American Oil and Gas Reporter - June 2014 - 41

the lease, with a requirement that the determination be made no later than 90 days
after the initial request.
"SB 3456 faces a little more uncertain
future than HB 5567," Richards said in
mid-May. "The bill got through the Senate,
and the language was signed off on by
the House leadership, but is still sitting
in the Rules Committee."
Richards reports a host of anti-fracturing legislation has been assigned to a
Senate Energy Committee subcommittee,
but says he does not expect any of them
to advance this session.
One of the proposed bills, SB 3424,
sponsored by Senator Michael Frerichs,
D-Champaign, prohibits issuing leases
for surface extraction activities on lands
owned by IDNR or the federal government
after Jan. 1, 2015. It also seeks to bar
IDNR from giving any person exclusive
rights to prospect and explore public
lands in Illinois for petroleum, and repeals
provisions governing certain petroleum
leases, rights of way on public lands, and
preferential rights to prospecting permits.
High-Volume Fracturing
Despite being about a year removed
from Governor Pat Quinn's signing of
HB 2615, legislation on high-volume hydraulic fracturing, Richards says a de
facto moratorium continues as IDNR finalizes regulations generated by the bill
(AOGR, June 2013, pg. 45).
"IDNR's story is that it received more
than 30,000 comments during the public
comment period. That is an unprecedented
number for any piece of legislation in state
history," Richards says, adding there is a
significant back story to those numbers.
Several anti-development groups across
Illinois started a campaign to overwhelm
IDNR with comments, he reports, with
the intent of stopping oil and gas activities.
Those groups posted suggested comments
on their websites and asked members to
forward them to the department.
"IOGA's problem is IDNR and the
administration felt compelled to have
public hearings to create an opportunity
for the public to comment online,"
Richards recounts. "They built a system
that allowed 30,000 comments to be generated, but do not mistake that for 30,000
people in the state of Illinois commenting
on HB 2615. There probably were a few
hundred people scattered all across the
country who submitted dozens, if not
hundreds, of comments just by pushing a
button."
Technically, the state is required to
respond to each comment, but Richards
questions whether sending form responses
to the 98 percent of those 30,000 comments generated by form letters will be

sufficient.
In mid-May, the House Executive Committee approved a proposal submitted by
Representative John Bradley, D-Marion,
to encourage hydraulic fracturing operations
in the state. His bill, SB 649, would remove
IDNR's authority to adopt new fracturing
rules. According to published sources,
Bradley is unhappy that the department
still has not published new regulations as
it works through those public comments.
Richards says the association supports
measures to codify regulations that IDNR
has been unable to finish.
"However, the bill also contains a
moratorium for northern Illinois counties,
including the greater Chicagoland area,"
Richards points out. "The restricted areas

are not prospective for oil or gas development of any kind, let along high-volume
hydraulic fracturing. So the moratorium
is largely symbolic, and meant to alleviate
concerns of northern Illinois legislators
unfamiliar with our industry."
Whether SB 649 is symbolic or not,
Richards says IOGA and the broader
coalition of business and industry groups
that fought so hard for passage of 2013's
High-Volume Hydraulic Fracturing Act
and its subsequent rules are not willing
to accept any type of moratorium, as that
implies fracturing is inherently unsafe.
Such legislation would establish a precedent that would allow those who oppose
oil and gas to demand that certain areas
would be off-limits to development. r

Ohio House Approves Increase
In Severance Tax To 2.5 Percent
COLUMBUS, OH.-The Ohio House
of Representatives has approved a 2.5
percent gross receipts tax on horizontal
oil and gas production. Legislators passed
the amended HB 375, introduced by Representative Matt Huffman, R-Lima, on a
55-38 vote and advanced the measure to
the Senate.
Tom Stewart, executive vice president
of the Ohio Oil & Gas Association, says
his group was expecting a severance tax
steeper than 2.0 percent. He adds the
legislation includes several provisions
producers welcome, including a decrease
in the commercial activity tax (CAT).
According to the state legislative website, in addition to changing those two
tax programs, HB 375 changes producers'
fiscal environment in other ways, including:
* Reducing natural gas severance
taxes on nonhorizontal wells;
* Repealing a cost recovery assessment
imposed on oil and gas well owners;
* Exempting the first $10 million of
receipts, less royalty payments, from oil
and gas sales for horizontal wells that
began producing after Oct. 1, 2013;
* Creating a well plugging program
to catalog and prioritize the plugging of
idle and orphaned wells, as well as a new
funding mechanism for dealing with those
wells; and
* Changing the allocations of severance tax revenues.
The CAT, described by the state as an
annual tax imposed on the privilege of
doing business in Ohio, is a 0.26 percent
levy on gross receipts from business activities. HB 375 exempts producers paying
severance tax from the CAT, although

Stewart points out that a 2.5 percent severance tax is the equivalent of almost 10
CATs.
If HB 375 is signed into law, Stewart
reports conventional producers will see
the severance tax on their wells levied on
a volumetric basis and at half the original
rate. "That provides tax relief for conventional producers, who are under deep
distress here in Ohio. That is not huge
because the severance tax admittedly is
not huge, but it is something. Those guys
deserve it," he says.
The bill also recognizes shale producers' significant investment risks, Steward indicates. The original legislation authorized a cost recovery method similar
to the one in Oklahoma, but the amended
version provides a reduced tax rate for
five years for shale operations.
Under HB 375, oil and gas severance
tax revenues will be dedicated to regulatory
programs at the Ohio Department of Natural Resources, distributed to local governments, and used for temporary income
tax reductions.
The well plugging program created
under HB 375 comes out of a proposal
from the Ohio Environmental Council,
Stewart adds.
"The council entered the debate with
a proposal to greatly expand the idle and
orphan well program by not only giving
it more money, but by saying it needed
to be more transparent, and to conduct
an inventory of idle wells in the state. It
would report to the legislature annually
on how it is spending the money," he relates. "OOGA came in as a big supporter
of that amendment. The association
worked with the environmental community
JUNE 2014 41

American Oil and Gas Reporter - June 2014

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