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Exploring for Oil & Gas in Michigan

Key steps for exploring for oil & gas in Michigan

As tough as it is to get Michigan's oil and gas out of the ground - sometimes requiring drilling more than 2 miles below the surface of the earth - the real work is finding oil and gas deposits in sufficient quantities to make drilling and production cost-effective. There are several key steps that take place before a drilling rig is ever moved onto a location.

Identifying A Prospect
When the industry begins its search for new oil and gas, many things have to happen before a wildcat, or exploratory, well is drilled. A company relies on geology and geophysics, using the latest technological advancements to target a promising formation in an area that has never produced oil or gas. Although a wildcat well involves a high degree of risk - only about one out of every seven exploratory wells actually discovers enough gas or oil to be economically productive - success means a new source of energy has become available.

Mineral Rights and Leasing
Once a prospect has been identified, an oil and gas company must determine who owns the mineral rights to the area. In most cases, they are owned by the same person who owns the surface rights to the property. However, it is possible for mineral rights to be owned by someone else. These are known as severed mineral rights.

Once the mineral owner has been identified, a lease will be negotiated to give the company the right to enter the property to explore, develop and extract oil and gas from that property. The lease is a contract between the company and the owner of the mineral rights. The owner is paid an amount of money - called a bonus - when the lease is signed. In addition, some leases provide the mineral owner rental payment, normally paid annually, if no drilling has started or no royalty payments - based on the amount of oil and natural gas produced -are made. The lease also spells out the manner in which royalty payments are to be made. A successful venture can be highly profitable for the mineral rights owner. In recent years, oil and gas companies have paid more than $80 million annually in royalties to private mineral owners in Michigan.

Prior to drilling a well, an oil and gas company must get a drilling permit, which is issued by the Michigan Department of Environmental Quality (DEQ). The DEQ oversees, regulates, and manages oil and gas development in Michigan. Seeking a drilling permit, in many cases, also requires working with the following: Michigan Department of Natural Resources; the Michigan Public Service Commission; and the federal Environmental Protection Agency. To apply for a Permit to Drill, the company must be legally registered to do business in Michigan and must be bonded with the DEQ.

Drilling permit applications must provide full details of safety systems and structural integrity of the well design. Surveys of the location must address surface waters, floodplains, wetlands, natural rivers, critical dune areas, threatened or endangered species, and/or other environmentally sensitive areas. Other permit considerations proximity to any buildings, fresh water wells, public roads, pipelines and power lines.

Additional requirements include an Environmental Impact Assessment, landowner notification of drilling plans, and project descriptions for any soil erosion and sedimentation issues.

On state-owned lands, well site permits are required from the Department of Natural Resources, with well surface locations reviewed by both the State Forester and the State Wildlife Biologist.

Prior to final approval of a permit, a DEQ Field Geologist must review the drilling site. If wetlands or surface waters are nearby, there are further inspections by DEQ Land and Water management personnel, and/or fisheries experts.

Once leasing has been completed and a drilling permit has been issued by the DEQ, the drilling phase can begin. The oil and gas company must, under the oversight of the DEQ:

Establish a location. Select a drilling location, consisting of about one acre. The best sites provide minimal impact of the surface and can use existing roadways.

Prepare the location. The drill site is cleared and leveled; top soil is stockpiled at the edge of the location for use after drilling is completed.

Drill. When the location is prepared, a drilling rig and its associated equipment are moved onto the site. Normally, drilling activity is ongoing 24 hours a day and, depending on the depth of the well, can take anywhere from two to 60 days. Numerous safety procedures are followed to protect Michigan's other valuable natural resources - water, air and the surface.

Once drilling reaches its final depth, a decision is made to either complete the well for production or plug it as a dry hole. If the well is dry or unproductive, the well bore is plugged with cement, following the instructions of the DEQ. All the equipment is removed and the site is restored. In many cases, unless the drilling took place in a wooded area, the impact is not noticeable within a year.

If the well is determined to be a producer, the drilling rig is moved off the location and replaced with a smaller rig, known as a completion rig. Using the smaller rig, again under the oversight of the DEQ, the well bore is cleaned and the formation is treated to allow oil and gas to flow into the well bore and up to the surface. A facility is constructed that will include all production equipment necessary to safely produce oil and gas. A typical production facility will include the wellhead, flow lines from the wellhead to other equipment, storage tanks, dehydration and treating equipment, compressor and meter stations.

A well is ready for operation once the production equipment is in place. In an oil well, the oil is brought to the surface and placed in storage tanks on the site. If gas is produced, either with the oil or independently, it is metered and transported to market via pipelines that are regulated by the Michigan Public Service Commission. Oil is moved on a prearranged basis via truck. Once again, production activity is monitored - normally on a daily basis by the oil and gas company.

If an exploratory well is a producer, the company may want to drill additional wells. There are known as development wells. Engineers and geologists study cumulative production, reservoir pressures and other characteristics to determine whether additional drilling locations are needed.

Restoring the Site
Production continues until a well becomes uneconomical. At that time, the well is plugged and the site is restored to as near its original condition as is practical. Site restoration may include reseeding grass and planting vegetation, ground cover and trees to re-establish the original topography.