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LLI GOLINE/NORMAN WELLS
Calgary-based junior exploration company, MGM Energy Corp, has joined forces with Shell Canada in an agreement that could see drilling in the Central Mackenzie Valley begin as soon as this winter.

Calgary-based MGM Energy's Windy Island property in the Central Mackenzie Valley. The junior exploration company has entered into a cost-sharing agreement with Shell Canada. - photo courtesy of MGM Energy Corp.

The "farm-out agreement" – a cost sharing initiative - will see Shell foot the bill for drilling two wells in the Central Mackenzie Valley canol shale plot on MGM's property surrounding Norman Wells.

The deal, worth "tens of millions of dollars," is a big step for MGM and its Northern assets.

"I think it's a great day," said John Hogg, vice president of exploration operations for MGM Energy Corp. "One of the challenges when you're a small company like MGM, sometimes you need a bigger player on a new exploration wildcat like the canol shale to be able to test it. (To) be able to have Shell spend their money to test the play for us is a pretty good opportunity for us."

According to the agreement, which was announced June 29, in return for funding the drilling program, Shell Canada will receive a 37.5 per cent interest in the first well. The second, should the mining giant continue with the program, will increase Shell Canada's stake to 75 per cent between the two wells.

Testing over the past year pointed to massive potential for both parties, revealing "billions of barrels of oil potential" within the shale basin.

The basin – which could reveal dry gas, dry gas with liquid or liquid rich – is anticipated to reveal oil above any other commodity.

In order to reach the oil deposits, fracking will be used to further discover the land's resources. If handled properly, the method is a safe one, despite recent criticism, Hogg said.

"For the last 60 years all throughout the oil and gas industry and all throughout North America wells have been fracked. We've fracked wells eight, nine years ago in the Central Mackenzie," he said," and nobody cared. It's a safe technique. If done correctly the potential risk to ground water is very, very small."

The move is an interesting turn of events for Shell Canada, which in recent months has shyed away from oil and gas projects, but according to MGM the offer was an attractive one for Shell.

"Shell Canada already had some blocks up here and so they wanted to have a little bit more land," Hogg said. "I wouldn't say they've turned away from oil, I think they liked this opportunity and the land we presented them."

MGM filed with the Sahtu Land and Water board for land and water permits for the property in May. The reports were handed back to MGM to answer further questions from the regulatory board, and the final submission was sent back June 29.

"Pending all permits from the Sahtu Land and Water board, we are still expecting to begin drilling in the winter of 2012/13," Hogg said.

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