Say Hello To The Collingwood Shale

By Eric Fox | May 18, 2010 AAA

The exploration and production industry is moving to develop the Collingwood Shale, yet another unconventional resource basin where several companies have been quietly accumulating acreage over the past few years.

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The Collingwood Shale is present in the northern section of Michigan, at varying depths and produces mostly natural gas, with some liquids and condensate also present.

First Movers
EnCana Corp. (NYSE:ECA) announced in early May 2010, that the company had accumulated a position of 250,000 net acres in the play at an average price of $150 per acre. The company has disclosed one completed well to date, which flowed at a 30-day initial production rate of 2.5 million cubic feet per day.

The company has seven-year leases in several different counties in Lower Peninsula of Michigan, with the bulk of the acreage located in Cheboygan, Kalkaska and Missaukee Counties.

Atlas Energy (Nasdaq:ATLS) also has acreage here and calls the play the Collingwood Utica Shale, as the Utica Shale is also present at a shallower depth on the acreage. Atlas Energy has 70,000 net acres exposed to the Collingwood Utica Shale, and has 83% of the leases held by production.

BreitBurn Energy Partners L.P. (Nasdaq:BBEP) has 470,000 net acres in Michigan, and believes that 90,000 net acres are prospective for the Collingwood Utica Shale. The company also has much of its acreage held by production.

BreitBurn Energy Partners L.P also owns significant infrastructure all over Michigan, including pipelines, compression facilities and gas gathering lines.

A derivative play on the Collingwood Utica Shale is through ownership of Quicksilver Resources (NYSE:KWK), which owns 17.7 million units, or 33% of BreitBurn Energy Partners L.P.

Auction Results
The industry excitement over the Collingwood/Utica Shale can be seen in the results of a recent auction by Michigan of oil and gas rights in the state. The sale netted $178 million in bonus payments for the state, the highest ever, and breaking the record of $23.6 million set in 1981.

The average price paid for acre in the auction was $1,507 per acre, up from $26 per acre in previous auctions. The highest price paid was $5,500 per acre.

One more statistic should put these results in proper perspective. The Michigan Department of Natural Resources and Environment noted that the sum total of all bonus payments received in every auction since 1929 totaled only $190 million.

The Antrim Shale
The Collingwood Shale is not the only shale in Michigan, as the industry has been exploiting the Antrim Shale for many years, and the formation has produced more than 2.6 Tcf of gas since development began.

Atlas Energy has 522 Bcfe of proved reserves in the Antrim Shale, and has 2,400 producing wells from this formation.

BreitBurn Energy Partners L.P is also a large player in Michigan and the Antrim Shale, and had 59% of its production from Michigan in 2009. The company reported proved reserves of 76.2 million barrels oil equivalent in Michigan at the end of 2009.

The Bottom Line
Energy investors who thought they had all the various oil and natural gas shale plays all figured out may now have to hit the books again, as the industry focuses in on the Collingwood Shale, an unconventional resource play in northern Michigan. (For more oil and gas updates, see New Brunswick Attracts The Oil And Gas Industry.)

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