By Eartha Melzer
Sun contributor

As natural gas companies prepare to prospect in northern Michigan, experts are warning landowners to be careful about selling off mineral rights.

When the state took in an all-time record $178 million in a mineral rights auction back in May, it became apparent that natural gas companies see new opportunities in a shale formation that lies like a bowl under much of northwest-lower Michigan.

Up until May gas companies had been offering landowners around $150 per acre for mineral rights, but when bidding against each other for the right to drill on state land, the companies were willing to pay far more — an average of about $1,500 per acre. One parcel in Charlevoix County went for $5,500 per acre.

This wave of investment from the gas companies was touched off by the results of an exploratory well drilled this year in Missaukee County, about 30 miles southeast of Traverse City.

That well, which is named Pioneer, was drilled by Denver-based Petoskey Exploration, a subsidiary of the Calgary-based Encana corporation, and unlike the natural gas wells tapped into the Antrim shale formation (between 600-2,2000 feet deep) across northern Michigan in the 1980s, Pioneer went down 9,685 feet and then drilled horizontally into the Collingswood shale formation for 5,000 feet.

According to Encana president and CEO, Randy Eresman, an initial 30-day production test at the well yielded about 2.5 million cubic feet of natural gas per day.

The practice of extracting natural gas through horizontal wells drilled deep into shale formations is known as “hydrofracking,” and has generated controversy in other regions of the country such as Pennsylvania, Colorado and Wyoming, where it has been associated with toxic spills and well contamination.

In Colorado Encana was fined $370,000 by the Colorado Oil and Gas Conservation Commission (COGCC) for flawed drilling practices that residents say caused methane and benzene contamination of Divide Creek in the northwestern part of the state.

Deep shale has less organic content that the shallower layers previously exploited. The gas in these areas is stored in micropores, and in order to extract it in commercially viable quantities the shale must be fractured.

The process involves drilling a hole deep into the earth and lining it with cement — this cement is a safety measure that is intended to prevent hydrocarbons and other materials from mixing into the water table. Billions of gallons of water, mixed with chemicals, are then forced into the well under high pressure in order to fracture the shale and release gas trapped inside.

The surge of gas company interest in local mineral rights prompted the Michigan State University Extension office to sponsor an information forum on hydrofracking and mineral rights at Northwestern Michigan College’s Hagerty Center in Traverse City on June 24.

“I’m proud to say that I helped design the frack job at the Pioneer well,” Darel Willison, a salesman and technical advisor for Superior Well Services of Gaylord told the crowd.

Willison insisted that hydrofracking is well regulated and that his company uses environmentally safe chemicals. He described fracking as a highly efficient industrial process, and he showed a photo of an array of about 25 semi trucks that were used to pump the water into the ground at the Pioneer well.

“We worked around the clock for eight days and eight nights for the frack job at Pioneer,“ he said, “When we frack these you can imagine the amount of traffic you are going to see on your roads. It costs a lot of money to put trucks on location and those trucks got to be rolling around the clock so that we can make money.”

Environmental consultant and former state regulator Chris Grobbel, another panelist at the forum, warned that fracking fluid can contain toxic substances and that the water that flows back up and out of the well can contain hazardous substances including heavy metals, hydrocarbons and radionuclide.

“It is hard to know what is going to be added to the [fracking fluid]” he said, “And there are toxic materials that are guaranteed to be in the return flow. Some of the naturally occurring materials are toxic at very low levels.”

Attorneys Phil Rosi of Traverse City and Dave Porteous of Reed City said that the landowners who are considering leasing their mineral rights should take care to ensure that the contract they sign has provisions for who will be responsible for cleanup in the event of land or water contamination.

David Schweikhardt of Michigan State University’s (MSU) Department of Food Agriculture and Resource Economics cautioned the over 200 locals in attendance at the forum that it is very difficult to negotiate a good mineral rights contract without expert assistance, and he warned that Michigan does not regulate oil and gas contracts.

Presentations from MSU Extension’s oil and natural gas leasing program are available online at www.msue.msu.edu/portal/default.cfm?pageset_id=27320.

Have you been approached by gas companies interested in drilling on your land? Write to us at editorial@glenarborsun.com.

This entry was posted on Wednesday, June 30th, 2010 at 10:33 am and is filed under Investigative Article. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.