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MGM explains last year’s dry hole costs
MGM Energy, the lone current explorer in Canada’s Arctic, added a net loss of C$100.16 million last year to the C$62.33 million it reported in 2007, but paints an upbeat picture of its activities.
Company President Henry Sykes said in a statement that MGM, unlike most Canadian juniors, uses “successful efforts accounting rather than full cost accounting,” which allows dry-hole costs to be capitalized.
Under that method, the costs of dry holes are written off as they occur.
But Sykes noted that “writing something off does not mean it’s not a discovery or that you wouldn’t produce it in the right circumstances.”
Langley discovery written off He said costs of the Langley E-07 discovery last year were written off, but “we still found a commercial quantity of hydrocarbons” which were sufficient to obtain a Significant Discovery License from the federal government.
Sykes said the fact that, under “successful efforts,” MGM can’t justify keeping the Langley well on the books at Dec. 31 gas prices does not mean that if a pipeline is built from the Mackenzie Delta the well would not be tied in.
The northern explorer reported dry-hole costs of C$74 million for 2008 and C$26.7 million in exploration expenses, hiking the net loss despite a C$22 million gain on future income taxes.
Capital spending last year totaled C$95.86 million down from C$244.26 million in 2007.
Sykes said MGM is “very pleased” with results of Ellice J-27, its first well of the 2008-09 winter program.
The last of the three wells, Ellice A-25, was spud March 2 and should be completed by late March or early April.
MGM will then be able to provide further updates on Ellice A-25 and estimate the resource size of the Ellice J-27 find, which he said is sufficient to justify a standalone development.
Sykes reported that Ellice A-25, being drilled by Akita Drilling, has reached a depth of about 2,500 feet in pursuit of gas targets in the range of about 5,900-6,560 feet.
MGM management said that at current gas prices, its Mackenzie Delta discoveries would be uneconomic even if a Mackenzie Valley pipeline had been built.
—Gary Park
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