By Attorney Rich Fedder of SAFE
In a conventional oil or gas well, production tends to be stable for many years. But in hydraulic fracturing (“fracking”), production drops off the table after the first year. Fractures blasted into the rock tend to close over time. Production dries up.
The effect is that the tax revenue to the State of Illinois will slow to a trickle.
By the industry’s own data, production is expected to fall off to 1/6th of initial production after 3 years. That is just about the time when the 6% severance tax will be phased in under Illinois’ proposed fracking regulations.
By citing pie-in-the-sky numbers, based upon the initial production of the wells, the industry has led the public to believe that Illinois will eventually receive 6% of this initial production in tax revenue.
But that is not the case at all. During the first year, the state of Illinois will receive something close to 3% of the initial production.
But then the numbers will rapidly decline. After three years, the tax revenue will be 1/6th of 6%, or 1% of the initial production. And it will continue to decline rapidly from there.
This is not a good deal for Illinois, and it does not compare favorably with the tax rates for fracking in other states.