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Minnow delivers NWT blow MGM Energy closes shop, returning assets to parent company; other players in Canol shale area undecided about exploration plans Gary Park For Petroleum News
After seven years of taking an intrepid view of Canada’s northern oil and natural gas prospects, MGM Energy has ended its battle against the odds with a whimper.
Investors voted 97 percent June 10 to return the tiny exploration company back to its roots in Paramount Resources, which spun off MGM in 2007 in hopes of taking a position in the Mackenzie Gas Project, which is now in indefinite hibernation.
Having seen plans for shipping gas from the Mackenzie Delta to southern Canadian and United States markets, MGM set about trying to secure a production future in the highly rated Canol shale play in the Central Mackenzie Valley of the Northwest Territories, but that play is also under a cloud.
With no ability to generate income and no interest from prospective partners, MGM has been forced to abandon its dreams.
The result is that 11 full-time employees are being released, taking with them a storehouse of northern expertise and knowledge.
For those with longer memories, it is like a replay of earlier times as companies abandoned their Arctic dreams, although there is still hope that a handful of majors will embark on exploration of Canada’s section of the Beaufort Sea.
But Paramount has given no indication that it will resume the search for oil in the Canol, which is about 25 miles southeast of the producing Norman Wells field.
Another Canol setback Otherwise, the outlook for the Canol has taken another setback with Husky Energy deciding to defer its planned Slater River Canol program in the upcoming winter for two years, following word that ConocoPhillips will not drill in the region during the 2014-15 season.
MGM President Henry Sykes told reporters that there was no option but to reduce the cost of retaining the MGM office.
To continue would likely have seen MGM exhaust its capital by 2015, forcing it into bankruptcy, he said.
Sykes said interest in Canol had evaporated among the companies MGM hoped would participate in a joint venture to develop the play, notably those with their own significant investments in the Central Mackenzie Valley.
MGM shareholders will receive one Paramount share, which have been trading at just over C$61 recently, for every 300 MGM shares, giving MGM a value of about C$30 million.
Paramount owned 13.9 percent of MGM shares and Clayton Riddell, chief executive officer of both companies, owned 31.6 percent.
Signs of oil Only a year ago MGM had issued an upbeat report on its Canol exploration program, announcing that its East MacKay I-78 well had shown signs of oil in its clear frack fluid, with flow rates that “certainly meet our expectations for a vertical well with small fracs and a limited testing period.”
Sykes said the well, paid for by Shell Canada under a farm-in agreement, had about 330 feet of pay in the primary Canol target and was an excellent reservoir.
He said a preliminary review of the logs showed they were consistent with logs of the nearby East MacKay I-77 well that Northrock Resources drilled in 2000.
Husky and ConocoPhillips were active in the area during the 2012-13 winter, but MGM had dropped an application to drill a horizontal well on its exploration license because of the time and cost it would face in undergoing an environmental assessment process.
NWT approval regime an issue Riddell, Sykes and Exploration Vice President John Hogg had frequently aired their unhappiness with the complex and protracted approval regime in the Northwest Territories, that could require up to 15 months to issue a permit, especially in the area that had been touted as prospective for a billion barrels of oil and trillions of cubic feet of gas and a source of jobs and economic growth.
“It takes so long to get anything done in Northern Canada today that if more Bakkens develop in the United States by the time we finally decide that it’s okay to develop the Canol, we may find ourselves in the same position as the Mackenzie Gas Project - nobody needs the product anymore,” Sykes told the Globe and Mail.
NWT Industry Minister David Ramsay is not yet ready to give up hope, now that his government has gained jurisdictional control over its onshore oil and gas resources.
He believes the NWT is still in a position to change direction because “we’re just in the early stages of this Canol play.”
However, Husky is not leaving much room for optimism, making clear it is evaluating its Canol plans while completing work on an all-season access road and its environmental baseline studies, with a spokeswoman insisting Slater River “remains part of our long-term growth portfolio.”
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