MGM Energy enters Mac deepfreeze

MGM Energy, the solitary company exploring in recent winters for natural gas to help strengthen the Mackenzie Gas Project, will not make “any large capital” investments in the Mackenzie Delta this winter until there are “positive, concrete steps” towards building a pipeline down the Northwest Territories to southern markets, said company President Henry Sykes.

The decision to pull back from its active winter drilling program is the result of a stalled regulatory process that has driven other independent companies from the region.

MGM said it is reviewing drilling costs and prospects to decide whether it is more economic to drill one or two wells rather than make a penalty payment to the Inuvialuit Regional Corp. in August 2010. It expects to disclose its plans in the current quarter.

In May, MGM restructured a farm-out agreement with Chevron-BP.

As part of that deal, it doubled its total liability to C$10 million for a land payment due to the Inuvialuit Regional Corp. and agreed to set up a separate account to fund the payment when it is due.

MGM reported a net loss for the second quarter of C$6.3 million, raising its first half loss to C$43.1 million. The latest loss was primarily due to additional dry hole costs on its North Ellice J-17 and Ellice A-25 wells drilled earlier this year.

Comparable first-half losses were C$49.95 million in 2008 and C$29.19 million in 2007.

The company said it had positive working capital of C$8.4 million on June 30 and restricted cash of C$10 million.

Based on current forecasts and assuming no drilling or seismic activity occurs in the upcoming winter, it will have enough working capital to fund operations and obligations until the third quarter of 2010, including the land penalty payment.

Capital spending over the last three fiscal years to the end of the second quarter has totaled C$331.7 million.

—Gary Park