A bipartisan group of Michigan House lawmakers is urging its colleagues to consider ways to expand the use of natural gas, offer tax breaks to some oil producers, get regular reports on the state's infrastructure and capabilities for natural gas, and put more land with state-owned mineral rights up for oil and natural gas leasing.
A 25-page report released Tuesday by the House Subcommittee on Natural Gas recommended that the legislature pass a "lease or lose" law, which would set a deadline to compel the Michigan Department of Natural Resources (DNR) to auction 5.3 million acres for leasing. If the deadline isn't met, any state-owned mineral rights would automatically revert to the current surface owners. The DNR currently administers about 6,200 oil and natural gas leases on 714,821 acres.
"We need to look at expanding leases," subcommittee Chairman Aric Nesbitt (R-Lawton) told Michigan radio station WMUK on Wednesday. "We need to reevaluate the state's holding of [private property owners'] mineral interests. I'd like to figure out ways to reunite both the owner of the surface property with those mineral rights."
The subcommittee also has recommended that the legislature provide a 50% discount on the state's 6% severance tax for operators that use carbon dioxide (CO2) injection as an enhanced oil recovery method, a discount similar to those offered in Arkansas, Mississippi and Texas.
Other recommendations by the subcommittee include possibly having the DNR create a lease database for older, active oil and gas leases -- those entered into before July 1995 and on parcels larger than 160 acres -- to see if the parcels are being effectively managed. In addition, it wants to require the Michigan Public Service Commission (PSC) to work with gas utilities on outlining the state's gas infrastructure capabilities and where expansion may be needed in terms of storage and transmission.
In addition, lawmakers want regulators to analyze ways to streamline permitting and construction processes; ask PSC to develop a way for utilities to allocate and share the cost to extend gas mains and distribution services; and enact a sunset clause on the state's 2008 energy optimization program.
"Michigan currently has some of the toughest regulations in the nation," Nesbitt said. "We have a long history with development and exploration for both natural gas and oil and we have a good safety record. We need to maintain that stewardship in terms of ensuring that we have the regulations needed to ensure that we have the safe harvesting and responsible exploration of natural gas."
The House subcommittee members already have indicated that they were concerned about involvement by the U.S. Environmental Protection Agency (EPA) in fracking, asserting their belief that regulation is the dominion of states (see Daily GPI, April 19).
"There have been recent developments where the EPA is working to take over the state's role of regulating [fracking]," the subcommittee's members said. "[We need to] work to ensure that this continues to stay under the purview of the state government as has been the tradition for the past several decades...[We need to] protect Michigan's right to regulate drilling and gas production in Michigan at the state level...[and] ensure that federal officials know that the State of Michigan has numerous concerns with the EPA's proposals."
Meanwhile, six Democratic members of the state House introduced a bill (HB 5565) on Tuesday to require operators to fully disclose the chemicals they use in hydraulic fracturing (fracking) operations -- something similar to other states. Under the current version of the bill applicants for a well permit would be required to submit a list all of the ingredients used in their fracking fluids, and submit a master list of the chemicals every subsequent year as well. Items deemed a "trade secret" would be exempt, but anyone could challenge that designation. The bill, referred to the House Committee on Energy and Technology, also calls for operators to submit an evaluation as to whether there are any alternative treatments that could be used if they provide less potential risk to the public. A 60-day public notice period would precede any drilling.
Although the pace of drilling in Michigan has not kept up with other onshore unconventional plays, the state's Antrim, Collingwood and Utica shales are being targeted by several high-profile producers. Two test wells drilled in the Collingwood Shale -- a 40-foot thick formation located in the northern third of the state's Lower Peninsula and about 4,000-10,000 feet deep -- are producing 3.1 and 6.5 MMcf/d. Recent tests have found that 90 bbl of natural gas liquids are produced with every 1 MMcf of natural gas.
According to the subcommittee, gas-heavy producers Encana Corp., Chesapeake Energy Corp. and Bayside Energy Corp. are the largest leaseholders in Michigan. Encana reported last year that it had 425,000 net acres in the Collingwood/Utica Shale. Linn Energy LLC and Chevron Corp. are also big players in Michigan; the latter after buying Atlas Energy Inc. in 2010 (see Daily GPI, Nov. 10, 2010; March 24, 2010).
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