Encana intensifies shale oil exploration in Michigan

Encana is currently expanding its operations in Michigan, where a growing number of explorers have converged to tap shale resources. Encana, Canada’s biggest gas producer bought rights to drill gas and oil wells in the region through biddings held last month.  Chesapeake, which had amassed drilling rights in the same region a few years ago, no longer participated in the recent bids, citing decline in current crude oil prices and poor drilling outcomes as reasons for disinterest.

Chesapeake also disclosed that it is concentrating on other regions (Ohio, Texas, and Oklahoma), which it deems to have more potential.

However, Encana’s President for U.S. division, Jeff Wojahn, said that the firm’s drilling exploits in Michigan yielded favorable results. In fact, for 2012 alone, it plans to expand drillings to cover seven additional oil wells.

Collingwood Shale, a rock formation imbedded underneath more than ten districts in Northern Michigan,  forms part of the Michigan Basin that extends from parts of the US to Canadian territory. Based on a US survey, the part that is under US territory holds crude oil amounting to over 1 billion barrels, and gas of up to 11 trillion cubic feet.

Encana reportedly shelled out $185 per acre when it bought rights to explore more than 2,000 acres of land in Michigan. Some noted that the selling price represents a more than 80 percent discount on prices two years ago. At this very modest purchase price, the company may post positive ROI despite the steady decline in crude oil prices.

Lately though, there are negative reports circulating about the two companies.  Chesapeake and Encana allegedly conspired on bidding procedures for Michigan oil fields back in 2010.

A report from Reuters indicated that McClendon, Chesapeake’s former Chairman and Encana’s VP, discussed how bids will be allocated between the two companies. The properties which were auctioned off in 2010 consisted of Northern Michigan land leases held by the government. The source, according to Reuters, consisted of 3 e-mails between Chesapeake and Encana

David O’ Brien, Encana’s Board Chairman, has ordered a probe regarding these charges, and consequently announced that it cannot divulge any information until the probe is completed. On the other hand, Chesapeake said that these were all false allegations.

This year’s plunging gas and crude oil prices per barrel caused Chesapeake shares to nosedive by more than 20 percent. This was further aggravated by recent controversy about former Chairman McClendon’s borrowings from Chesapeake investment bankers using his holdings in the company’s oil wells as collateral.

Archie Dunham now sits as the new chairman of Chesapeake board.