Energy prospectors return to area

Energy prospectors return to area

Dateline: Pesotum, 1966.

"Oil Strike Believed to be Producer" read a headline in The News-Gazette. A few months later: "S. Champaign, N. Douglas County Oil Boom Predicted."

Well, Champaign is no Houston. The boom never came.

But the prospectors are back.

Since October, Denver-based Orion Energy Partners has entered into eight oil and gas leases with landowners in southern Champaign County and northern Douglas County, according to documents filed with the Champaign and Douglas recorders' offices. The properties are all near spots where drilling occurred some 40 years ago.

Pesotum farmer Chris Hausman signed one of the leases with Orion.

"There have been oil wells in the past, back in the '50s and '60s. But from what I heard, the oil they found just wasn't flowable," Hausman said.

Due to advances in drilling technology and rising demand for oil and natural gas, Hausman suspects companies are going to try again.

Orion did not return calls seeking comment.

In the meantime, drilling permits in Illinois have increased from 2004 to 2005, said David Morse, geologist with the Illinois State Geological Survey, which maps and collects data on every well in the state.

What could be spurring the rise in activity? Try the price of crude oil, currently trading around $60 per barrel, plus demand for oil and gas, said Brad Richards, executive vice president of the Illinois Oil and Gas Association in Mt. Vernon.

The Champaign connection

Speaking very basically, to prospect for oil, explorers look for a kind of rock that would generate oil, Morse said. This so-called source rock is buried deep in the earth. Most Illinois oil fields are 2,000 feet or less. The deepest well ever drilled in Illinois is about 14,000 feet, Morse said.

Champaign County happens to be on the northern edge of the Illinois basin, an oil-producing area that encompasses southern Illinois, western Indiana and western Kentucky. Most of Illinois' pumps are south and west of Champaign, in places like Crawford and White counties.

But the first attempts at drilling for oil in Illinois were said to have occurred in 1853 near Champaign, according to the Illinois Department of Agriculture. Instead of oil, the early prospectors struck what was called swamp gas. Commercial oil production in the state didn't start until 1905.

Production in Illinois peaked in the 1950s and 1960s, then eventually dwindled. Now the state's wells yield about 10 million to 12 million barrels in a year, according to the DNR.

"Production here (in Illinois) is almost exclusively oil, as opposed to natural gas," Richards said.

Decades ago all the major oil companies – Exxon, Texaco and others – produced here, he said.

"But what happened was as the basin matured, production declined," Richards said. The big companies pulled out and sold their operations to small, independent businesses.

What's going on now throughout the basin is a growing interest among larger companies to explore for natural gas down in what's called the New Albany shale, Richards said. New Albany shale is ubiquitous throughout the Illinois basin.

Champaign and Douglas counties may be on the northern edge of the basin, but there are many gas pipelines that crisscross the region. If gas were discovered here, the infrastructure would already be in place to transport the gas to markets like Chicago, he said. And that may drive up interest in Champaign County.

"It's going to be an interesting thing. At this point, no one knows with any degree of certainty if this will work," Richards said.

What if?

So what if the prospectors did strike oil or gas?

Landowners are typically awarded royalties in the neighborhood of one-eighth of the oil or gas proceeds from the year, Morse said.

For example: an oil field yields 1 million barrels of crude a year. With one barrel fetching $60, that field brings in $60 million. The landowner can earn $7.5 million in one year.

On the other hand, the well can yield zero barrels.

Royalty terms are spelled out in oil and gas leases, which tend to be fairly straightforward documents, Morse said.

This fall, the Douglas County Farm Bureau held an informational session for interested landowners about oil and gas leases, said manager Dustin Blunier.

"We did it as an educational tool. ... Our goal is to make sure they make an informed decision," Blunier said.

The Illinois Farm Bureau publishes a brochure, "On the land," which is a guide for farmers negotiating oil and gas leases. It covers topics such as surface damage clauses and pipeline right of ways.

Oh, and it suggests landowners ask for free gas.

"It could be a nice way to get a little income if you can tolerate someone driving on the property and farming around a well," Blunier said.

If oil is discovered on a property, next will come storage tanks near the roads and some buried pipelines.

"Typically the oil company will pay for any surface or crop damages," Morse said.

Hausman said he wasn't concerned about the effect on his farming operation and said the intrusion on his property will be minimal.

"It would be a small footprint, like drilling a water well," he said.

That footprint is usually no more than 10 by 10 feet, Morse said.

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