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Published: Sunday, 12/9/2012 - Updated: 1 year ago

Oil, gas fields pump cash to property owners in Irish Hills area

BY DAVID PATCH
BLADE STAFF WRITER
An oil well operates on a site near Hunt Road and Lenawee Hills Highway near Adrian. A combined 1.6 million barrels were drawn last year from the Adrian field and Napoleon Township oil field in the Irish Hills region. An oil well operates on a site near Hunt Road and Lenawee Hills Highway near Adrian. A combined 1.6 million barrels were drawn last year from the Adrian field and Napoleon Township oil field in the Irish Hills region.
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ADRIAN — When Dori Durbin bought her childhood home on Knight Highway from her father five years ago, she had no idea it sat on anything but fertile soil.

But that was before prospectors from Savoy Energy came around her part of Adrian Township with offers for rights to the oil and gas they had determined was deep underground.

“We said, ‘What? Why? There’s no oil here,’ ” Ms. Durbin said last week.

Now the wells across the street pump up tens of thousands of barrels of oil annually, of which some presumably is drawn from the rock formations below Ms. Durbin’s 1860s-vintage house, which is being renovated.

Royalty checks don’t cover the renovation’s entire cost, “but it’s helping,” Ms. Durbin said. Even more importantly, she said, are the investments her family is making with oil money.

“It’s a gift, really,” she said. “We don’t know how long it will last. Will it be for months? Will it be for years? We hope we are investing it right. ... When we found out about anything more than crops coming out of the ground, we were shocked.”

Dori Durbin says royalties from the wells across the street from her Adrian Township home are helping. Dori Durbin says royalties from the wells across the street from her Adrian Township home are helping.
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For most, it’s not a financial bonanza, but payments to property owners along the path of two developing oil fields in central and northwest Lenawee County — fields that a state engineer said may prove to be linked — are helping make ends meet in this rural area.

“You’re not going to go out and buy a car, but we got a new TV, and I bought my husband a leaf blower,” said Cathy Foreman, whose five acres on Moore Road are also covered by an oil lease from Traverse City-based Savoy Energy LLP.

Financial windfall

For larger landowners, however, oil royalties could be generating six figures per month, Adrian City Administrator Dane Nelson said.

Oil from a well producing Michigan’s maximum of 200 barrels per day would fetch $16,000 per day, assuming a market price of $80 per barrel. Even after exploration and operating costs are factored in, that would produce a tidy income for a landowner receiving one-eighth of the proceeds, which Mr. Nelson said is a fairly standard royalty.

A tanker leaves a facility near Adrian. As of 2010, the U.S. government says the nation uses about 19 million barrels of oil a day. A tanker leaves a facility near Adrian. As of 2010, the U.S. government says the nation uses about 19 million barrels of oil a day.
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The combined 1.6 million barrels drawn last year from the Adrian field and nearby Napoleon Township oil field, in the Irish Hills region of Lenawee and Jackson counties, accounted for nearly one quarter of oil production in Michigan, according to the state Department of Environmental Quality.

That number is just a few drops in the national oil-consumption bucket, however: According to the federal government, the United States consumes about 19 million barrels of oil a day, as estimated in 2010.

Pat Gibson, vice president for land and legal at West Bay Exploration, also based in Traverse City, and the developer of the Napoleon field, said that as of early this year, his company had paid out more than $20 million in royalties to Irish Hills landowners since late 2008, when its first wells there began producing oil.

Both that action and Savoy’s wells in the Adrian area have been made possible, Mr. Gibson said, by technological advances in exploration and drilling.

But a technique called hydraulic fracturing, or fracking, which has stirred controversy in recently developed oil and gas fields in eastern Ohio and Pennsylvania, is not being used in southeast Michigan, he said.

“The rock is very porous and has naturally occurring fractures,” Mr. Gibson said. If anything, he said, fracking the rock could clog the natural pathways that oil and gas have followed to get to West Bay’s wells.

Three-dimensional seismic imaging, in which small explosions or “thumper” trucks create vibration in the ground that is picked up by electrodes and analyzed by computers, has vastly improved oil prospectors’ ability to pinpoint likely oil-bearing rock formations nearly a mile deep.

“The shock waves ricochet around the various rock layers” and create a picture of where fault lines are, said Bob Eisthen, an equity analyst specializing in the oil industry with Bartlett & Co. in Cincinnati.

Directional drilling, meanwhile, allows prospectors to cover larger areas from each well site. The drilling mechanism uses advanced, flexible materials that can be controlled and bent from the surface, Mr. Eisthen said.

Geological roots

The Napoleon and Adrian oil fields are both part of the Trenton-Black River geological formation, which includes the Albion-Scipio oil field in Hillsdale and Calhoun counties. At 100 million barrels recovered, mostly during the 1950s, that was the most prolific oil field in Michigan history, Mr. Gibson said.

Just to the east of Albion-Scipio, the Stony Point oil field — also in Hillsdale County — produced about 14 million barrels during the 1980s, he said, and five years ago, between 30 and 40 wells were sunk into the Rice Creek area of Hillsdale.

“Based on that knowledge, we looked into the Irish Hills area,” Mr. Gibson said.

State drilling maps show numerous wells, many of them dry but with a few that produced oil or gas, throughout southeast Michigan.

One small cluster of older producing wells, all plugged now, was drilled during the 1920s and 1930s along Monroe County’s western edge, northwest of Petersburg along the Monroe Anticline, a rock channel that Mr. Gibson said was a historic pathway for oil that migrated south from Michigan into what became the oil fields of the Findlay and Lima areas during the 19th century.

With the current wells, they should produce at peak rates for about five years each, then at lower volume for an additional 15 years, Mr. Gibson said.

Mr. Nelson, who has lived in the Adrian area for all but the first of his 63 years, said the presence of oil around town was no surprise to him, either, because his work as a local lawyer occasionally included drafting exploration-related documents.

“The oil companies were always looking for a place” to search for oil, he said.

Savoy Energy and West Bay Exploration, both based in Traverse Bay, Mich., have oil operations in Lenawee and Jackson counties. Pat Gibson of West Bay says no fracking is being used to extract energy. Savoy Energy and West Bay Exploration, both based in Traverse Bay, Mich., have oil operations in Lenawee and Jackson counties. Pat Gibson of West Bay says no fracking is being used to extract energy.
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So far, Mr. Gibson said, 50 of the 51 wells West Bay has drilled in the Irish Hills region have been successful, and directional drilling allows the company to work the entire Napoleon formation — about 15 miles long and between a half-mile and a mile wide — free of conflict with the region’s lakes and cottages.

Recent projects

Fewer wells — about two dozen — have been drilled in the three years of exploring in the Adrian area, but as in the Napoleon field, drilling continues near Adrian.

Consolidated Drilling, a Savoy contractor, late last month began drilling a well on city of Adrian property along M-52 on the city’s north side, days after a Nov. 23 accident at a drilling site in the city’s Heritage Park in which a worker was injured.

The Michigan Occupational Safety and Health Administration is investigating the accident, in which a drilling tower partially collapsed during high wind. The 38-year-old male worker, still not publicly identified, was released from a hospital the next day, Adrian Police Chief Scott Lambka said.

Mr. Nelson said he believes the Heritage Park well proved to be a “dry hole,” producing only water, and Savoy was in the process of repositioning equipment and seeking a revised permit to drill in a different direction from it when the accident occurred. Savoy officials did not respond to phone messages seeking comment.

Adrian stands to get a better-than-normal royalty — about one-sixth — from any oil recovered from under city property, Mr. Nelson said. All of Adrian’s public oil rights are leased to Savoy, he said, with the land leases for exploration and drilling already having fetched about $500,000 for the city.

“With all the acreage we had to offer, we had a little more leverage” to get a good price, the city administrator said.

Ms. Foreman and Ms. Durbin said watching the oil-drilling process was educational for their children, both from a science perspective as well as, in Ms. Foreman’s eyes, “watching capitalism work.”

Savoy, Ms. Foreman added, has been “very good about restoring the temporary roads” it built across fields to reach drilling sites, and while the exploration activity has brought increased truck traffic to the countryside, the company has improved rural dirt roads to support that traffic.

“They’ve got more gravel than the county ever had,” Ms. Foreman said.

Among those interested to know what the newest well produces is David Welke, who lives and operates his business, Wizz Computers, on the opposite side of M-52.

“I’ll be glad when they’re done drilling, because those generators are going 24 hours a day,” Mr. Welke said Wednesday before expressing amazement at how quickly the drilling crew got its equipment up and running across the street.

Mr. Nelson said the newest well likely would take about 10 days to drill, which would run to early this week.

Mr. Welke wasn’t yet sure how he might benefit from the oil play.

“We’ll see if they find anything first. I figured you have to sign the lease, because if you don’t, everybody else makes money, but you don’t,” he said. “... I hope they find something, not just because I would make some money, but because the more we find and utilize here, the less we depend on foreign oil.”

Staff writer Federico Martinez contributed to this report.

Contact David Patch at: dpatch@theblade.com or 419-724-6094.



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