Compromise clears way for drilling for Michigan crude

Shell Oil expects next week to sink the first drill bit in 11 years in the Pigeon River Country State Park, near Gaylord, Mich. With the end of a decade-long battle among the state, oil companies, and conservation groups, the companies will be ably to more widely develop the field , in which five wells have continued to produce while further drilling was held up.

If all goes well, the Pigeon River agreement will be an example of how oil companies and environmentalists can work together as drilling is stepped up in the United States.

With proved reserves of 76.9 million barrels of oil and 76.9 billion cubic feet of natural gas, the Michigan field can contribute significantly to the nation's energy supply.

According to Ken Sikkima, executive director of the West Michigan Environmental Action Council, the drilling "is clearly a test, or experiment, if you will. . . . If it works well, then it will establish an atmosphere and be a precedent, and other Michigan environmental disputes will be settled in a similar fashion."

However, he warns: "If it doesn't work well, and if there is a major accident or the [Michigan] Department of Natural Resources doesn't do its job, there will be less trust and confidence."

The Michigan Department of Natural Resources estimates the reserves are worth more than $3.2 billion, based on a $40-per-barrel and $2.76 -per-thousand-cubic-feet selling price. As a result, the economically hard- pressed state estimates it will receive at least $599 million in tax revenues from the drilling in the state park.

Eager to see that money tucked in its treasury, the state tried to effect a compromise between Shell (which will operate the wells for a three-company consortium) and the environmental groups opposed to the drilling. Late last year the legislature passed a bill that would have promoted development of the state's oil and gas resources.

Sources say environmentalists were willing to compromise on Pigeon River as long as the bill applied only to that one area.

The compromise also included sequential drilling, time limits on hydrocarbon developments, a role for the Pigeon River Country State Forest Advisory Council, new enforcement duties for the state Department of Natural Resources, additional environmental protections and studies, and a means for monitoring activities inside the forest. The oil companies agreed to accelerate production and not to develop low-cost, low-production wells.

The oil companies also have agreed to limit the number of vehicles entering the forest. According to Mr. Sikkima, this point sparked the dispute 11 years ago after environmentalists discovered that the oil companies had developed "a major thoroughfare" in the forest instead of the two-lane road they were permitted.

Later, the dispute grew over other issues, including whether the state was receiving a large enough royalty.

According to Shell, the five operating wells produced 350,000 barrels of oil last year and 700 million cubic feet of gas. The state derived $1.5 million in revenue.