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MGM has grand northern plans Startup acquires EnCana’s Mackenzie/Arctic assets, leads Central Mackenzie bidding; Riddell wants NWT gas flowing by mid-2012 Gary Park For Petroleum News
Clay Riddell could be the one to stir the oil and gas giants of Canada’s North into action.
For sure, he isn’t about to sit back and let events take their own course.
And his right-hand man, Henry Sykes, is cut from the same mould.
The two driving forces behind MGM Energy are, if nothing else, pumping some life into the molasses-like pace of development in the Northwest Territories while those who will ultimately decide whether to spend billions of dollars opening up the Arctic to production are floundering in a regulatory and corporate maze.
Riddell is one of the last from a generation of northern explorers who wants to see things happen.
In fact, he has let it be known that he wants gas moving from the Central Mackenzie Valley and/or the Mackenzie Delta by the time he turns 75 in mid-2012.
It’s a high-flying ambition given that the Mackenzie Gas Project partners are hinting at a startup date closer to 2014.
But Riddell didn’t become one of Canada’s 50 wealthiest people by attaching himself to the dreams of others.
His affiliation with Canada’s North goes back 47 years, when he worked as a geologist for Chevron in the Mackenzie Delta and Arctic Islands.
In more recent years, as chairman and chief executive officer of Paramount Resources, Riddell has steered the company to the NWT before spinning off those assets to launch MGM Energy early this year.
Paramount became one of the most active explorers in both the Liard basin and the Central Mackenzie Valley, enhancing Riddell’s reputation for drilling beyond the limits of existing infrastructure — precisely the sort of frontier mentality needed in the Arctic.
MGM president Henry Sykes draws from a gene pool that combines vision and action. His father Rod was mayor of Calgary for most of the 1970s when, among other things, he led Canadian cities in the creation of public housing and laid the groundwork for a rapid transit system that has few parallels in North America.
As a young attorney with the firm of Bennett Jones, Henry Sykes handled the legal intricacies of TransCanada’s 1998 C$14 billion takeover of Nova, the largest pipeline deal in Canadian history.
Enticed to Gulf Canada Resources as an in-house lawyer, he was named president in 2001 when Conoco acquired Gulf Canada and kept that post when Conoco and Phillips merged.
He left that fold last year after ConocoPhillips swallowed Burlington Resources, but not before the Canadian subsidiary joined Imperial Oil, Shell Canada and ExxonMobil Canada in launching the Mackenzie Gas Project.
Sykes resurfaced with MGM delivering a bold strategy to shareholders when he said the startup intended, either directly or indirectly, to acquire land interests in its operating areas, reducing capital costs by accumulating a critical mass of operations, bringing technology to bear “on old problems” and developing resources that could be booked as reserves once a Mackenzie Valley gas pipeline was approved.
MGM would look at other transport options At the same time, MGM in a 135-page outline of its objectives declared that if the Mackenzie pipeline and related gas-gathering systems were “deferred, delayed or not approved, MGM will examine its available options to transport its natural gas to market, including the staged construction by MGM of an alternative pipeline and gathering system.”
Those options could include a pipeline from the Central Mackenzie Valley, close to the midpoint of the Mackenzie pipeline, where MGM inherited 953,000 acres in the Colville Lake and Sahtu regions, and where Paramount and Apache Canada have drilled 10 wells.
Existing Significant Discovery Licenses in the area are estimated at 400 billion cubic feet with the undiscovered resource rated at 5.7 trillion cubic feet of original gas-in-place.
But, in Riddell’s view, that only scratches the surface if a way could be found to speed up the regulatory approval process, notably for the Mackenzie project.
Speaking to an Arctic gas conference in March he said the resource potential for the entire Mackenzie Valley is 75 tcf to 100 tcf, enough to meet 5 percent of the North American demand for 50 years, although that would need three Mackenzie pipelines.
He described the northern resource as “plentiful and we have a market. So what’s standing in our way? It’s the incredible, complex regulatory path with a variety of participants and they each have a unique agenda.”
Riddell said he has been told that the number of permits, licenses and approvals needed to build the Mackenzie pipeline ranges from 7,000 to 9,000.
“This is too important a project to be tied up in a bureaucratic nightmare like this,” he said.
Accepting the need for some special regulations in the north, he directed his criticism at the extent of overlapping regulations, much of it coming from the Canadian government, not the affected communities.
What motivates Riddell is the opportunity presented by Canada’s north, even after 50 or 75 years of “dabbling.”
Drilling light in NWT In the Western Canada Sedimentary basin about one well has been drilled for every 3.4 square kilometers, compared with one for every 1,000 square kilometers in the NWT, excluding a pocket of drilling around the Norman Wells oil field.
Riddell said the decision to form MGM to explore and develop in northern Canada came after last summer’s agreement for Paramount to farm-in with Chevron Canada and BP Canada Energy, gaining access to almost 500,000 net acres of the Mackenzie Delta in return for drilling 11 wells and spending C$50 million on seismic or project development by 2011 to earn a 50 percent stake in Exploration Licenses and concession blocks.
However, the initial foray during the past winter was disappointing, with the Kumak I-25 and Unipkat M-45 well reported dry.
Sykes said the seismic data used to identify the well sites will be re-evaluated.
“While these results demonstrate the risk inherent in exploration activities, we continue to believe that our drilling program will meet expectations overall,” he said.
MGM still expects to drill three more wells in the 2007-08 winter and conduct seismic programs in both the Mackenzie Delta and Central Mackenzie Valley.
Its commitment to the north was further reinforced this month when agreed to pay C$170 million to acquire the northern assets of EnCana and, two days later, was announced as the top bidder in a Central Mackenzie Valley sale of exploration rights.
More than seven months after EnCana decided to bail out of the north and concentrate on its core unconventional gas and oil sands operations, MGM emerged as the buyer of a wide variety of working interests in Mackenzie Delta and Arctic Islands properties.
Riddell, as MGM chairman and chief executive officer, said the deal was a “first and very important step in the implementation” of MGM’s strategy to acquire and consolidate “high-quality” oil and gas assets in the NWT.
Package includes interest in Umiak The hottest current piece of the package is a 60 percent working interest in the Umiak gas field, including two discovery wells, that holds a net mean contingent resource of 269 bcf, with a high-end project of 396 bcf.
MGM said it also estimates the field could hold about 100 million barrels of oil gross, of which 25 million barrels are currently thought to be recoverable.
The Umiak N-16 and N-05 gas finds are just 10 miles east of Imperial Oil’s 3 tcf Taglu field, one of three anchor fields for the Mackenzie project.
MGM said it believes Umiak is sufficiently large to deliver gas to the planned Mackenzie Valley pipeline, or — reinforcing its own determination to pursue other options if the need arises — support alternative developments.
The release on the EnCana acquisition said Riddell indicated he intends to subscribe for a total of C$25 million of the MGM shares being sold to finance the purchase — further proof, if any were required, of his resolve to commercialize the north.
MGM was also the successful bidder of C$8.26 million for 156,000 acres at the Central Mackenzie Valley bidding.
At the same sale, a partnership of Husky Energy and International Frontier Resources secured 225,000 acres for C$4.89 million, while BG International (a unit of the UK-based BG Group) committed C$1.1 million for 184,000 acres and, as 75 percent partner with International Frontier, made a work expenditure bid of C$1.1 million for a 200,000-acre parcel.
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