Illinois lawmakers deliberate fracing legislation; residents await transformation

Tayvis Dunnahoe, Editor

What initially began as a simple chemical disclosure bill has now come full circle and, after nearly 3 years of negotiations, the State of Illinois is on the cusp of a comprehensive regulatory regime providing the oil and gas industry with clear guidelines for horizontal drilling and hydraulic fracturing in the state.

"The new bill covers everything concerning horizontal drilling and hydraulic fracturing," said Brad Richards, executive vice president of the Illinois Oil and Gas Association (IOGA).

Illinois has designed a somewhat bipartisan bill incorporating input from many prospective exploration companies and nationally known environmental groups. "In Illinois, the legislature has very high standards where environmental issues are concerned," Richards said. "This bill provides a comprehensive set of regulations, but it will allow unconventional exploration to move forward in Illinois," he added. With the state's lawmakers now in session, it looks as though the bill will pass with no surprises. And the state Department of Natural Resources may soon be regulating hydraulic fracturing. The bill also sets standards for well casings and storage of wastewater and would require companies to disclose the chemicals used in fracturing fluids.

Resistance and amendments

The passage has not been without stalls. The bill having already been amended and agreed upon was briefly stalled in March when a third amendment was proposed requiring drilling companies to go through an extensive licensing process. According to the Chicago Tribune, the bill was introduced by Rep. John Bradley on behalf of the Indiana, Illinois, Iowa Foundation for Fair Contracting, a representative of the Operating Engineers Union, Local 150. Both IOGA and the oil and gas industry supporters of the previous bill directly opposed the amendment.

The same week, Illinois House Speaker Michael Madigan announced his support of a moratorium on hydraulic fracturing. This stemmed from an earlier proposal to ban fracing for 2 years until further studies could be carried out. Illinois has its share of grass-roots environmental groups that are vying to stop the industry dead in its tracks with an outright ban on the controversial method of extraction, but much of the state's rural population—who stand to gain from an improved job market—are in support of it. "We don't think this will get any traction," Richards said. "This bill has been negotiated with comprises from both sides of the issue and, if passed, it will provide the best possible scenario to fully develop Illinois' resource potential."

Hydraulic fracturing is a high profile topic for many lawmakers throughout the US, and this is also the case in Illinois. "We anticipate this will be an end-of-session issue," Richards said. Illinois' State Legislative session is slated to end on May 31, and many operating companies haven't wasted time getting prepared for the best case scenario.

Ramping up

Illinois currently has no regulations in place. The state permits horizontal drilling, and hydraulic fracturing can be carried out with no further permitting. To date, approximately half a million acres have been leased in the southeastern portion of the state.

Because the New Albany shale is relatively unknown, the current boundary of the play primarily exists in Wayne County, which has received much press due to the influx of landmen, construction workers, and other tradesman associated with the oil and gas industry. "Most of the acreage under lease extends as far north as Effingham County and south to Johnson and Pope counties," Richards said. Moving west into the state, the prospective area does not extend beyond Washington County. "Geologically, the New Albany thins out rapidly to the west from the Illinois-Indiana border," Richards said.

Wayne, Hamilton, and White counties are considered the center of the New Albany shale play, with southeastern Illinois serving as the depocenter of the formation. "In Illionois, we're looking at a thermogenic play," Richards said. However, the New Albany is not the only prospective rock in the region. The Maquoketa is equivalent to the Utica, and both of these formations are prospective for an abundance of oil, gas, or both. The Illinois basin also boasts Mississipian Limestone formations—Salem-Warsaw and Ft. Payne—that were prolific production zones in the 1960s and ‘70s. Analogous to the Mississipian Lime in Kansas and Oklahoma, there are some indications that new technology may also rejuvenate production in Illinois' aging fields.

Recent activity

In mid-April, State College, Pa.-based Rex Energy conducted the first hydraulic fracture on a horizontal well in neighboring Posey County, Ind. The company has not yet released results from this well.

SM Energy also currently has a permit for one of the first horizontal wells in Illinois in its Wayne County prospect. While the company has had several mentions in the mainstream press from Illinois, there were no operational updates at the time of publication. Campbell Energy LLC was permitted to drill two New Albany tests near Omaha field in Gallatin County, according to documents available through Illinois Department of Natural Resources. The #7 Knop and #8 Knop were permitted to 4,200 ft.

Strata-X Energy Ltd. recently provided an update on its Vail oil project in the Illinois basin where it holds a 100% interest in 46,300 net acres. The company plans to drill its first appraisal well in the second quarter of 2013. The horizontal test is expected to spud in mid-May and will be drilled to a true vertical depth of 4,500 ft, with a lateral step out of 4,300 ft. The project area is undisclosed, but the company said it is located in Central Illionois on the western flank of the basin. The basin's prospective accumulation encompasses 520 sq miles and generally lies at depths between 3,500 to 5,000 ft.

Gas, oil, or both?

With Illinois' historical production, it is likely that drillers will have some success using advanced technologies in the conventional formations of the basin. As for New Albany, it is too early to call. The Illinois State Geological Survey (ISGS) recently released its rock study on several cores from the shale in January. No results or additional commentaries have resulted from the ISGS information. However, if leasing activity is an indication, several exploration companies are seeing opportunities in both Illinois and Indiana.

While the jury is still out on how much resource potential can be realized in the region, the state's move to pass extensive regulation prior to increased drilling activity is a move in the right direction, according to IOGA.

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