Central Mackenzie Valley

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 seven Significant Discovery Licenses (SDL) awarded to date. 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 the Mackenzie Valley pipeline estimates that there is 5.7 Tcf of undiscovered original gas in place (best estimate) for the Colville Lake Cambrian sandstone, which covers approximately 5.3 million hectares in the Mackenzie Valley. Undiscovered original gas in place is gas estimated on a given date to be contained in accumulations yet to be discovered. 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. There is no certainty that any portion of the resources will be discovered. If discovered, there can be no certainty that it will be commercially viable to produce any portion of the resource. There is no certainty that a pipeline will be built to transport discovered hydrocarbons.

The following map displays MGM Energy land holdings at May 31, 2013.

MGM Energy Assets


MGM Energy has several assets in the Central Mackenzie Valley. As at June 30, 2013, the properties in the area covered approximately 517,000 gross hectares (approximately 318,000 hectares net to MGM Energy). The properties in the area are:


Canol Shale Play Lands


During 2011, previous EL440 and EL454 were amalgamated into EL466 (comprising EL466A and EL466B).  EL 466A expired in May 2012 and is no longer owned by the Corporation.  EL 466B covers approximately 82,000 gross hectares and expires in May 2016.  The Corporation owned 62.5% of EL 466B.


The Corporation is a 50% owner, along with Shell, in two Exploration Licences in the Central Mackenzie Valley that were acquired in July 2011, pursuant to a call for bids by the Canadian federal government.  EL 474 encompasses approximately 86,600 gross hectares (43,300 net hectares) and EL 475 encompasses approximately 85,300 gross hectares (42,650 net hectares) and both are prospective for the Canol shale oil play.  The Corporation is a 50% owner, along with a private company, in EL 473.  EL 473 encompasses approximately 82,600 gross hectares (41,300 net hectares) and is prospective for natural gas in the Cambrian-aged sandstones.   


The Corporation is a 25% owner, along with Shell, in an Exploration Licence in the Central Mackenzie Valley that was acquired in July 2012, pursuant to a call for bids by the Canadian federal government.  EL 487 encompasses approximately 84,500 gross hectares (21,125 net hectares) and is prospective for the Canol shale oil play. 
 

Nogha


MGM Energy owns 50% of two discovery wells in the Nogha area (C-49 and M-17 wells). SDL's 141 and 142 have been granted for the Nogha discovery. MGM Energy also owns 50% of an aboriginal concession agreement covering a total of 59,900 gross hectares.
 

EL 455 - North Nogha


MGM Energy acquired a 100% interest in an exploration license (EL 455) in August 2010 pursuant to a Call for Bids. The land parcel encompasses approx. 80,000 hectares and has Cambrian prospects similar to the Nogha discovery to the south. Term one of the license expires in January 2016; a well is required on the property prior to that date to move into the second term which would expire in January 2020.
 

Maunoir


SDL 141 has been granted for an oil discovery previously made on EL399.
 


Estimate of Resources of Central Mackenzie Properties



Canol and Bluefish Shale Plays


An assessment of the undiscovered shale oil initially-in-place (“OIIP”) within the Canol and Bluefish formations on the Company’s land holdings in the Central Mackenzie Valley, Northwest Territories was completed internally by a Qualified Reserves Evaluator, as of December 31, 2011, and audited by Sproule Unconventional Limited. This assessment has not been updated to include the impact, if any, from the logging, coring and testing of the East MacKay I-78 well.    The Corporation has not yet completed an assessment of the OIIP on EL 487 as it was acquired in 2012.   The table below summarizes the estimated OIIP on a 100% gross and Company-interest basis.  The estimates presented are in accordance with the definitions and guidelines in the COGE Handbook and NI 51-101.

 

 

Undiscovered Shale Oil Initially-In-Place ("OIIP") - MMbbl(1) (2)

Exploration Licence    100% Gross (1) (3)
Best Estimate (5)
Company Gross (4)
Best Estimate (5)
As at June 30, 2013
EL466 2,100 1,300
EL474 900 450
EL475 7,200 3,600

Total

10,200 5,350

 

Notes:  
(1) There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
(2) “MMbbl” is millions of barrels at standard conditions.
(3) 100% Gross means OIIP without any adjustments for working interest, royalties or other encumbrances.
(4) Company Gross means OIIP with adjustments for working interest, but not for royalties or other encumbrances.
(5) 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.  It is equally likely that the actual in-place volumes will be greater or less than the best estimate. If probabilistic methods are used, there should be a 50 percent probability (P50) that the quantities will exceed the best estimate. 

Undiscovered Shale Oil Initially-In-Place (equivalent to undiscovered resources) is that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered.    It is not possible at this time to determine an estimate of the portion of the OIIP that is recoverable and the portion that is unrecoverable as additional drilling, seismic and development engineering will be required to determine an anticipated recovery factor.  A portion of the OIIP may become recoverable in the future as commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.


The geological risk associated with the estimate is considered by MGM Energy to be low to medium.  The risk associated with ultimate development of the shale plays is considered by MGM Energy to be high.  No wells specifically targeting the Canol and Bluefish shale plays have been drilled on MGM Energy’s lands.


Risks associated with the ultimate development of the Canol and Bluefish shale plays include, but are not limited to (i) the risk that the cost to drill, complete and transport petroleum could result in an uneconomic project given the remote northern Canada location, (ii) regulatory risks in obtaining the permits necessary to drill and produce, (iii) securing sufficient transportation or other off-take capacity for the produced oil and associated natural gas and (iv)  confirmation of the recovery factor from the development of the play and whether that recovery factor will be sufficient to render this shale play on MGM Energy’s lands economic.

 

Nogha Natural Gas Discoveries

 

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. Estimates are shown before the deduction of royalties. 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 (1)

Nogha Discovery Net to MGM Energy (BCF)
  Low Best High
Contingent Resource (1) 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. The estimate has not been adjusted for risk based on the chance of development.

(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, even if the Mackenzie Valley pipeline is constructed.

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. Refer to MGM Energy’s 2008 Annual Information Form for additional information regarding the resource estimates.