The Collingwood Shale Gets Its Footing

By Eric Fox | September 07, 2010 AAA

The Collingwood Shale saw development during the second quarter of 2010, as the exploration and production industry moved into newer and lower-profile shale plays, trying to find the next big shale gusher in North America.
As the competition for leases in well-known shale plays has intensified, the industry has scoured the continent looking for shale formations that can be commercially developed. One of the areas the industry has focused on is the Collingwood Shale in Michigan, where several exploration and production companies have assembled large acreage positions.

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Big Auction Of Leases

The excitement over this play can best be seen in the results of an auction of leases held by Michigan back in May 2010, which netted $178 million in winning bids for the state. This total in one auction was almost equal to all the proceeds received by Michigan from every oil and gas lease sale over the last 80-plus years.

The Players

EnCana (NYSE: ECA) has spent the last two years building up a position in the Collingwood Shale in Michigan, where the company now has 250,000 net acres under lease. EnCana drilled one exploration well here during the Q2, and it reported that the well flowed at an average of 2.5 million cubic feet per day during the first 30 days. Even more important for EnCana is that the well produced natural gas liquids and condensate along with natural gas.

During the conference call, EnCana said that the well was "sub-commercial", but the company was encouraged by some of the well's technical aspects and would continue development and acquire acreage in the play.

Additional Players Moving In

Atlas Energy (Nasdaq: ATLS) is also moving to develop the Collingwood Shale in Michigan. The company has 105,000 net acres prospective for the play, and it reports that about half this acreage is already held by production due to the company's production from the Antrim Shale. Atlas Energy plans to drill and complete two horizontal wells into the Collingwood Shale during 2010.

BreitBurn Energy Partners (Nasdaq: BBEP) already has 59% of its total production coming from Michigan through development of the Antrim Shale. The company recently raised its acreage position that is prospective for the Collingwood Shale to 120,000 net acres.

BreitBurn hasn't disclosed any development yet of its acreage here, and it said during the Q2 conference call that the company was "evaluating a number of options on how best to proceed". Quicksilver Resources (NYSE: KWK) owns approximately a 33% interest in BreitBurn.

Bottom Line

The Collingwood Shale has drawn the interest of some operators in the exploration and production industry, as competition has increased acreage in more developed plays and pushes prices higher. (To learn more, see The Industry Handbook: The Oil Services Industry.)

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