The nascent Illinois shale oil and gas industry won a preliminary victory in the courtroom last week. The Appellate Court of Illinois for the Fifth District affirmed the denial of a preliminary injunction against the Illinois Department of Natural Resources' (DNR's) new hydraulic fracturing regulations.
Although the DNR's regulations must still survive a decision on the merits of the case, the denial of the preliminary injunction moves Illinois closer to the benefits of modern shale development. In particular, development of the New Albany shale play will boost Illinois' stagnant oil and gas production, add jobs, and increase private and government revenue.
But litigation has plagued Illinois' hydraulic fracturing regulations, arguably stalling shale development in the state.
On November 6, 2014, the DNR issued the regulations, and a consortium of landowners and an environmental group sued four days later. The consortium moved for a preliminary injunction, arguing that they would be harmed by newly issued hydraulic fracturing permits because the DNR allegedly violated the Illinois Administrative Procedures Act.
On November 21, the Circuit Court of Madison County denied the preliminary injunction, rejecting the consortium's conclusory allegations of irreparable harm.
Not until July 10, 2015, did the appellate court affirm the denial of a preliminary injunction. The appellate court concluded that the consortium's blanket allegation of harm was too speculative to justify a preliminary injunction.
Even with the recent favorable ruling, operators face regulatory uncertainty until the litigation reaches its ultimate conclusion. The consortium may still petition the Illinois Supreme Court for review of the preliminary injunction. Once the preliminary injunction appeals conclude, the merits of the case must still be decided. Litigation on the merits could take months or years to finish its course through the trial court and subsequent appeals.
The Lingering Effects
The consortium's litigation has prolonged shale development in Illinois. Operators have requested no hydraulic fracturing permits, even though the DNR's regulations have been in force for almost eight months.1 In a state where only two rigs are currently operating,2 operators cannot take the risk of developing costly shale assets without assurance that they will be able to hydraulically fracture wells under the DNR's regulations.
Illinois' production numbers further confirm the need for shale development. Illinois oil production has dwindled over the past 35 years.3 In large part, Illinois oil production has decreased because of a reliance on conventional plays in relatively shallow formations.4
Illinois has never been a large natural gas player, but even so, gas production dramatically decreased from 5,270mcf in 1969 to 170mcf in 2006.[5] However, Illinois gas production clawed back to 2,887mcf in 2013.
Illinois' future as an oil-and-gas-producing state depends on the successful deployment of the DNR's hydraulic fracturing rules to unlock shale development. Unfortunately, litigation has stalled the state's effective and efficient regulation of hydraulic fracturing and has placed an effective moratorium on shale development until the litigation's resolution.
Footnotes
[1] Lance Duroni, Ill. Appeals Court Won't Halt State Fracking Rules, Law360 (July 13, 2015), http://www.law360.com/environmental/articles/678384?utm_source=shared-articles&utm_medium=email&utm_campaign=shared-articles.
[2] Baker Hughes U.S. Rig Count – Year to Year Comparison for Oil, Baker Hughes, http://gis.bakerhughesdirect.com/Reports/YearToYearCompChart.aspx?chrtName=prdOilChrt (last visited July 14, 2015).
[3] Illinois Field Production of Crude Oil, Energy Info. Admin. (June 30, 2015), http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpil1&f=a.
[4] About Oil and Gas in Illinois, Ill. Dept. of Nat. Res., http://www.dnr.illinois.gov/OilandGas/Pages/AboutOilAndGasInIllinois.aspx (last visited July 14, 2015).
[5] Illinois Natural Gas Gross Withdrawals, Energy Info. Admin. (June 30, 2015), http://www.eia.gov/dnav/ng/hist/n9010il2a.htm. ("[A] spokesman for the [DNR] told Law360 that the agency still has yet to receive a fracking permit application.")
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