NORTHWEST TERRITORIES
MGM Energy Corp. has emerged as the first company to announce publicly that it has extracted oil from the Sahtu region's Canol shale formation. But the junior company is not doing anything about it.
John Hogg, MGM Energy Corp. vice-president of exploration and operations, expresses the company's concerns to Premier Bob McLeod at the NWT Chamber of Commerce president's dinner at the Explorer Hotel on April 3. - Thandiwe Vela/NNSL photo
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The company reported Canol formation testing operations on its East MacKay I-78 vertical well returned 140 barrels of fluid, including light, sweet and crude oil and natural gas, over the four-day period of March 10 to 14.
"We drilled it, we completed it, we fracture-stimulated the Canol and the Bluefish (formation) but the Canol flowed at about 50 barrels per day — which, for a vertical well is not bad," said John Hogg, MGM vice-president of exploration and operations.
"It's not like we drilled a long-reach horizontal and we had 20 or 30 stages of fracking. We had one zone that was fracked so it's not bad."
Despite the positive results from this winter's program, the Calgary-based oil and natural gas exploration and development company will not be returning to drill next winter and has pulled its application to complete horizontal drilling in the region after the Sahtu Land and Water Board referred its application to environmental assessment.
"We won't be drilling this winter because we don't need another vertical well. We need a horizontal well and we need to be able to frack that," Hogg said. "We know that we could flow oil out of the Canol but to know if we have commercial grades, we need to drill a horizontal well.
"A vertical well will give us a little bit of information -- 20 per cent of the information we truly need to know whether or not the project is commercial. So now the challenge is, we've drilled vertical wells, ConocoPhillips has drilled vertical wells and Husky's drilled vertical wells, so now it's the critical time when if we can't drill horizontal, the programs will end. Everybody will stop because we can't go any further. We've done all the work we can vertically, now we need to test this thing horizontally."
MGM is the smallest of the bunch who hold exploration licence leases in the Central Mackenzie Valley, totalling about $630 million in work commitments.
The company did not publicly release information about its discovery to pressure regulatory authorities to greenlight a horizontal drilling program without environmental assessment, Hogg said.
"We announced it because we're a small company and as a small company, anything that's deemed to be material ... simply, as a small company you have to tell everybody," he said.
"The reason we pulled the application is because we fundamentally do not believe that the exploration phase is the time to do environmental assessments. We don't have all the answers for the questions.
"My analogy is on the mining side. You don't ask somebody who's drilling 10 diamond drill cores what his mine's going to look like, because he doesn't even know if he has anything. We're the same way. We're drilling exploration wells to understand if we have a project. When we know we have a project, that's the time to go to environmental assessment. And I think most of us believe that."
Horizontal drilling has never been done in the NWT, and MGM's application was the first ever received by the Sahtu Land and Water Board.
Regulatory specialist Angela Love told News/North that MGM's application was referred to environmental assessment due to significant public concerns caused by lack of information. The reviewers also expressed concern given the controversy surrounding horizontal fracturing in other areas.
The referral of MGM's application to environmental assessment has not deterred other companies from applying for horizontal drilling.
ConocoPhillips Canada has submitted an application to drill two horizontal wells in the Sahtu region just northwest of where MGM was looking.
The board is also working with Husky Energy Inc., which is expected to submit an application for horizontal drilling by mid-year.
Love described the amount of information provided in the application by MGM as "vague" compared to ConocoPhillips' in-depth application, which is more than 1,000 pages, the majority of the sections running into hundreds of pages.
The board officially has a 42-day deadline from the time received to issue a response to the application. The deadline for ConcocoPhillips' application is May 16 but any other designated regulatory authority, including local First Nations and governments, can refer the application to the Mackenzie Valley Environmental Impact Review Board for environmental assessment before that date.
The approval of ConocoPhillips or Husky's applications for horizontal drilling would give industry more confidence, Hogg said.
Whether or not the first horizontal well could be drilled in the NWT without undergoing environmental assessment "remains to be seen," said Premier Bob McLeod.
"For purposes of testing I think we should perhaps look at the first few wells as pilot projects or something," McLeod said. "We have a lot of people working on developing a horizontal drilling policy."
The GNWT is expected to release a policy addressing horizontal drilling within the next six months, McLeod said.
