make sure that they have the revenue to do their job," Denzler said.

Illinois lawmakers are considering a measure to regulate hydraulic fracturing, or fracking, which has made it possible in other states to tap into deep reserves of oil and gas but has also raised concerns about pollution. Large volumes of water, along with sand and hazardous chemicals, are injected underground to break rock apart and free the oil and gas.

Energy companies have been waiting for legislation in Illinois before undertaking the practice in the state. Last month, Rep. John Bradley, a Marion Democrat, introduced the regulatory proposal, which has been touted as among the toughest in the nation and drafted with the help of industry and some environmental groups. Energy companies are eyeing the New Albany Shale, a formation deep under southern Illinois that they believe could hold significant gas and oil reserves.

Under the agreed rates, well operators also would pay a 3 percent-per-barrel extraction, or "severance," tax during the first two years of operation. That tax would scale up after the second year depending on the well's average monthly production. The highest tax rate would be set at 6 percent.

Denzler told legislators he was "reticent" to estimate how much revenue fracking could generate for Illinois because production among wells varies. But he provided an overview using an estimated model: Production of 200 barrels a day per well, at a 3 percent tax rate, would generate just under $200,000 per year per well.

Denzler's group is among those that helped draft Bradley's proposal.

Gov. Pat Quinn, who has called it a jobs bill, reiterated his support Thursday, a day after House Speaker Michael Madigan said he supports a moratorium on fracking. Quinn cited the endorsement from some environmental groups that helped craft the legislation.

"If our environmental folks feel this is a safe bill, I think that's a good sign," he told reporters in Springfield after an unrelated event. "The bill that they've negotiated is a good bill, I hope it goes forward."

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