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Drilling companies have begun approaching Illinois landowners in recent months about leasing their property for gas drilling. Like Pennsylvania and Ohio, Southeastern Illinois sits atop a shale formation—the New Albany—with large untapped gas reserves. Many drilling companies are purchasing leases now with the hope of using horizontal hydraulic fracturing (“fracking”) to extract natural gas at some point in the future.

The importance of the New Albany shale play relative to other plays around the country remains a question. Current estimates peg natural gas reserves in the New Albany at 11 trillion cubic feet. While this number is certainly substantial, it is a mere fraction of the estimated reserves in the Marcellus and Utica plays. This potential difference in magnitude can already be seen in lease terms being offered to Illinois landowners. Drilling companies typically pay landowners thousands of dollars per acre as bonuses for leases in the Marcellus and Utica play, but recent reports suggest that Illinois landowners are currently being offered a few hundred dollars per acre at best.

Despite development of the New Albany play being in its nascent stages, the legislature has already begun to move on new regulation. State legislators, representatives from the gas industry and several environmental groups recently came together to draft a bill that would govern fracking activity in the state. Much like comparable laws around the country, Illinois House Bill 2615 addresses fracking wastewater, disclosure of fracking chemicals, permitting requirements, groundwater testing, and setback requirements for well pads. However, the last-minute addition of a controversial amendment creating extensive licensing requirements for contractors has already caused the industry to withdraw its support and the House Revenue and Finance Committee to postpone a vote on the bill.

For landowners in Southern Illinois, now is the time to investigate title to your mineral rights. Mineral rights in Illinois are often severed from title to the surface lands. As a result, individuals may still have a mineral interest in land owned by a different surface owner stemming from a title transfer that occurred generations ago. It would be prudent for landowners to resolve these issues now so they can be in a good negotiating position if development of the New Albany play moves forward and demand for new leases increases.

For more information, please contact:

Michael W. Wise

216.430.2034

mwise@mcdonaldhopkins.com

Michael L. Snyder

216.348.5754

msnyder@mcdonaldhopkins.com

Jeffrey R. Huntsberger

216.348.5405

jhuntsberger@mcdonaldhopkins.com

Daniel J. Smith

216.430.2046

dsmith@mcdonaldhopkins.com

Energy Practice Group

Many of the attorneys in our Energy Group have spent more than a decade serving public utilities and/or oil and gas clients and therefore offer a unique perspective in understanding the legal issues currently presented in the energy industry. Our clients include public utilities, renewable energy companies, energy developers, the oil and gas industry, industrial companies and suppliers. Our Energy Practice has a multi-disciplinary approach to counseling our clients and covers litigation, governmental affairs, real estate law, environmental law, capital markets and other practice areas.

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