MGM rolls out winter plans

Junior explorer first to roll out 2008-09 drilling plans for Canadian Arctic

Gary Park

For Petroleum News

Junior explorer MGM Energy is first out of the blocks with drilling plans for the Canadian Arctic this winter as it pursues a farm-in with Chevron Canada Resources and BP.

Final drilling locations and depths for the Mackenzie Delta wells will be determined in the current quarter. Depending on those decisions, MGM said it is hopeful four wells can be completed with one rig for a cost of about C$70 million.

The program will be funded from proceeds of a recent equity issue of C$80.1 million and working capital as of June 30, the company said.

The equity offering consisted of 82 million common shares for 55 cents per share and 52.25 million common shares on a flow-through basis for 67 cents per share.

MGM is required to drill a minimum of three wells this winter to earn a 50 percent interest in existing discoveries. An additional three wells are required in 2009-2010 to complete the farm-in with Chevron and BP, MGM said.

MGM said it has no plans for other drilling or seismic programs this winter.

It expects to spend C$6 million on land, geological and geophysical costs by the second quarter of 2009.

MGM reported a second-quarter net loss of C$4.3 million, compared with a C$1.85 million loss a year earlier, with losses for the first half of 2008 at C$49.9 million.

It expects to continue generating losses for several years given that it has no production and none is possible until completion of a pipeline from the Mackenzie Delta to carry crude oil and natural gas.

MGM recorded a dry hole expense of C$32.43 million in the first half, down from C$36.4 million in the same period of 2007 related to costs incurred for Atik P-19 and Aput C-43 which were drilled during the 2008 winter and were determined to be dry.

But MGM achieved some success with its fifth well earlier this year when the Langley E-07 well tested at restricted flow rates of 13 million cubic feet per day on a 2-inch choke.

It said the primary target consists of about 25 feet of net pay with 28 percent porosity in the middle Taglu formation.

The tests give MGM hope that it can obtain a significant discovery license from the Canadian government.

The company believes the find could be developed as a satellite of the existing Langley field, where Langley K-30 was discovered in 2002 and tested at 18 million cubic feet per day. It is also expected that the discovery could increase MGM’s net contingent gas resources on the Delta, currently estimated at 300 billion cubic feet.

Of the C$28.29 million MGM spent on geophysical and geological work in the first half, C$27.3 million was allocated to three seismic programs — two on the Delta farm-in lands and one in the Central Mackenzie Valley.