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March 2008

Vol. 13, No. 10 Week of March 09, 2008

MGM stumbles in Arctic

Results disappointing from first of two western Mackenzie Delta wells

Gary Park

For Petroleum News

MGM Energy, the small Canadian Arctic explorer with big ambitions, has come up short of expectations with the first two of three scheduled winter wells on the western Mackenzie Delta.

One has been abandoned and one has failed to yield commercial quantities of hydrocarbons, prompting MGM President Henry Sykes to concede in a March 5 news release that “we’re clearly disappointed with the results of these two wells.”

However, he said MGM will continue with the Langley E-07 well, which is expected to spud by March 15 and be completed by mid-April.

Sykes also said the C$60 million drilling and seismic work remains in budget and the company should end the winter season with at least C$15 million of working capital.

MGM said Feb. 28 that the Atik P-19 well, which it previously said “encountered a number of zones of interest” in fact yielded only “minor quantities of hydrocarbons” from testing and will be abandoned.

The Aput C-43 well encountered natural gas shows in the Aklak formation, but a review of the log data did not indicate hydrocarbons in commercial quantities, the company said.

However, MGM said the Aput well, drilled in the adjoining fault block to Atik P-19, did encounter good quality reservoir sections and the company will review the potential to retain the well bore for future cuttings injection.

MGM, spun off Paramount Resources a year ago to explore the Mackenzie Delta, has taken a public spanking from analysts and investors after failing to make its hoped-for exploration breakthrough in the last two winters.

Shares which debuted at C$5 in January 2007 and sold at C$2.75 apiece in a C$100 million initial public offering tumbled close to C$1.

Peters & Co. analyst Andrew Boland said in a Feb. 29 report that the challenge now for MGM is to finance future activities — which include seven more wells — “as the pall of dry holes and disbelief in the Mackenzie Valley pipeline project may be too dark for investors.”

“We continue to believe that an investment in MGM should be part of any diverse E&P portfolio, but is an investment that will require a very long-term perspective.”

Canaccord Adams analyst Richard Wyman downgraded MGM from a “speculative buy” to a “sell” with a C$1.85 price target from an earlier C$3.45.

In a note to clients, he said the prospects for Aput D-43 dimmed because the “risk of a leaky trap or timing between natural gas migration and trap formation has increased substantially.”

Wyman said the results at Atik and Aput should have no connection to what might happen at Langley E-07, which is close to the Langley K-30 discovery earlier this decade by Chevron Canada Resources and BP Canada Energy.

As well, MGM still has the backing of Chief Executive Officer Clay Riddell, who is also chairman and CEO of Paramount and the driving force behind the creation of MGM, which has signed a capacity request agreement to secure 200 million cubic feet per day of space on the proposed 1.1 billion cubic feet per day gathering system connecting Mackenzie Delta fields to the main pipeline.






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