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Protests, plunging prices fuel drilling lull

Jim Lynch
The Detroit News
  • Legislators backed the oil industry by rejecting two bills aimed at regulating residential drilling
  • Plummeting fuel prices, community moratoriums create lull in clashes between towns, oil firms
  • Legislative defeat means residential drilling clashes will resurface when price of oil rises again

After a tumultuous summer, Michigan has experienced a lull in clashes between homeowners and oil and gas exploration companies.

The slowdown has resulted from plummeting fuel prices and several Metro Detroit governments enacting moratoriums on drilling projects. For some companies, the environment has proven inhospitable enough that pulling up stakes is the best move.

Encana Energy Corp. recently agreed to sell all of its oil and gas drilling rights, covering 234,000 acres across the state, to Marathon Oil. A spokesman for the Canadian company said Encanca was shifting its interest to Texas in the search of higher profit margins.

"With the price of oil dropping so much recently, a lot of companies are getting very conservative in their discretionary expenses," said Wayne Pennington, a professor of geological and mining engineering and sciences at Michigan Tech University.

Despite these developments, state legislators this past week sent a strong message to the oil and gas industry that it is welcome here, by rejecting two bills aimed at giving local communities more control over who drills for what and where.

The legislative defeat means residential drilling clashes are bound to resurface. The flare-ups between drillers and residents are likely to return when the price of oil eventually rises again, especially if communities have not addressed holes in their ordinances, Pennington said.

"We have to keep in mind that this will return," he said. "The price on oil and gas will not stay this low forever."

The issue particularly interests people like Jim Mattison, who lives in a Shelby Township subdivision that sits less than 500 feet from one oil well that is on hold. Traverse City-based West Bay Exploration set up shop near the 25 Mile-Dequindre intersection this summer, sending local officials scrambling for a means to stop it.

For Mattison, the decision by state senators to deny additional protections on oil and gas drilling to municipal governments and their residents was a slap in the face.

"They could care less about us homeowners," he said Friday. "There is a place for projects like this, and this isn't it."

Sen. Jack Brandenburg, R-Harrison Township, sponsored the bills that would have prevented Michigan's Department of Environmental Quality from approving drilling permits for projects in communities of 70,000 or more or projects within 450 feet of a residential building.

Brandenburg said the defeat was a surprise and the result of heavy lobbying.

"The bills were badly beaten, and I didn't expect that. ..." he said. "The Michigan Chamber of Commerce came out against, the Michigan Manufacturers Association came out against, Michigan Oil and Gas Association, American Petroleum Institute — they all came with a lot of pressure."

In an email sent to legislators, a Michigan Chamber of Commerce official argued the bills would create "mini Department of Environmental Quality outposts in every municipality across the state" that could "limit or regulate out of business the oil and gas industry."

"Passage of this legislation will send a chilling message to the energy industry that they are not welcome here," wrote Jason Geer, the chamber's director of energy and environmental policy. "It is hypocritical for us as a state to claim we want cheap oil and natural gas, but we want to ban its extraction here and import it all from our neighbors."

But legislative supporters say the chamber mischaracterizes what people in Shelby Township want.

"I don't want to stop drilling, but I don't want drilling that's going to be so close that it keeps people awake at night," said Rep. Pete Lund, R-Shelby Township.

Others have echoed this sentiment in communities like Scio Township and Rochester Hills, where drilling projects were opposed by some residents. In late August, Shelby Township enacted a six-month moratorium on oil drilling, and the company behind the project agreed to shut it down "indefinitely."

'Worst-case scenarios'

But it is unclear if the moratorium and others will survive legal challenges. West Bay Exploration has aggressively pursued drilling interests in Metro Detroit. In late August, after Scio and Shelby townships passed their moratoriums, Vice President Pat Gibson said he didn't believe the measures had any bearing on his company under state law.

Many communities hoped for help at the state level while working on their own ordinances as well.

"We have to prepare for worst-case scenarios, and we are doing that," said Rick Stathakis, Shelby Township's supervisor. "We're looking at some ordinances right now and, hopefully, we'll be passing something at our meeting next month."

In Rochester Hills, a group of residents continues to work legal channels to protect municipal parks and a cemetery from hydraulic fracturing. City officials leased mineral rights for public lands to a Traverse City-based company last year. The group Don't Drill the Hills is appealing a court ruling upholding the city's decision to lease the land without voter input.

Changing prices

The urgency of the issue that hovered over Michigan communities this summer has ebbed, thanks to the drop in oil prices, which has led to lower prices at the fuel pump. A year ago, the U.S. benchmark price for oil was $98.51 per barrel. It closed Friday at $57.81, a drop of 41 percent.

The lull will likely be short-lived because the price of oil can change, Michigan Tech's Pennington said. Lower oil prices tend to make oil and gas exploration firms reassess where they drill, he said.

That appears to be part of Encana's decision to get rid of its Michigan interests, which include several test wells that used hydraulic fracturing to harvest natural gas.

"We wanted to be able to focus on higher-margin areas," company spokesman Doug Hock said.

But the ebb and flow of commodity prices means when oil prices eventually rise, communities are likely to see more drilling unless they have addressed holes in their ordinances, Pennington said.

"I am glad to see this sort of breathing space with development because it lets everyone think about what's going on, and there will be cooler heads involved," he said.