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Shale Plays Gone Wild - The Antrim Shale

Posted: Apr 09, 2009 13:04 PM by Eric Fox

Tickers in this Article: DTE, AOG, SE, BBEP, WLL, ATN

When energy investors discuss new shale plays in North America, it's probably safe to say that Michigan is usually not an area that gets a lot of focus, yet the Antrim Shale has been producing for many years. It underlies part of the state and continues to attract exploration and development companies into the area.

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Geology
The Antrim Shale is in the Northern Michigan Basin, and is a mature area that has been producing since the 1940s, with over 9,382 wells producing natural gas as of the end of 2007. Like other shale plays, the Antrim Shale is from the late Devonian age, but is shallower in Michigan, ranging in depth from 400 to 2,500 feet. Wells drilled into the shale are relatively inexpensive, with an average cost of approximately $350,000 in late 2008.

In 2005, the United States Geological Survey (USGS) estimated that the Antrim Shale contained an estimated mean of 7 trillion cubic feet of undiscovered, recoverable gas. (You might want to check out Peak Oil: What To Do When The Wells Run Dry.)

Active Companies
The most active company in the Antrim Shale is Atlas Energy Resources (NYSE:ATN), which bought into the area in 2007 through the purchase of properties from DTE Energy Company (NYSE:DTE). The company now has 2,440 producing wells on its acreage and has identified 760 possible drilling sites. At the end of 2008, the company had total proved reserves of 627.2 Bcf in Michigan, according to a February 25, 2009 press release.

Whiting Petroleum (NYSE:WLL) is also active in the Michigan Basin, where the company has 4% of its proved reserves at the end of 2008. The properties here are not really a core focus for Whiting. In 2009, the company expects on spending only 7% of its planned capital expenditures of $474 million in the area designated as mid-continent, which includes Michigan.

The Antrim Shale is also a low cost area to drill. BreitBurn Energy Partners, L.P. (Nasdaq:BBEP) has reserves in the shale and said during a recent conference that it could earn a 10% internal rate of return at a NYMEX price of $4.20 per Mmbtu. The company drilled 115 wells there in 2008. A micro cap company that is involved in the area is Aurora Oil and Gas (NYSE:AOG). The company has 134,000 net acres under lease, and has 71.7 Bcf of proved reserves on that acreage.

Spectra Energy Corp (NYSE:SE) is a major operator of pipelines, transmission, storage and distribution assets throughout the U.S. The company recently purchased assets in the northern part of the Michigan Basin for $145 million. It is important to have adequate infrastructure to handle the increased drilling in the area. Although the Antrim Shale won't be the answer to America's dependence on imports of energy, the area has attractive characteristics including low cost, shallow drilling and is economically attractive at current low prices. (Drill down into financial statements to tap into the right companies and let returns flow, read Unearth Profits In Oil Exploration And Production.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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