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Vol. 12, No. 42 Week of October 21, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

MGM Energy breaks new ground

Mackenzie explorer strikes agreement to deliver gas to gathering pipelines; company wants assurance it can deliver what it finds

By Gary Park

For Petroleum News

MGM Energy, the Calgary-based junior explorer with big ambitions for Canada’s Far North, has signed the first “outside” deal to deliver natural gas to the proposed Mackenzie Valley pipeline.

The capacity request agreement secures 200 million cubic feet per day of space on the gathering system connecting the Mackenzie Delta fields to the main pipeline.

MGM President Henry Sykes said the agreement gives the Mackenzie Gas Project proponents, governments and other parties “tangible evidence that additional volumes of natural gas are committed” to the project.

Until now, the only assured volumes are from the Delta anchor fields owned by Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada.

“This agreement enables the natural gas MGM Energy currently owns (estimated at 400 billion cubic feet of contingent resources) and for which it is exploring to be delivered to the Mackenzie Valley pipeline on startup, assuming that the project proceeds,” Sykes said in a statement.

Imperial spokesman Pius Rolheiser told Petroleum News “we definitely see this as a positive step, although the project obviously has outstanding issues to resolve before we can decide to proceed.”

But he welcomed the firm expression of interest by MGM as a means of reducing some of the “surplus capacity” built into the 1.1 billion cubic feet per day design for the gathering system and a signal of “active exploration interest in the region.”

In return, MGM will gain observer status, allowing it to provide input on system design and other issues.

Rolheiser said that regardless of the built-in surplus, it makes economic sense to run the pipelines “as close to capacity as we can.”

MGM actively exploring

Sykes told the Globe and Mail MGM took the step because of the money it plans to spend in the upcoming winter exploring for gas in the Delta.

“People need to know if we find it that we’ll deliver it,” he said.

He said the deal positions MGM, a spinoff early this year from Paramount Resources’ assets in the Central Mackenzie Valley, to eventually negotiate for capacity on the main pipeline.

But for now it is simpler to reach an agreement on the gathering system, Sykes said.

E&P companies operating in the Delta outside of the MGP partners along with the Northwest Territories government have been waging a regulatory battle over the last two years to have both the main line and gathering system operate under a single regulator.

MGM is positioned to be the most active explorer north of the 60th parallel this winter, with plans to spend C$60 million on three wells, plus C$35 million for seismic testing and C$7 million for general and administrative expenses, totaling C$102 million for 2008, compared with its anticipated expenditures of C$236 million this year, C$38 million for drilling.

Through public offerings, the company raised C$168 million in May and C$106 million in August.

The only other scheduled activities for the winter are two wells by Husky Energy, one by Petro-Canada and a variety of seismic programs.

Two of MGM’s wells will be on Exploration License 427 on the Delta’s west side and one is on EL 399 at Taglu near Tiginlikak.

Work continues on Mackenzie gas line

Although the Mackenzie Gas Project has been operating outside the public spotlight over recent months, Rolheiser said work continues on three major fronts: Completing regulatory hearings; negotiating benefits and access agreements with aboriginal communities along the pipeline right of way; and negotiating fiscal terms with the federal government.

The NEB held oral hearings at Yellowknife, NWT, Oct. 10-16 to “test updated written evidence submitted since the NEB’s scheduled hearing sessions ended in 2006,” said review panel Chairman Ken Vollman.

The regulator now expects to wrap up its oral hearing sessions when it considers final argument, which will take place after the Joint Review Panel releases its report and recommendations on the potential socio-economic and environmental impacts of the project.

The NEB has indicated it expects the Joint Review Panel report will be completed in the second quarter of 2008. The regulator then expects it will need five to six months to respond to those recommendations before issuing its final go-no go decision.

Rather than either approving or rejecting the MGP application outright, the NEB is widely expected to approve the project subject to certain conditions when it issues a verdict by about mid-2009.

Rolheiser said the 2009 target is “not inconsistent with what we have in mind,” and would still allow the MGP to start delivering gas by 2014, in line with the revised timetable.

On the benefits-and-access negotiations, he said there are some agreements-in-principle that must still be developed into “full-blown” agreements, while talks with the Deh Cho First Nations are “at a much earlier stage.”

He said the fiscal negotiations are “on-going and confidential” and would say no more about them.

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