Arctic junior plans three Mac wildcats

Gary Park

For Petroleum News

MGM Energy is planning an even bolder step into Canada’s northern spotlight this winter, with a program of three exploration wells costing an estimated C$60 million and seismic work.

As part of its farm-in deal with Chevron Canada Resources and BP Canada Energy, the junior startup can earn a 50 percent interest in Mackenzie Delta properties by participating in 11 wells over a four-year period and making certain lease continuation payments, which could range to C$21 million. The C$11 million due this year has already been paid.

MGM announced in late July that it has entered into an underwriting agreement to sell 33 million common shares for C$2.75 each and 6 million common shares issued on a flow-through basis at C$3.45 each to raise gross proceeds of C$111.45 million.

Under the offering, Paramount Resources, which spun off MGM last year to focus exclusively on Canada’s Northwest Territories and Arctic region, has indicated it will subscribe for C$9 million.

Clay Riddell, chief executive officer of both Paramount and MGM, has indicated he will subscribe for C$6 million of flow-through shares, delivering on his pledge to dig into his own pocket to help finance MGM’s activities.

The proceeds from the offering will be used by MGM to fund its 2007-08 oil and gas exploration and development programs and for general corporate purposes.

At least five wells must be test wells

The two drilled last winter, Kumak I-25 and Unipkat M-45, were dry holes, resulting in a first-half dry hole expense of C$36.4 million.

If the three wells are completed this winter, MGM will have met that part of its obligations.

As well, it is required to shoot about C$50 million of three-dimensional seismic. For the upcoming winter, it plans to conduct a seismic shoot in the Colville-Sahtu areas of the Central Mackenzie Valley.

MGM President Henry Sykes said his company had an “active” second quarter, negotiating and completing the acquisition from EnCana of the Umiak petroleum and natural gas asset, which “we believe has substantial upside potential.”

Capital spending for the latest quarter totaled C$175 million, including C$173.75 million for land.

As well, C$825,000 was spent on drilling and logistics associated with the two dry holes and C$384,000 on geological and geophysical expenditures, the bulk for the purchase of trade seismic related to 2007-08 drilling.

MGM has also spent C$300,000 in the first half of 2007 on costs associated with regulatory hearings and access on the proposed Mackenzie Valley pipeline.

Because MGM has no commercial operations, it is considered a development-stage enterprise.

It is required under Northwest Territories exploration licenses to fulfill minimum work commitments over the next five years of C$32 million.

The company said it has sufficient funding for the balance of 2007, but will need additional funding to complete the winter drilling.