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Antrim Shale Stocks

Michigan's Natural Gas Play

Written by Brian Hicks
Posted October 23, 2013

Michigan has been one of the hardest hit states since the 2008 economic crash. The cities of Detroit and Flint are considered the most dangerous cities in the United States. Detroit is notorious for its urban and suburban decay, and the growing rate of poverty and unemployment continues to plague the state.

But the Antrim shale could be a saving grace – if there is enough investment.

If the Antrim is developed, it could foster 46,000 jobs by 2020.

Shale development has proven that it can have positive effects on local economies and state treasuries, while benefiting the national economy as a whole. South Texas was once known for poverty and stagnant growth; now it is one of the most prosperous areas in Texas.

And I believe Michigan can vastly benefit from better shale enrichment as well.

But there are some barriers.

First and foremost, Michigan is not known for its shale oil reserves, which has been the key to unlocking a flourishing economy in many states around the country. This isn’t to say that natural gas cannot uplift local communities, but prices are still low to begin major production. Currently, natural gas prices are $3.67 MM/BTU.

Since natural gas prices have dropped below profitable levels in recent years, some gas producers have lost interest in the region. And most of the excitement in the domestic production sphere has been on shale oil.

The Antrim is not only being crowded out by other shale landscapes like the Bakken and the Eagle Ford, but other shale gas plays like the Utica shale and the Marcellus shale are gaining more attention as well.

The Antrim went from 1,446 permits in 2006 to just 43 in 2011. Within the past two years, Chevron (NYSE: CVX) was the only major energy company to increase gas production in Michigan.

Antrim Makeup

Production in the region may be dwindling, but the Antrim has a long history going back to the 1940s. As technology improved throughout the 1970s and 80s, the area became a serious drilling spot. Estimates hold that 7 trillion cubic feet of recoverable natural gas lies in the Antrim.

The area stretches 39,000 square miles and covers most of Michigan and portions of Indiana and Ohio.  The area is a fairly seasoned hotspot, with over 9,000 wells drilled throughout the region. The play is known for its shallow composition – making the area an inexpensive endeavor.

Production was at 131 bcf in 2008 but slowed to 85 bcf in 2011. And there are projections that production could slow even further to 62 bcf by 2020, but this is contingent upon the price of natural gas. If natural gas prices rise to $5 or above, you could see much more investment and drilling activity in the future.

So What’s the Bottom Line?

What you’re going to see are smaller energy companies drilling in the Antrim. Major companies are few and far between – focusing on other plays on the East Coast.

It seems like the Antrim will be a good play as natural gas prices rise, but with forecasts showing that production will slow down, this is not a good sign going forward.

But if you’re looking for an area with little competition between companies, you found the right place, since there is a smidge of drilling activity going on in the Antrim. Cadence Resources Corp. intends to purchase 11 wells from an unnamed company in northern Michigan. The deal covers 5,000 acres and 500 million cubic feet per day. The company also plans to dewater 12 more wells and bring 22 online.

This area has the potential to be profitable in the future, but it will take much longer, since there are other options around the Midwest and East Coast.

If you’re looking for hot natural gas zones throughout the nation, turn to the Utica shale, encompassing most of Eastern Ohio and Pennsylvania. Workers are have been flocking to these states, and major companies like Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) are making massive gains in the Midwest.

The Marcellus has been held back somewhat by a moratorium on fracking in New York, and East Coast producers are still looking for open markets, but there is still plenty of interest from the likes of Chesapeake Energy (NYSE: CHK) and EOG Resources (NYSE: EOG).

But the best bet when investing domestically will be in shale oil. EOG has been one of the largest producers in South Texas, and other major companies have been successful in North Dakota.

The Antrim will eventually become lucrative, most likely within the next decade.

For now, at least, energy companies are putting this play on the back burner.

 

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