As one oil and gas hopeful folds, another sits patiently on the side while the “big boys” get working
By Guy Quenneville
By the time you read this, one of the most active oil and gas companies operating in the NWT in recent years will have capped its final well, so to speak. A scheduled June 10 meeting of shareholders for Calgary-based junior exploration company MGM Energy was likely to see the fledgling junior sell all of its shares (for $50 million) to rising producer Paramount Resources—the very company from which MGM was spun out in 2007.
It’s a sad end for MGM, one filled with considerable bitterness over how things played out, to judge by the way former president and CEO Henry Sykes is talking. “It didn’t have to end this way,” said Sykes in late April, speaking from his soon-to-be-departed office.
MGM drilled a total of 10 wells in the NWT in the Mackenzie Delta and Central Mackenzie Delta, spending $300 million on its various projects, most of which were partnerships with other companies, with MGM acting as the operator. It also made some promising acquisitions, nabbing a 40-per cent interest in the Umiak gas field, the fourth largest onshore gas field in the Delta (265 billion cubic feet) and a potential fourth anchor field for the Mackenzie Gas Project.
But the painful collapse of the MGP dashed any hopes of bringing any gas from the Delta to production. “The dream was that the MGP would get approved in a timely fashion and we’d have a gas project,” said Sykes. “It didn’t have to be approved on the original timetable, which was 2006 and first gas in 2009. We were saying approval might be 2008. No one in their wildest dreams thought it would be 2011.”
The company then turned its attention to the Central Mackenzie Valley and the Canol shale oil play, but after drilling a traditional vertical well in 2011, its troubles began. An application to horizontally extend and
hydraulically fracture that well was referred to environment assessment by the Sahtu Land and Water Board, and partner Shell balked at the cost of funding a review.
“We talked to several potential partners,” said Sykes. “All of them walked away on the basis that they could not see a way to commercialize the resource. They liked the play, but they could not get any assurance about when they might actually make money on their investment. And that’s been the problem we’ve had ever since the Mackenzie Valley gas project was indefinitely deferred.”
Sykes points to various factors, notably the lack of infrastructure in the Sahtu region, which drives up the cost of a well to four times that of one in n orthern Alberta, and the uncertainty around timelines for things like environmental assessments—even after Bill C-15 (the Devolution bill) prescribed a slew of new timelines for the regulatory process. His worry is that, with projects ground down by the regulatory system, the market will pass Northern shale oil by as it did MGP gas. “At some point, the U.S. won’t need our oil. And if they do need oil, it’s not going to be from the NWT. This is the farthest away from the markets for oil in North America and it’s the most expensive place to explore and produce oil from of any place in North America. By the time people say, ‘You know, we think this is a good time to do this,’ the market won’t care.”
Though equally aware of the challenges and risks of operating North of 60, the newest entrant in the Canol shale oil play is staying optimistic, content to take a much longer-term view compared to MGM.
Last year, Calgary-based International Frontier Resources successfully bid $1.2 million for the rights to explore Parcel EL-495 in the Central Mackenzie Valley. While it may not rank with majors like ConocoPhillips and Husky Energy, who’ve spent considerably more on other parcels in the area, International is no stranger to the NWT: it was formed in 1995—like MGM—with the sole purpose of exploring in the territory, buoyed by the possibility of a Mackenzie Valley pipeline. It’s drilled nine wells since the winter of 1999, spending $175 million alongside partners like Husky. It made the first commercial hydrocarbon discoveries south of Norman Wells, including Summit Creek, which tested at 20 million cubic feet of gas a day and 6,300 barrels of very light oil a day.
Summit Creek was a conventional oil discovery, drilled with a vertical well and made before the more recent combination of horizontal drilling with hydraulic fracturing that has sparked so much debate throughout North America. “But it also has unconventional shale opportunities in the Canol,” says International CEO William “Pat” Boswell. “If you look at the wells we’ve drilled out there in close proximity to EL-495, the Canol is present in each of those wells.”
In Boswell’s mind, EL-495 “sort of set up the [Canol] play, and then [big] guys came in and started having a look at the Canol shale and comparing the rock properties to other major shale plays of North America.”
EL-495 is 100 per cent owned by International, but, being a junior, and the capital markets being what they are, the company is happy to wait for the results of fracked wells by other companies to become public (which takes two years after filing). International is currently studying the results of vertical Canol wells Husky drilled in 2012, but data from a fracking program will be more informative. Once a more complete picture of the Canol’s economic potential emerges, International will find a partner to prove up its holdings—or simply sell them off.
“The oil is there,” says Boswell. “Everybody knows that. It’s generated all the oil in Norman Wells. It’s just a matter of what rate you can produce it at. You could have two billion barrels of oil, but are you going to get a five, 10, 20 per cent recovery factor? That will be key to the economics of the play.”
Even if the play is commercialized, nothing will move out of the Sahtu until additional pipelines are built, he adds. “My bet is you’ll see a pipeline from the Central Mackenzie Valley area either going south to Alberta or, who knows, maybe it will go to Alaska. There are a whole bunch of options on the table right now.”
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