The search for future energy supplies has led the exploration and production industry to the A-1 carbonate formation present in parts of Michigan. The interest in this play demonstrates the extent to which the onshore United States is being picked over by the industry.
Investopedia Markets: Explore the best one-stop source for financial news, quotes, and insights.
Michigan Oil and Gas
Although Michigan is not known for being a major center of oil and gas activity, oil was first found here in the 1880's and the first commercial well was discovered in 1925 in the Lower Peninsula area. Production peaked in the late 1970's and most current activity and production in Michigan are from the Antrim Shale formation. The industry has known about the Michigan A-1 carbonate for many yearsm, as this formation was the source rock for the Niagaran Reef play, a prolific play that has been producing for decades.
Devon Energy (NYSE:DVN) has a new ventures group within the company to evaluate new areas to invest. This group has 1.1 million acres under purview, a budget of $350 million and plans to drill 30 exploratory wells in 2011.
Devon Energy has identified the A-1 carbonate as one of these new venture plays, and has a 300,000-net-acre position in the Michigan Basin that is prospective for this formation. Devon Energy has drilled two vertical wells into the A-1 carbonate and is currently analyzing the data before proceeding further.
No other public companies have disclosed any leasehold in Michigan prospective for the A-1 carbonate formation. There are a number of operators that are active in Michigan that might have rights to this formation through acreage that is held by production.
Atlas Energy was a large operator in Michigan with several hundred thousand acres under lease and existing production from the Antrim Shale. The company touted some of this acreage as prospective for the Utica and Collingwood Shale. Atlas Energy was purchased by Chevron (NYSE:CVX) in early 2011.
BreitBurn Energy Partners (Nasdaq:BBEP) also has extensive operations in Michigan and reported that 59% of the company's total production originated from here in 2010. The company lists some exposure to the Utica and Collingwood Shale in its marketing presentation but doesn't mention a carbonate play in Michigan.
Continental Resources (NYSE:CLR) has a small position in Michigan and back in 2007 it was developing the Trenton Black River formation. The company has since moved on to better opportunities in the Bakken and Cana Woodford, but still held 58,000 net acres in Michigan at the end of 2010.
Chesapeake Energy (NYSE:CHK) assembled a large position in Michigan several years ago as interest spiked in the Collingwood Shale. The company has now found better opportunities in the Utica Shale in Ohio.
EnCana (NYSE:ECA) also put together a large leasehold in Michigan to test the Collingwood Shale. The company holds 425,000 net acres here and is drilling two wells with first results expected in the third quarter of 2011.
The Bottom Line
Although investors should be wary about assigning too much value to undeveloped oil and gas plays, the proficiency of Devon Energy in finding new sources of oil and gas suggests that the A-1 carbonate formation will likely be successful. (For additional reading, take a look at A Guide To Investing In Oil Markets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!