March 2, 2012
By Anthony Brino | Illinois Statehouse News
SPRINGFIELD — With a potential oil and gas boom on the horizon in southern Illinois, some proposals for new regulations have bipartisan and industry support.
Energy companies are leasing the rights to drill for oil from landowners in southern Illinois, hoping hydraulic fracturing — a process used for decades in Illinois but now able to be used on a much larger scale — will let them extract oil once considered elusive.
The bills address hydraulic fracturing, which injects water, sand and industrial fluids at high pressure to extract oil and gas.
Four measures in the General Assembly would amend the Illinois Oil and Gas Act to regulate hydraulic fracturing:
- Senate Bill 3280 and House Bill 3897, sponsored by Democrats, would require companies to disclose the chemicals used in the fracturing fluids and require companies to test the integrity of the cement and steel well casings that protect groundwater during drilling.
- Senate Bill 3534 and House Bill 5853, sponsored by Republicans, would require the chemical disclosure.
Hydraulic fracturing is fueling an oil and gas boom in states like North Dakota, Wyoming and Pennsylvania, reviving economically struggling communities with thousands of jobs and royalties for landowners leasing their mineral rights to energy companies.
It is also controversial. Some residents in other states have blamed hydraulic fracturing for contaminating their drinking water wells, although industry groups and companies dispute those claims.
State Sen. Michael Frerichs, D-Gifford, is sponsoring SB 3280. Along with the Republican bill only requiring disclosure, the bill will be heard Wednesday in the Senate Environment Committee.
Frerichs said disclosure would give landowners the ability to fingerprint the chemicals and hold the company liable in the event of contamination.
“We're learning about potential problems associated with it, and before it comes into Illinois, I think it’s good to be proactive,” Frerichs said.
State Rep. Dave Winters, R-Rockford, who is sponsoring HB 5838, said he thinks hydraulic fracturing is safe, but like Frerichs, said he wants to be proactive.
“We should have the law ready for it,” Winter said.
About 2.8 million Illinoisans get their drinking water from public systems that use groundwater, according to the Ground Water Protection Council, a national nonprofit that consists of state and local water agencies. An additional 400,000 homeowners, mostly in rural areas, have private water wells, according to the Ground Water Protection Council.
"We don't have evidence to indicate that hydraulic fracturing causes groundwater contamination," said Mike Nicholaus, a geologist and spokesman for the council.
The council does support disclosure as a matter of transparency, and also helps run the online fracturing chemical disclosure website FracFocus. Montana, Colorado, Texas, Louisiana and Pennsylvania all require some form of public disclosure, Nicholaus said.
In Illinois, the oil and gas industry supports chemical disclosure, said Brad Richards, executive vice president of the Illinois Oil and Gas Association, a trade group representing state petroleum companies. But he said hydraulic fracturing hasn’t been proven to be the cause of any water contamination, and said oil drilling has been done safely in Illinois for decades.
Brian Sauder, outreach and policy coordinator for the environmental group Faith in Place, has been lobbying for disclosure and regulations for more than a year.
"Our concern is protecting our water sources, whether it's in the ground or on the surface,” Sauder said.
Combined with horizontal drilling, advances in hydraulic fracturing are allowing energy companies to extract oil and gas from rock formations once out of the industry’s reach. In southern Illinois, the potential oil in the New Albany shale is getting a lot of interest from the industry, Richards said.
During the past year, in Wayne, Hamilton, Saline and other counties, energy companies have been spending millions of dollars leasing mineral rights from farmers and rural landowners.
“Right now it's a lease boom,” Richards said, speculating that thousands of jobs could be created. "Whether or not it will work in Illinois remains to be seen, but it has the potential to be a huge economic driver."
Richards said only a few experimental wells have been drilled in the New Albany shale, which holds oil and gas and in Illinois sits about 4,500 feet underground, about a thousand feet above the Maquoketa shale, which has been less explored.
“I think it's reasonable to assume that folks like what they've found, because there's a tremendous amount of leasing,” Richards said. “We're going to find out soon.”
One oilman who likes what he’s found is Jack Overstreet, president of the Denver-based oil and gas company Next Energy LLC. Overstreet said samples of the New Albany shale that the company has tested show a lot of oil trapped in the rock.
Overstreet claimed that Next Energy so far has acquired more New Albany shale leases than any other company with about 175,000 acres in southern Illinois under lease.
Illinois was once a major oil producer, and today companies extract about 10 million to 12 million barrels a year, according to the Illinois Department of Natural Resources.
While geologists and engineers still don’t know how much oil the New Albany shale contains or how much could be extracted, Overstreet said he would expect to extract about 23,000 barrels of oil from every square mile.
“But that’s complete speculation,” Overstreet admitted.
David White, a fourth generation farmer and vice president of the Wayne County Farm Bureau, has seen a lot of that speculation at work.
White has leased the mineral rights to 39 of his 200 acres of farmland — where he grows wheat, corn and soybeans — to New Century Exploration, an energy company based in Houston, Texas.
White declined to say how much he could earn from the lease, but said the base rate he’s heard of is a 12.5 percent royalty rate on the value of oil or gas produced, in addition to a signing bonus.
White negotiated the lease himself. “Looking back,” he said, “it might have been better to hire an oil and gas attorney.”
Laura Hammond, a lawyer specializing in mineral rights with the Illinois Farm Bureau, an agriculture nonprofit, offers informal advice to farmers considering leasing and recommends hiring a lawyer.
Leases offered by energy companies “usually start off in the favor of the company,” Hammond said.
“But if they negotiate right, landowners can really be the driver’s seat,” for example, requiring provisions that let landowners control aspects of land use, such as the location of the well sites, she said.
White said his lease requires the potential well to be at least 500 feet from his home or barn, and also lets him negotiate the location of pipelines or roads that would be built to the well.
“Our main concern is to be good stewards of the land,” White said.