http://www.pantagraph.com/articles/2008/04/15/news/doc4803e1c16f345286243538.txt

State looks to boost tax on Illinois oil producers

4/14/2008

Bloomington Pantagraph

Kurt Erickson

SPRINGFIELD -- Illinois oil producers could be tapped to help pull the state out of red ink. With world oil prices hovering at the $111 per barrel level and motorists facing hefty increases at gasoline pumps, Gov. Rod Blagojevich has proposed raising fees paid by companies producing oil and gas in Illinois.

The idea, which could raise between $26.7 million and $33 million, is opposed by the industry, as well as lawmakers who represent areas of the state where oil drilling has been on the upswing since prices began rising several years ago.

“I’m against it,” state Sen. Gary Forby, D-Benton, said Monday. “I’m going to keep following up on it.”

“They are saying the fee increase could be devastating to the industry,” added state Sen. John Jones, R-Mount Vernon.

The proposal is among a number of fee increases being considered as a way to operate the Illinois Department of Natural Resources without using general state funds.

It comes at a time when the state is running short of cash to pay its bills. The governor says the deficit is at least $750 million.

In addition to higher taxes for oil companies, Blagojevich has proposed raising fees for campers and hunters.

DNR spokesman Chris McCloud said higher fees for oil producers aren’t an attempt to take advantage of high oil or fuel prices in order to finance state government.

Rather, he said Illinois’ current fee for producers lags behind other states.

“We are one of very few if not the only state that doesn’t directly benefit from a fee of this kind,” McCloud said.

The fee, which needs legislative approval to go into effect, would rise from one-tenth of one percent for every barrel of oil produced to five percent per barrel.

Brad Richards, executive vice president of the Illinois Oil and Gas Association, said the fee could hamper production in Illinois, which is dominated by smaller drilling and production companies.

Unlike big oil producing states, most Illinois wells produce an average of about 1.25 barrels per day, which equates to about 10 million barrels of oil annually.

“It would be devastating to a lot of our smaller producers,” Richards said. “This is a very big deal for us.”

The rise in the price of oil has sparked a resurgence in Illinois’ oil industry. Drilling permits have been on the rise for the past several years.

However, Richards said production levels remain stagnant or are in decline.

“There’s a reason why the majors aren’t here anymore,” Richards said.

Rather than tax at a level seen in major oil producing states like Texas, Oklahoma and Louisiana, Richards said the state should look at Pennsylvania and Ohio, where wells that yield less oil are taxed less or nothing at all.

Jones also says the fee would hit independent producers who have only recently begun hiring people for higher paying oil exploration jobs.

“This isn’t the major oil companies,” Jones said. “These are small, independent drilling contractors.”

State officials disagree.

“There are many wells owned in Illinois made up of ownership groups including oil companies,” McCloud said.

Forby said it’s not uncommon to talk about budget cuts and fee hikes at this point of the spring legislative session. With six weeks to go before lawmakers are scheduled to adjourn for the summer, lawmakers and Blagojevich are still far apart on budget issues.

The state is operating at a deficit of an estimated $750 million and many state vendors, such as hospitals, pharmacists and nursing homes are not being paid for their services in a timely manner.

“I don’t know if the governor is just doing this as a threat,” Forby said. “We go through this every year.”