 | Home page |  | Text size |  | E-mail this page |
Exploration licences cancelled in Delta MGM Energy Corp. pulls out of six licences, cites lack of market support for development
Shawn Giilck
Northern News Services
Published Monday, June 17, 2013
INUVIK
An Alberta-based oil and gas company has quietly pulled its exploration licences from the Inuvik region.
MGM Energy Corp. of Calgary has decided to let its exploration licences in the region expire. It cited a market that just doesn't support developing the Beaufort Delta's landlocked oil and gas reservoirs as the reason for the move.
Henry Sykes, president of MGM, was in Inuvik June 10 for the start of the Inuvik Petroleum Show. He sat down to discuss the issue with Inuvik Drum prior to the opening.
"We had a total of six licences," he said. "One was expiring in June of 2013, and there was a work commitment associated with it worth I believe a total of $40 million."
That licence was held in partnership with ConocoPhillips, with MGM holding 60 per cent of the share, Sykes said.
"The other four licences were expiring in 2016 and they had a total of around $6 million," he said. "The reality is that we have a lot of gas up here, and we own somewhere around 780-trillion cubic feet. We had some good prospects on these lands but you really can't justify drilling for more gas that's going to be stranded."
While the delays in the long-awaited Mackenzie Valley pipeline is a problem for companies such as MGM, Sykes put the blame squarely on market forces for making further development unfeasible.
"It's due to the lack of markets," he said. "It doesn't look like that's going to change any time soon."
"Our shareholders, like most people, look for a good return on their investment, and it has not been a great return so far. So investing more money for what would effectively be a zero return has no appeal and frankly we can't justify it."
Sykes called the decision the "right thing to do, and the only thing we could do.
"I'm not sure there's anything the NWT can do or the Inuvialuit or the Gwich'in. What happened is the process was so long for the pipeline that world markets changed in the meantime. The approval process takes so long and markets don't stand still. Nothing stands still. Now there just isn't the demand for gas in North America. There is elsewhere.
"The world in 2003 when the applications were filed is not the same as in 2011 when the approval was given. In the original timetable, the approval was supposed to be in three to five years. Had that happened, I think we'd have a pipeline but things were allowed to drag on and we are where we are. I'm not sure I see a short-term solution."
The shale gas market, or unconventional gas, as Sykes calls it, is currently the darling of investors, and that's also affecting the development of energy reserves farther north.
He said the public reaction from people here in Inuvik was one of disappointment.
"They're not angry at us, they're disappointed. They understand that we couldn't have raised $40 million and that we can't justify it. Is it the end of an era? That's probably overstating it. But it is the end of a short-term vision of development in the area. This is a symptom, a ripple effect.
"I do feel bad, though."
The lands affected by the MGM decision are within the Inuvialuit Settlement Area and managed by the Inuvialuit Regional Corporation.
Spokesperson Laura Worsley-Brown, however, said the IRC "had no comment on the issue."
| 
