SPRINGFIELD — A House panel could vote as early as Friday on a fee structure for a controversial oil and gas drilling procedure that might bring in millions of dollars in state revenue.
The proposal is the latest step in a legislative push to permit and regulate high-volume hydraulic fracturing and drilling process known as “fracking” that uses high-pressure mixtures of water, sand or gravel and chemicals to crack rock formations to release oil and natural gas.
Mark Denzler, an Illinois Manufacturers’ Association vice president, spoke in favor of the proposal to a House panel Thursday on behalf of IMA and GROW-IL, a coalition of business, labor, construction, transportation and agricultural organizations that sup-port the drilling process.
He and representatives of businesses and environmental groups have been working with the legislative sponsors, the governor’s office and various executive agencies to quantify two ways companies will pay Illinois for their ability to drill — proposed permit fees and taxes based on the amount of oil or gas sold.
Opponents of fracking are wary of the environmental impact of the drilling and are instead lobbying for a two-year moratorium.
Denzler said the proposal calls for well operators to pay a permit fee of $11,000 per well to the Illinois Department of Natural Re-sources, which would issue permits.
Operators also would pay a smaller fee — about $2,000 per well — to the Illinois Environmental Protection Agency, Denzler said. The agency would not issue permits but would investigate any complaints after drilling starts.
These permit fees must be paid even if the permit request is rejected, he said.
While fees are intended to cover state administrative costs required to review and process permit request, fracking operations also would pay Illinois “severance taxes,” a type of sales tax based the amount of fuel extracted.
Denzler said in a well’s first 24 months of production, purchasers of the oil or natural gas produced will pay a gross 3 percent tax on every barrel out of the ground.
After that first two year period, the tax rate will stay the same or rise, depending on how many barrels per day are being produced, Denzler said.
For example, the tax will remain at 3 percent for production of 24 barrels or less, but be as high as 6 percent for wells producing 100 barrels or more a day.
When a well nears its “end of life” and produces less than 15 barrels a day for a 12 month average, no tax will be charged.
Denzler could not estimate how many wells ultimately will be drilled. “We don’t know what the production will be until we start drilling,” he said
But if a well, for example, produced 200 barrels of oil a day and the price of oil were $90 a barrel, Illinois would receive about $200,000 a year in taxes from that well, he said.
Companies have been acquiring drilling rights to use fracking in southeastern Illinois’ New Albany shale deposits, an area that runs roughly from Coles County to the north, I-57 to the west, to the eastern and southern Illinois borders.
The shale deposits extend into Indiana, where some drilling already has occurred, Denzler said.
The measure is House Bill 2615.