Encana, several other producers developing Collingwood shale

Several E&P companies, including Canada’s Encana Corp. are moving forward with plans to develop yet another unconventional resource play – the Collingwood shale in Michigan. Encana, along with Atlas Energy and Breitburn Energy Partners, have been quietly acquiring acreage in the Collingwood for several years. Quicksilver Resources owns about 33% of Breitburn.

Over the past two years, Calgary-based Encana has assembled a significant land position on the promising new natural gas shale play located in several different counties in the Lower Peninsula of Michigan. The company’s first exploration well, drilled by Encana subsidiary Petoskey Exploration LLC, based in Denver, delivered encouraging test results. It is a 5,000-ft horizontal penetration that targeted the Collingwood shale at 9,500 feet true vertical depth. Petoskey’s Pioneer 1-3 is in 3-24n-7w, Missaukee County, 30 miles southeast of Traverse City.

“Natural gas is being produced primarily from the Collingwood shale, with contribution from the overlying Utica shale,” Encana said. “With further drilling we hope to demonstrate stronger gas rates as we optimize well completion practices and prove up rich liquids potential in some parts of the play.”

Collingwood, a shaly limestone about 40 feet thick, lies just above the Ordovician Trenton formation. The Michigan basin extends into Ontario, Canada, where oil and gas regulators were said to be studying its potential.

Encana has acquired about 250,000 net acres of land on the Collingwood shale play at an average cost of about $150 per acre, well below prices paid at the state’s most recent land sale in early May 2010.

“In keeping with our approach of quietly assembling large land positions on promising unconventional natural gas plays, our substantial Michigan shale position has the potential to add meaningful future resources and production to our North American portfolio of prolific resource plays,” said Randy Eresman, Encana’s president and CEO.

“Our first well flowed during a 30-day initial production test at about 2.5 million cubic feet per day, including natural gas liquids constituents and condensate,” Eresman added. “With further drilling we hope to demonstrate stronger gas rates as we optimize well completion practices and prove up rich liquids potential in some parts of the play. It’s too early to know the economic potential of this new Collingwood shale play, but we plan to drill additional exploration wells this year that will help determine the play’s ultimate potential.”

An Encana subsidiary first acquired lands in Michigan in 2008 and added to its position during subsequent state land sales. To date, the company has acquired oil and gas leases, which have tenure of seven years, in seven counties in the Lower Peninsula of Michigan, largely in the counties of Cheboygan, Kalkaska, and Missaukee.

Michigan has a long history of natural gas and oil development dating back to the 1930s and a well-established regulatory and land tenure system. Natural gas production in Michigan is about 400 million cubic feet per day.

Ross Smith Energy Group reports the Middle Ordovician Collingwood is sandwiched between the Trenton Black River limestone (below) and the Utica shale (above) in the northern third of Michigan. Potentially, the play could stretch across an attractive swath of Michigan’s Lower Peninsula. Encana’s leasehold covers parts of seven Michigan counties.

Atlas Energy has acreage in the region in what it calls the “Collingwood Utica Shale.” The Utica Shale is also present at a shallower depth on the acreage. Atlas 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. 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 owns significant infrastructure all over Michigan, including pipelines, compression facilities, and gas gathering lines.
The industry excitement over the Collingwood/Utica Shale can be seen in the results of a recent auction by the State of Michigan of oil and gas rights in the state. The sale netted $178 million in bonus payments for the state, the highest ever, 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.
The Collingwood Shale is not the only shale in Michigan, as the industry has been exploiting the Antrim Shale for many years. The formation has produced more than 2.6 tcf of gas since development began.

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