Investigative
12:00 am
Mon September 27, 2010

Companies buy up drilling rights in Michigan: Part 1

Michigan could be seeing the beginning of a new boom in drilling for natural gas. Leases for drilling rights are going for unheard of prices in northern-lower Michigan.

Drilling for natural gas in Michigan is not new. The first natural gas production began in the 1930s according to the Michigan Public Service Commission. Since then we've seen drilling booms come and go.

Now, Michigan could be on the verge of another natural gas drilling boom to help meet U.S. energy demands. Gas reserves have been discovered in a deeper layer of shale. Getting to it requires extraction technology called horizontal hydraulic fracturing, or horizontal fracking.

"Well we've had just one actual exploratory well drilled so far for what we call the Collingwood shale. That's the deep shale gas formation. We don't know exactly how far it's going to go from here, but certainly got a lot of potential," says Hal Fitch who heads up the Department of Natural Resources and Environment's Geological Survey Division. He says there's enough potential to get oil and gas companies paying big money for leases.

"The Department had a big lease sale earlier this year. It almost equaled the total we brought in leases to date, dating back to 1929."

An auction for drilling leases on state-owned property was held in May. It brought in $178,000,000. That's almost as much as all the revenue from all the leases from 1929 to May of this year. You can add to that even more money coming to the state for leases of privately owned land.

The first exploratory well is in Missaukee County about 20 miles east of Cadillac, Michigan. It's not too far from Houghton Lake. The gas well is being developed by a Canadian company, EnCana Corporation.

"We are actually in the process of drilling a second exploratory well in Cheboygan County. This is very exploratory at this point. We're going to see, looking at these wells, how they do and whether we feel that based on the results we have a commercial operation going forward," says Doug Houck, a spokesman for EnCana.

If it's going to work, EnCana and other gas extraction companies plan to use that horizontal hydraulic fracturing method. That has a lot of people concerned. In other states, such as Pennsylvania and Wyoming where horizontal fracking has been used, residents and environmentalists complain about water contamination from the solutions used in the fracking process.

There's also concern about the massive amounts of water needed for horizontal fracking. The practice uses about five million gallons per well.

The environmental groups we talked to in Michigan are cautious. They're not calling for a moratorium on the drilling - yet. But they want to make sure we can do it safely.

"The extraction of gas in Michigan brings plenty of benefits. It brings jobs. It creates homegrown energy that we can use in Michigan, unlike coal and oil that all has to be trucked in mostly. So there are benefits," says Hugh McDiarmid of the Michigan Environmental Council.

Environmentalists say they want to make sure we know what we're getting into.

This week Michigan Watch talks with an investigative reporter at ProPublica, Abrahm Lustgarten who's been covering horizontal fracking and water contamination issues in states across the country.

"Gas is a wonderful resource and it's very important to the United States. Water is as well. And to discount the importance of water in the short term, to assume without any scientific knowledge that water will be protected or it's not at risk, makes the country and makes the state of Michigan and other states vulnerable to having made a great mistake and possibly regretting not implementing some small and simple steps that could have protected that resource in the first place," says Lustgarten.

In our series, we'll look at some of the risks and precautions Michigan might consider before a boom for natural gas using horizontal fracking begins in the state.

More Resources
ProPublica's vast coverage of horizontal fracking
Michigan DNRE paper on horizontal fracking (pdf)
A second Michigan DNRE paper on horizontal fracking (pdf)

Michigan Environmental Council on Fracking

Michigan Association of Professional Landmen

Encana Corporation
Michigan Oil and Gas Association