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 July 31, 2011.
MGM Energy Assets
MGM Energy has several assets in the Central Mackenzie Valley. The majority of these assets were acquired by MGM Energy from Paramount in the Spinout transaction. As at December 31, 2011, the properties in the area covered approximately 372,000 gross hectares (approximately 343,000 hectares net to MGM Energy). The properties in the area are:
Central Mackenzie Valley 2011 Land Sale
MGM Energy was successful, along with its partner, in acquiring three parcels of land in the Central Mackenzie Valley pursuant to the June 2011 Call for Bids by Aboriginal Affairs and Northern Development Canada. MGM Energy has a 50% interest and is operator of ELs 473, 474 and 475 from the call for bids. The 3 parcels have a gross area of approximately 83,000, 86,000 and 85,000 hectares, respectively. The total gross work commitment for the three parcels was $5.0 million, or $2.5 million net to MGM Energy.
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 additional 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. The work commitment associated with this exploration license is $1.7 million.
SDL 141 has been granted for an oil discovery previously made on EL399.
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. It has not yet been determined if additional work will be completed on EL442 prior to expiry.
Great Bear River
There is one property in the Great Bear River area; Exploration License 466, covering 170,000 hectares which is owned 100% by MGM Energy for all zones below the Saline River formation and 50% by MGM Energy for all zones above the Saline River formation. This area is prospective for both oil and natural gas.
In addition to land interests in this area, MGM Energy also owns, or has access to, approximately 2,200 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. 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 (2)
Nogha Discovery Net to MGM Energy (BCF)
|Contingent Resource (2)
The mean (2) estimate of contingent resource is 106 Bcf.
(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.