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 December 31, 2008.

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, 2008, the properties in the area covered approximately 510,000 gross hectares (approximately 330,000 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. EL 430 expired in May 2009 and expired without an SDL being applied for. Four wells have been drilled on the properties to date, of which two were the Nogha C-49 and M-17 discovery wells. Significant Discovery Licenses 141 and 142 have been granted for the Nogha discovery.

Maunoir

Also owned 50% by MGM Energy, the Maunoir property comprises Exploration License 428, which totals 81,000 gross hectares. EL 428 expired in May 2009 and expired without an SDL being applied for. SDL 141 has been granted for an oil discovery previously made on EL399.

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 expired in September 2009 and with no work planned for the 2008/09 winter, the property was 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 License 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 to date.

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. 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. 

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.}

<sup>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.</sup>