LANSING – A $445 million oil deal is about to go down in the northern Lower Peninsula: Shell Exploration & Production Co., the state’s largest petroleum producer, plans to sell all of its Michigan exploration, production and related assets to Dallas-based Merit Energy Co.

Shell gas stations are not part of the sale.

With the exception of a few wells on state land in Cheboygan and Otsego Counties, operations are expected to change hands in early December.

Most of Shell’s 500 wells and 100 employees are located near Manistee, Kalkaska and Gaylord, along the Niagaran Reef Trend – a series of oil and natural gas fields that runs northeast from Oceana County along Lake Michigan to Presque Isle County along Lake
Huron.

Since Shell produces roughly 20 percent of Michigan’s oil and gas, there are statewide implications.

Both the companies and state regulators are processing mountains of paperwork to legalize the transfer.

Besides oil and gas wells, the agreement covers about 36 production facilities, two gas processing complexes, thousands of acres of leases and a pipeline. The Departments of Environmental Quality (DEQ) and Natural Resources (DNR) must sign off on permits and leases to make it official.

Rick Henderson, the Cadillac district supervisor for DEQ Geological and Land Management, said his agency’s goal is to finish inspecting all of Shell’s wells by Nov. 1.
So far, DEQ has inspected about 60 percent of them, the vast majority of which have been in order, Henderson said.

The problems at a few wells have been minor lubrication leaks or containment issues, Henderson said, but none have resulted in notices of violation or noncompliance, meaning Shell has cleaned them up.

Fed Palmer, who works for Shell’s external affairs office, said the sale to Merit will be completed in early December. Although state permit and lease transfers may take another month to process, Merit could operate on Shell’s behalf once the sale is finalized.

As for any ongoing cleanup areas in Manistee, Kalkaska, Grand Traverse and Otsego counties, Merit will be required to sign agreements with DEQ to accept responsibility.

So far, Henderson said, Merit has a good track record in Michigan. “We haven’t had any big problems with any Merit wells, but you have little housekeeping issues.”

Environmental groups are potentially concerned about the Pigeon River Country State Forest, where Shell currently operates about 20 wells and one production facility.

Outdoor enthusiasts cherish the 105,000 acres of protected habitat for its diverse forests and wildlife, said Joe Jarecki of DNR, who manages the forest area where oil is produced. Pigeon River Country is home to three blue-ribbon trout streams, bears, bobcats, beaver and the largest free-roaming elk heard east of the Mississippi.

Jarecki is also secretary of the Pigeon River Advisory Council, a group that seeks to balance interests in the area and protect the wild character of the forest. The council is debating a resolution addressing environmental issues related to the transfer. Jarecki expects the resolution will be submitted to the DNR on Oct. 23.

Porter Trimble, a senior vice president for Merit, said his company has “no plans for expansion in the Pigeon River area – at all,” but predicted Merit will expand in other areas.

He said the company will employ about the same number of people as Shell. Some Shell employees would likely move to Merit, although many may accept a buyout when the deal goes through.