Central Mackenzie Valley
History and Geology
The Colville Lake area in the central Mackenzie Valley, Northwest Territories, is located 1,500 kilometers north of Calgary. The established play in the Central Mackenzie Valley (61° to 67° N and 120° to 125° W) is the basal Cambrian-aged sandstones of the Mount Clarke formation, which is overlain by Cambrian/ Ordovician-aged salts and shales that provide seal and most likely the primary source rock for the region.
The area has been the focus of natural gas exploration since the 1970s. Approximately 30 wells have penetrated the entire Cambrian section in the region. A number of major discoveries have been made by others in the Colville Lake area since the 1970’s, with three Significant Discovery Licenses (SDL) awarded to date, totaling estimated Original Gas In Place (“OGIP”) resources of 727 Bcf. The size of the natural gas discoveries to dates have ranged from 65 bcf to 450 bcf.
Third party estimates filed with Canada’s National Energy Board in connection with hearings into an application for a natural gas pipeline through the Mackenzie Valley estimate potential additional undiscovered resources for the Colville Lake Cambrian sandstone, which covers approximately 5.3 million hectares in the Mackenzie Valley, of up to 8.6 Tcf of gas in place.
MGM Energy Assets
MGM Energy has several assets in the Central Mackenzie Valley, as shown in the map. The majority of these assets were acquired by MGM Energy from Paramount in the Spinout transaction. As at June 30, 2008, the properties in the area cover approximately 620,000 hectares (approximately 390,000 hectares net to MGM Energy). The properties in the area are:
Nogha
Owned 50% by MGM Energy, the Nogha property includes Exploration License #430 and an aboriginal concession agreement, covering a total of 112,000 gross hectares. Four wells have been drilled on the properties to date, of which two were the Nogha C-49 and M-17 discovery wells.
Maunoir
Also owned 50% by MGM Energy, the Maunoir property comprises Exploration License #399 and Exploration License #428, which total 200,000 hectares. Four wells have been drilled at Maunoir, of which one well was an oil discovery. EL 399 expires in August, 2008, however, an SDL will be applied for. The remaining lands on EL399 which are not encompassed by the SDL will be relinquished.
Turton
The Turton property is owned 50% by MGM Energy and comprises Exploration License #414, covering 85,000 hectares. Two wells have been drilled in the area, of neither of which found material levels of hydrocarbons. This licence expires in September 2009 and with no work planned for the 2008/09 winter, the property will likely be relinquished upon expiry.
Kelly Lake
Owned 100% by MGM Energy, Kelly Lake comprises Exploration License #442, covering 63,000 hectares. No wells have been drilled in the area, although a 2D seismic and a gravity program was conducted on EL442 in the winter of 2008 to set up future drilling locations.
Great Bear River
There are two properties in the Great Bear River area; Exploration License #440, owned 100% by MGM Energy and covering 88,000 hectares and Exploration Licence #454 owned 50% by MGM Energy and covering 82,100 hectares. This area is prospective for both oil and natural gas. There have been no wells drilled in this area, however, seismic or drilling activity could take place as early as 2009.
Seismic Database
In addition to land interests in this area, MGM Energy also owns, or has access to, approximately 2,100 kilometres of 2D seismic and 6,400 square kilometres of gravity data.
Estimate of Resources of Central Mackenzie Properties
Discoveries have been made at Nogha and Maunoir. The Nogha C-49 and M-17 discovery wells were production tested at combined rates from the Mount Clark A and C zones of 5.1 and 3.5 gross Mmcf/d, respectively. The Maunoir C-34 discovery well was production tested at 235 gross bbls/d of oil.
An evaluation of the potential resources for the Nogha property has been completed internally by a qualified reserves evaluator and audited by a qualified reserves auditor as at December 31, 2007. There has been no internal evaluation completed of the potential resources of the Maunoir property. The table below summarizes the estimated volumes of contingent resources attributable to the Nogha property, net to MGM Energy. The estimates presented are in accordance with the definitions and guidelines in the COGE Handbook and NI 51-101.
Resource Estimate of Sales Gas Resources (2)
Nogha Discovery Net to MGM Energy (BCF)
|
| |
Low |
Best |
High |
Contingent Resource (2)
|
45 |
92 |
192 |
The mean (2) estimate of contingent resource is 106 Bcf.
Notes:
(1) Contingent resources are those quantities of gas and oil estimated to be potentially recoverable from known accumulations but are classified as a resource rather than a reserve due to, in the case of these resources: lack of pipeline infrastructure, making the project uneconomic on a stand alone basis; potential regulatory issues with respect to the construction of the Mackenzie Valley Pipeline and facility infrastructure; and lack of demonstrated capability to bring any the volumes that may be produced to market within a specific time frame. Estimates are shown before the deduction of royalties.
(2) A low estimate is a conservative estimate of the quantity of sales gas that will actually be recovered from the accumulation, which under probabilistic methodology reflects a P90 confidence level; a best estimate is the best estimate of the quantity that will actually be recovered from the accumulation, which under probabilistic methodology reflects a P50 confidence level; a high estimate is an optimistic estimate of the quantity that will actually be recovered from the accumulation, which under probabilistic methodology reflects a P10 confidence level, and; a mean estimate is the average volume of sales gas from the probabilistic assessment that will recovered from the accumulation. Sales gas estimates exclude gas used for fuel. In the case of the Nogha discovery, Natural Gas Liquids will be used primarily for fuel, and lease gas used only as requirements dictate.
There is no certainty that it will be commercially viable to produce any portion of the contingent resources.
The accuracy of resource estimates is in part a function of the quality and quantity of available data and of engineering and geological interpretation and judgement. These resource volumes are classified as a resource rather than a reserve primarily due to a lack of marketing infrastructure. Other factors in the classification as a resource include a requirement for more delineation wells, detailed design estimates and near term development plans. The size of the resource estimate could be positively impacted, potentially in a material amount, if additional delineation wells or seismic data determine that the aerial extent, reservoir quality and/or the thickness of the reservoir is larger than estimated based on the interpretation of 2D seismic and well control. The size of the resource estimate could be negatively impacted, potentially in a material amount, if additional delineation wells or seismic data determine that the aerial extent, reservoir quality and/or the thickness of the reservoir is not as large as estimated based on the interpretation of current 2D seismic and well control.
